Series 66 - Client/Customer Investment Recommendations and Strategies

Investment Goals

"end game" planning for college education; retirement; saving for a future purchase; philanthropy; capital to start a business; leaving a legacy.

Pension and Retirement Plans

- 401(k) playing a minor role in retirement - key sources: social security, pension, real estate - Pensions are going away (in the past 80% of ERs offered them, now about 20%) - two types of pension plans: defined-benefit, defined contribution plans - contributions are not taxable to an employee until withdrawn, and earnings in the account accumulate tax deferred.

Qualified Domestic Relations Order (QDRO)

A court-issued order that instructs a plan administrator how to pay all or a portion of a pension plan benefit to a divorced spouse or child. Are exempt from the 10% early withdrawal tax.

457 Plan

A deferred compensation plan set up under Section 457 of the tax code that may be used by employees of a state, political subdivision of a state, or any angency or instrumentality of a state, and employees of certain tax-exempt organizations. employees can defer compensation, and the amount deferred is not reportable for tax purposes. not covered under ERISA-nongovernmental plans must be unfunded to qualify for tax benefits, while government plans must be funded. nondiscrimination rules

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date. Working Capital, Current Ratio, Quick Asset Ratio (Acid Test Ratio), Debt-to-equity Ratio, & Book Value Per Share

Modern Portfolio Theory (MPT)

A method of choosing investments that focuses on the importance of the relationships among all of the investments in a portfolio rather than the individual merits of each investment. The method allows investors to quantify and control the amount of risk they accept and return they achieve.

Roth IRA

A personal savings plan; contributions are not tax-deductible; earnings are tax-free withdrawn tax free, five years following he initial deposit, provided: 59 1/2 or older money used for first-time purchase of principal residence up to $10,000 or account holder has died or become disabled.

Qualified Retirement Plan

A retirement savings plan approved by the Internal Revenue Service that provides individuals with a tax benefit. taxed at the investor's ordinary income tax rate when funds are withdrawn from the plan. Distributions from a ________ plan before the investor reaches age 59 1/2 are also subject to a 10% early withdawal penalty. Distributions from a qualified plan must begin by April 1 following the year the participant reaches age 73. Defined Benefit Plan Defined Contribution Plan Company 401(K) 403(B) Plan SIMPLE IRA SEP IRA Keogh Plan

Diversification

A risk management technique that mixes a wide variety of investmentswithin a portfolio, thus minimizing the impact of any one security on overall portfolio performance.

Dollar-Cost Averaging

A system of buying mutual fund shares in fixed dollar amounts at regular fixed intervals, regardless of the share's price. The investor purchases more shares when prices are low and fewer shares when prices are high, thus lowering the average cost per share over time.

Regressive Tax

A tax for which the percentage of income paid in taxes decreases as income increases Sales, Excise, Payroll, Property, and Gasoline Taxes. are levied at the same rate regardless of income and thus represent a smaller percentage of income for wealthy taxpayers than for taxpayers with lower incomes.

Estate Tax

A tax on the total value of the money and property, of a person who has died value used to determine if there is an estate tax liability is the FMV either as of the date of death or, by using the alternative valuation date, the FMV six months after death.

403(B) Plan

A tax-deferred retirement plan for teachers, hospital workers, ministers, and some other public employees Tax-sheltered annutiy plan Allows emplyees to contribute some of their salary to the plan. Employer may contributer as well are subject to tax penalties if savings are withdrawn before 59 1/2.

Order Ticket

Account Number Solicited/UnSolicited Long or Short Market, Limited, or Stop # of Shares Time of Order Entry Name of BD

Dealers

Acting as principal in the trade. Buy and sell for their own account/inventory. Mark up or Mark Downs MArket maker Must disclose role to client.

Nonfinacial Investment Consideration

Age Marital Status Investment Experience Attitudes and Values Number and Age of Dependents Employment Stability Employment of Family Members Demographics Current and Future Family Educational/Health care needs

Simple Trust

All income earned on assets place into a _______ trust must be distributed during the year it is received. Trustee is not empowered to distribute the trust principal from a simple trust.

Traditional IRA

An IRA for which you can deduct your contribution each year from your taxable income Taxes deferred untill withdrawal. maximum tax-deductible annual contribution of the lesser of $6,000 per individual or $12,000 per couple, or 100% of taxable compensation for the taxable year 2021/

Sector Rotation

An active portfolio management technique that attempts to take advantage of the fact that different sectors of the economy rise and fall in the business cycle at different times. Rotating from one to the other at the right times can lead to investment success. Syn. Sector rotating. See active management style.

