FIN 216: Personal Investing

You pay social security tax from your paycheck

up to a limit, and the benefit is limited as well

According to the video "The Oracle of Real Estate" the 30 yr fixed mortgage is

wonderful

One catch-all hedge against the problems (and opportunities) that can arise in a recession is: Stocks Bonds Real Estate Cash

Cash

The best investment for an emergency fund is: Stable Stocks Cash Bonds Stocks

Cash

According to "Worldly Wisdom" many jobs in a bureaucracy come down to

moving work from one inbox to another

We can use some cognitive biases to our advantage by... "Weaponizing them" - using the brain's biases to take advantage of the general populace. "Leaning into them" - using the brain's natural shortcuts to accomplish our goals. "Drowning them out" - studying all of the cognitive biases known until they go away. "Suppressing them" - learning to be a disciplined thinker without emotional interference.

"Leaning into them" - using the brain's natural shortcuts to accomplish our goals.

According the the reading, "...Worldly Wisdom...", having multiple mental models in your mind helps you avoid the problem of... - Underestimating the potential skew present at either end of a Gaussian bell curve. - Miscalculating the potential Kurtosis in a Gaussian bell curve. - "To the man with only a hammer, all the world looks like a nail." - Diversification.

"To the man with only a hammer, all the world looks like a nail."

In "Worldly Wisdom", what does Charlie Munger have to say about Psychology

"it's an ungodly important subject"

If rent rises with inflation at a rate of 3% per year over the next 10 years, a monthly rental payment of $1000 will grow to?

$1344

How much would a 5% down-payment be for a $300,000 home or condo? You can't make a down-payment on a condo. $15,000 $50,000 $5,000

$15,000

My first job out of school is paying me $48,000 per year after taxes. I calculate my food, etc. will be about $1,000 per month. I decide I want to allocate 40% of my budget to a mortgage payment. If the bank is offering a 15 year mortgage at 2.25%, and I have $15,000 set aside as a down payment, how much can I spend on a condo purchase? $259,243 $167,652 $244,243 $152,652

$259,243

If I put 3% down on a house purchase of $417,500, how much will I need to borrow? $404,975 $399,500 $414,500 $12,525

$404,975

Per the "Owning vs. Renting" spreadsheet we reviewed in class, assuming $1,000/month rent, 3% inflation and a 3.25% mortgage rate, owning... ...didn't make any sense because of the interest paid to the bank. ...cost over $200,000 more over a 30 year period. ...resulted in a 20% average annual return on investment. ...saved roughly $200,000 over a 30 year period.

...saved roughly $200,000 over a 30 year period.

To earn any benefit one must work and pay into social security for

10 yrs or 40 quarters

A young dentist is considering purchasing an existing practice from an established dentist and considers the following two existing practices for sale: Practice A: Asking price $1.2 million, expected profit of $90,000 per year Practice B: Asking price $5 million, expected profit of $250,000 per year What are the payoff periods for each of these investments and why would it matter?

13 years for A, 20 years for B...because a more things can change in 20 years vs. 13.

I purchase a stock for $100 which pays dividends of $1 every quarter. If I sell for $105 two years later what is my total return?

13%

2 password generator/keeper apps include

1Password and Dashlane

According to the "Rule of 72", if I think I can earn 25% annually on my investments my money will double every...

2.88 years

I purchase a condo in Baja for $20,000 that pays $500/month but am forced to sell for $10,000 after 10 years. What was my total return?

250%

As a rule of thumb, the Certified Financial Planning Board recommends maintaining an emergency fund of: The CFP board has not taken a public position on this. 2 years of expenses. 6-9 months of expenses. 3-6 months of expenses.

3-6 months

According to the "Rule of 72" what average annual return will I need if I want my money to double in two years?

36%

According to our class discussion, the long-term average annual rate of return for real estate has been: 2.24% 10% 4% 20%

4%

In general, the youngest one can begin their Social Security Benefit is age: 67 65 62 70

62

According to the Consumer Expenditure Survey, what percent of households were homeowners (vs. renters)? - 37 - 64 - 36 - 27

64

Your Social Security Benefit stops growing at age: 67 62 65 70

70

A recession can be defined as... An difficult time for an individual; such as a prolonged period of unemployment. A slow-down in the business cycle in which profits generally decline and unemployment often rises. A period in which a government chooses to default on their obligations. A dip in the market that often creates unique investment opportunities.