Alternative Minimum Tax (AMT)

An alternative tax computation that adds certain tax preference items back into adjusted gross income. If the AMT is higher than the regular tax liability for the year, the regular tax and the amount by which the AMT exceeds the regular tax are paid.

401(k) Plans

An employee directs an employer to deduct a percentage of the employee's salary to contribute to a retirement account. Plan permits an employer to make matching contributions up to a set percentage of the employee-directe contributions. Pre tax dollars.

Moderate Investors

Can tolerate some loss, but not nearly at the level of the aggresive investor.

Time-Weighted Returns

Determined without regard to any subsequent cash flows of the investors. Measures the performance of the investment over a period of time.

Tenancy by the Entirety (TBE)

Each cotenant has an undivided interest in the account. Can only be created by married persons. Cnsent of the other tenant is required before the other tenant can sell or give away her interest in the property. Mainly for real property.

Weak Form Efficient Market

Fundamental Analysis and Insider Information will work. Technical Analysis will not work.

Semi-Strong Form Efficiency

Insider Information will work. Technical and Fundamental Analysis will not work.

Trust

Legal entity that offers flexibility to an individual who wishes to transfer property. established for peronal and charitable property transfers/ established as the legal entity for a corporate retirement plan. Attorney know about them the best.

Complex Trust

May accumulate income, permitted deductions for distributions of net income or principal. Capital gains are deemed part of the distributable net income of a _______ trust unless reinvested. Trustee may distribute trust principal according to trust terms.

Nonperson

Minor, Deceased Individual, and an Individual declared mentally incompetent by the courts.

individual

Natural Person

Capital Gains

Occurs when capital assets (Securities, Real Estate, and Tangible Property) are sold at prices that exceed the adjusted cost basis. Long-Term = One day + 12 Months Taxed at capital gains rate Short-Term = <12 Months Taxed at ordinary income tax rate Single Person= $250,000 selling residence home Couple= $500,000 selling residence home ^ excluded from capital gains taxation, as long as it has been lived in as the primary residence for at least 2 of the past 5 years.

Joint Tenant with Rights Of Survivorship (JTWROS)

Ownership stripulates that a deceased tenant's interest in the account passes to the surviving tenant. Regardless of conributions each account owner has an equal and undivided interest in the cash and securities in the account. Upon the death ownership passes onto the survivors.

Estate

Person entring orders on behalf of the account is acting in a fiduciary capacity, the executor or administrator. Created at the moment of someone;s death Temporary total value of a persons assets after they pass away

Section 529 Plans

Qualified Tuition Programs. State-operated investment plans that were designed to give families a way to save money for college with substantial tax benefits. Extendeed the qualifications to K-12 schooling as well/ Two Types; Prepaid Tuition Plans and College Saving Plans. After-tax contributions and earnings are not subject to federal tax and sometimes state tax as long as qualified withdrawal. Deductions or credits against state incme tax for investing. Rollover funds to a different beneficiary completed within 60 days without incurring tax liabiity. Taxed to the bene. Affects financial aid. (FAFSA) 5.64 Any donor can contribution. limited choices offered by plan.

Strong Form Efficieny

Random Walk will work. Technical, Funadamental Analysis, and Insider Information will not work.

Uniform Gift to Minors Act (UGMA)

Require an adult or a trustee to act as custodian for a minor. Any security or cash can be gifted to the account without limitations. Provide a convenient way to make gifts of money and securities to minors. Minors Social Secrity number is used on the account All gifts are irrevocable. One custodian and one minor. Parents have no control unless custodian. Minor has right to sue FAFSA consideres funds be 20% of assets. Charged Kiddie Tax for unearned income excess of $2,300.

Uniform Transfers to Minors Act (UTMA)

Require an adult or a trustee to act as custodian for a minor. expands the typs of property you can transfer to a minor and provides that you can make other types of transfer besides gifts. All states have adopted. Minors Social Secrity number is used on the account All gifts are irrevocable. One custodian and one minor. Parents have no control unless custodian. Minor has right to sue FAFSA consideres funds be 20% of assets. Charged Kiddie Tax for unearned income excess of $2,300. Custodian can delay transferring the assets to the beneficial owner until he reaches 21 or 25.

Risk-Adjusted Return

Return from a security adjusted for the market rik associated with it. Usually measured by the Sharpe Ratio.

SIMPLE IRA

Savings Incentive Match Plan for Employees are retirement plans for a business with 100 or fewer employees who earned $5,000 or more during the preceding calender year. Cannot have another reitrement plan. For small businesses Contribution limit $13,500; catch-up limit of $3,000

SEP IRA

Simplified Employee Pension Plans (SEP IRAs) funded by an employer rather than the individual. Offer self-employed persons and small businesses easy-to-administer pension plans. qualified plan that allows an employer to contribute money directly to an IRA set up for each emplyee. must be 21 and worked 3 years of the last 5 years, maximum 58k per employee, must contribute the same percentage for each employee contribute up to 25% of an employee salary vested immediately

Coverdell Education Savings Accounts (ESAs)

Taxpayer Relief Act of 1997 allow after-tax contributions for student beneficiaries. Contribution must be made in cash and must be made on or before the date on which the benficiary attains age 18 unless the beneficiary is special needs. Funds educational expenses of a designated beneficiary by allowing after-tax (nondeductible) contributions to accumulate on a tax-deffered basis. Taxed 10% to the beneficiary if not used to pay qualified education expenses. Contribution total for one child is $2,000 until the beneficiary 18th bday. Beneficiary must use funds by 30 or will be have 10% penalty tax on the earnings. Functions like a self-directed IRA FAFSA consideres funds be 5.64 of assets.

Cost Basis

The price paid for an asset, including any commisions or fees, used to calculate capital gains or losses when the asset is sold. Also includes any reinvested distributions.

Marginal Tax Rate

The rate of taxation on any additional taxable income received. It is sometimes referred to as the tax on the n"next" dollar or the "last" dollar of income.

Qualified Dividends

These dividends, if certain requirements are met, are taxed at a lower rate than an investor's marginal tax rate.

Inherited Securities

When a person dies and leaves securities to heirs, the cost basis to the recipients is usually the fair market value on the date of the owner's death. Cost basis steps up to the date of death value, any gains to be long term regardless of date. Provision does not apply to Annuity.

Child Support

a legal obligation of a parent to provide financial support foor a child (typically occurring when the parent porviding the support is not the parent with whom the child or children live). Not deductible by the parent who pays it,nor is it includable in income by the recipicent, who is often the other parent receiving the support on behalf of the child of the dissolved marriage. never eligible income.

Defined Contribution Plan

a pension benefit based on the amount that has accumulated in the account, including contributions plus any gains or losses from investments, expenses, or forfeitures; a savings account with certain tax advantages

Defined Benefit Plan

a pension plan in which the amount an employee is to receive on retirement is specifically set forth

Beneficiary

a person for whose benefit property is held in trust. one who recieves or who is designated to receive benefits from property transferred by a trustor.

Donor Advised Funds

a seperately identified fund or account that is maintained and operated by a 501(C)(3) organization, which is called a sponsoring organization. Easier for tax time.

Health Saving Accounts (HSAs)

a tax-exempt trust or custodial account that individuals can set up with a qualified ___ trustee to pay or reimburse certain medical expenses they incur. claim a tax deduction for contributions you or someone other than your employee, contributions from employer are exluded ffrom your gross income remain in your account till use tax free interest and earnings distrubution tax free if you pay qualified medical expenses. portable if you change employers or leave the work force. must have a HDHP. No other health coverage except what is permitted under the rules. Not enrolled in medicare cannot be claimed as dependent must open seperate HSA from spouse.

Capital Market Theory

a theory dealing with the effects of investor decisions on security prices

Brokers

acting in an agency capacity. Firm represents clients who wish to buy a security by finding a seller, or finding a buyer for those clients with a security to sell. Commission Must diclose role to clients and its comission.

Prepaid Tuition Plans

allow college savers to prepay for tuition at participating colleges and universities and in some cases room and board can be prepaid as well. Sponsored by state governments and have residency requirements set lump-sum and installment payments prior to purchase based on age of beneficiary and number of years of college tuition purchased. state guaranteed age/grade limits state resident requirment

Margin Account

allows customer to control investments for less money than they would need if they were to buy the securities outright. allows to borrow money for investing. using financial leverage.

Nonqualified plan

an employer-sponsored plan, such as a deferred compensation plan,where there are no tax advantages other than that the payout is not received until sometime later when the individual should be in a lower tax bracket. employer can discriminate between employees. also apply to annuity purchased on an individual basis outside of a retirement plan. no tax beneifts not subject to the reqirements of the EIRSA. 457 Plan Paroll Deduction Plans Deferred Compensation Plans Supplemental Executive Retirement (or Retention) plans to retain key employees no irs approval tax on accumulation is deferred.

Natural Person

an individual , a corporation, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a securitym an unicorporated organization, a government, or a political subdividsion of a government.

Trustee

an individual or another party holding legal title to property held for the benefit of another person (or persons). Must administer the trust by following directions in a trust agreement or in a will. one or more Fiduciary and is obliged to perform in the interest of the beneficiaries.

Contrarian

an investment manager whoe takes positions opposite that of other managers or in opposition to general market beliefs.Buy when they sell, and sell when they buy.

Roth 401(k) Plans

an option that may be added to an existing 401(k) plan These plans require after-tax contributions but allow tax-free withdrawals, provided the retiring person is at least 59 1/2 year old at the time of the withdrawal

General Partnership

an unincorporated association consisting of two or more individuals. partners manage and are responsible for the operation and debts of the business. easy to form and dissolve. allows profits and losses to flow directly through to the investors for tax purposes, thus avoiding double taxation of the profits at the business and individual levels.

Tax-Exempt 401(c)(3)

are tax ecempt entities specifically cited in the IRC as eligible to establish 403(b) for their employees. organizations include: private colleges and universities trade schools parochial schools zoos and museums research and scientific foundations religious and charitable instructions private hospitals and medical schools

Odd-lot Theorists

believe that small investors invariably buy and sell at the wrong times.

Passive Portfolio Manager

believes that no particular management style will consistently outperform market averages and therefore constructs a portfolio that mirrors a market index. Low-cost means of generaing consistent, long-term returns with minimal turnover.

Limited Liability Company (LLC)

business structure that combines benefits of incorpation (limited liability) with the tax advantage of a partnership (flow-through of taxable earnings or losses). owners are members, and are not personally liable for the debts of the LLC. No limit on number of members.

C Corporation

business structure that distinguishes the company as a separate entity from its owners. expects significant capital. shareholders, officers and directors are shielded ffrom personal liability for corpations debts and losses. income tax applies to the corporation as an entity rather than being passed through as a shareholder

Active (Tactical) Portfolio Manager

buys and sells individual securities. Relies on the manager's stock pricking and market timing ability to outperform market indexes.

Investment Policy Statement

each employee benefit should(not required) have one in writing. a guideline for the plan's fiduciary regarding funding and investment management decisions. Address the specific needs ofthe plan. investment objects for the plan; determination for meeting future cash flow needs; investment philosophy including asset allocation style; investment selecion criteria; methods for monitoring procedures and perfromes. DOES NOT INCLUDE SPECIFIC SECURITY SELECTION.

Employee Retirement Income Security Act (ERISA) 1974

federal legislation that regulates the establishment and management of corporate pension or reitrement plans, also known as private sector plans. fiduciary is prohibteed in self-dealing-in his own interest, acting in a transaction involving the plan on behalf of a party with interests adverse to the plan, and receiving any compensation for his personal accoun from any party dealing with the plan in connection with plan transactions. The fiduciary must be as prudent as the average expert, to act with SKILL, PRUDENCE, and CAUTION. Must also: Diversify plan assets; make investment decisions under the prudent expert standard; monitor investment performance; control investment expenses.

Growth Style

focus on stocks of companies whose earnings are growing faster than most other stocks and are expected to continue to do so. Likely to buy stocks that are at the high end of their 52-week price range. Common to include some negatively correlated assets to their portfolios. high price-to-earning ratios or high price-to-book ratios with little or no dividends. Earnings Momentum

Value Style

focus on undervalued or out-of-favor securities whose price is low relative to the company's earnings or book value and whose earnings prospects are believed to be unattractive by investors and securities analysts. Find companies for a bargain operating at a loss(no earnings). Seek to buy undervalued securities before the company reports positive earnings surprises. Buy stocks a the bottom of their 52-week price range. Expect low P/E ratios or low Price-to-books ratios and dividends offering a reasonable yield. Large cash surplus, sometimes referred to as a rainy day fund.

Income Style

focuses on generating portfolio income,lead portfolio manager to foreign securities and/or high-yield bonds. Evaluate the risks being taken to provide income. Relies on debt securities.

Community Property with Rights of Survivorship (CPWROS)

form of ownership is used in community property states and fuctions the same as JTWROS. Allows married couples to share property, like a home, equally. In a community property state, legally each one has 50% interest. When the first dies, the entire home is then owned by the survivor.

Foundations and Charities

impact investing to generate a positive social or environmental impact that can be and is measured. usualt have specified goals socially responsible investing SRI

Earned Income

includes salary, bonuses, tips, and income derived from active participation in a trade or business.

Progressive Tax

increase the tax rate as income increase. to describe the highest rate paid on income (sometimes referred to as the next dollar received, or the last dollar received) is the individual's marginal tax rate.

Capital Appreciation

involves options or fuures, special situation stocks (potential takeover or merger candidates), futures, IPOs, and day trading.

Gift Tax

is a progressive federal tax imposed on the transfer of property during the lifetime of the donor; up to $11.7 million (2021) in lifetime gifts may be made without incurring ____ tax. May give up to $16,000 (married 32K) per year to any number of individuals without generarting the federal ____ tax. Donor incurs this tax.

Capital Asset Pricing Model (CAPM)

is a securities market investment theory allowing the investor to determine an asset's expected rate of return, of risk-adjusted return encapsulating how much risk the investor should assume to obtain a particular return from an investment. solely on the basis of the asset's systematic (nondiversifiable) risk. William Sharpe formulated it.

Alimony

is payment made under a (divorce) court order (or under a legal separation agreement) to an ex-spouse. pre-2019 is considered eligible income while after 2018 is not.

Risk Tolerance

is the degree to which an investor is willing and able to accept the possibility of an uncertain outcoe to an economic decision. Aggresive, Moderate, or Conservative.

Transfer on Death (TOD)

is the simplest way to keep assets held in a brokerage accounts from becoming subject to probate upon a client's death and at the same time be distributed specifically as the account owner wishes. Does not avoid estate taxes if applicable.

Efficient Market Hypothesis

maintains that security prices adjust rapidly to new information, with security prices fully reflecting all available information. Weak Form Semi-Strong Form Strong Form

Behavioral Finance

models of financial markets that emphasize potential implications of psychological factors affecting investor behavior Overconfidence Conservatism Herd Behavior (Panic Selling) Anchoring Regret Aversion Confirmation Bias

Tenants in Common (TIC)

ownership provides that a deceased tenant;s fractional interest in the account is retained by that tenant's estate and is not passed to the surviving tenant(s). Ownership of the account many be divided unequally. At the death of an account owner, that person's proportionate share of the cash and securities in the account is distributed according to the instructions in the decedent's will.

College Savings Plans

permit the contributor know as the account holder to establish an account for a student (beneficiary) for the purpose of paying the beneficiary;s qualified college expenses. offers a number of investment options including stock mutual funds, bond mutual funds and money market funds. age-based portfolio that automatically shifts to conservative inestments as the beniciary gets closer to college age Contribution limits in excess of $250,000 No state guarantee No age limits No residency requirement Enrollment open all year.

Keogh Plan

qualified plans intended for self-employed individuals and owner-employees of unincorporated businessconcerns or professional practices. Independent Contractors, Consultants, Freelancers, and who files and pays self-employement Social Security Taxes. Corporation cannot use this plans. Full-time employees are employees who receive compensation for at least 1,000 hours of work per year Tenured employees are employees who have competed one of more years of continuous employment adult employees are employees 21 years of age and older, and there is no age limit as long as the individual is employed.

Tactical Asset Allocation

refers to short-term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions and investor sentiment. Active Portfolio

Conservative Investors

relative safety of guaranteed income with low risk to loss of principal.

Sole Proprietorship

simpliest business form but offer no liability protection to the owner. potential loss is unlimited becausethe personal assets of the owner are at risk in addition to any assets owned by the business.

S Corporation

taxed like a partnership, offers investors the limited liability associated with corporationd in general. The profits and losses are passed through directly to the shareholders in proportion to their ownership. May not have more than 100 shareholders, none of whom may be a nonresident alien, or more than one class of stock.

Cash Flow

the difference between cash coming in and cash going out of a business

Limited Partnership

the management is assigned to the general partners while the limited partners are passive and have liabbility limited to their investment. Typical case with Direct Participation Programs. Limited partners do not have the full liability of the general partners.

Per Stirpes

the method of proportionately dividing an estate between beneficiaries according to their deceased ancestor's share

Settlor

the person who supplies the property for the trust. Trust property is referred to as its principal or corpus. Also known as the maker,grantor,trustor, or donor.

Time Horizon

time frame in which goals must be attained

Strategic Asset Allocation

to the porportion of various types of investments composing a long-term investment portfolio. Passive Portfolio

Investment Objective

tools used to reach these goals. Growth Income Stability (capital preservation)

Hedge Position

using options to limit risk, protect investments. best way to _____ is to buy a call option on he stock underlying the short sale. This strategy offers full protection against loss. Please notice that in protecting the long or short position, the investor buys an option. It is useful to remember that 'you buy protection; you don't sell it.' the same logic is true with future contracts the way to ______ is to buy.

Aggresive Investors

willing to risk greter amounts and withstand market volatility in exhange for the chance to realize substantial returns. Willing to sustain losses of 10%, 25%, or even 50% on an investment.