A slow-down in the business cycle in which profits generally decline and unemployment often rises.

I purchase a four-plex in downtown Bellingham for $920,000 and expect to collect $30,000 per year, net, in rent. What is my pay-off period?

About 30 years

Net Worth Is Important: - All of these reasons are true. - To calculate to measure your financial health now and over time. - To calculate so as not to mislead one's self when accumulating assets and debts at the same time. - To know for insurance purposes.

All of these reasons are true

Why do investment formulas matter?

Among other things, they can provide consistent measuring sticks to compare investments and investment options.

The Bureau of Labor statistics publishes the publicly accessible Consumer Price Index or CPI, along with spending by age which can be useful: - As a reliable guide for what stocks will do well over time. - As a reliable guide for what direction interest rates are expected to follow over time. - As a base planning tool for economic cycles. - As a base planning tool for making future projections.

As a base planning tool for making future projections

One advantage of owning real estate is: Real estate is very liquid - it's easy to take some of my real estate into Starbucks to buy a cup of coffee, for instance. As a potential hedge against the risk of rental price increases over time. As a negative interest rate derivitive play. For convexity purposes.

As a potential hedge against the risk of rental price increases over time.

Net Worth Is Equal To: - Liabilities - Assets minus Liabilities - Liabilities minus Assets - Assets

Assets - liabilities

The purpose of an emergency fund is: As a hedge against the risk of being called on your stock option position. A downpayment for a home. Avoid taxes. At least in part to pay your expenses during periods of unemployment.

At least in part to pay your expenses during periods of unemployment.

According to the class discussion, the lesson of "Adam's Mountain Biking Advice" is: - If you don't want to get hurt, stay off the trail. - If you don't crash you're not going fast enough. - Be an expert on the path past the rocks. - Stay off the front brakes.

Be an expert on the path past the rocks

According to the reading, "...Worldly Wisdom..." you have to know accounting... - In order to soundly analyze publicly traded company financials. - To be up to date on the history of Italy. - If you're going to have any hope of finding viable employment. - Because it's a useful starting point - and to know its limitations.

Because it's a useful starting point - and to know its limitations.

A personal net worth statement can be viewed as being very similar to a company's: - Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) - Market Capitalization - Book Value - Stock Price

Book Value

The following assets are listed from most liquid/accessible to least: - Checking account, Brokerage account, Car, Retirement account - Checking account, Brokerage account, Retirement account, Car - Car, Checking account, Retirement account, Brokerage account - Car, Retirement account, Checking account, Brokerage account

Checking account, Brokerage account, Retirement account, Car

A Roth IRA is more accessible than other retirement accounts because: - The Roth is not more accessible than other retirement accounts - Contributions can be taken back any time tax-free and penalty free - The Roth has been such a good investment over the years - Each Roth comes with a fee-free ATM card

Contributions can be taken back any time tax-free and penalty free

According to the reading, "...Worldly Wisdom..." economies of scale can be a massive advantage for businesses but can also lead to... - Peace on earth. - Total world destruction. - Capitalism's end. - Crippling bureaucracies.

Crippling Bureaucracies

When bonds don't pay what is promised this is known as: Dereliction Decline Debit Default

Default

The largest annual expense for the typical American Household is: Food Water Transportation Dwelling Expense

Dwelling Expense

Poor record keeping can lead to negative tax consequences and... Contingency Discovery Escheatment Deposition

Escheatment

The three major credit agencies that you can go to to freeze your credit at no cost are... Free ISAAC I, II and III Experian, Equifax, Transunion FICO, Credit Karma, Annualcreditreport.com S&P, Moody's and Fitch

Experian, Equifax, Transunion

Having a car insurance policy with a $1,000 deductible when I have $500 in savings could impact my investment strategy by: This has nothing to do with an investment strategy. Creating $500 in free cash flow that can be invested at a high long-term rate. Forcing me to borrow or sell assets in the event I'm found at fault in an accident. Helping leverage returns much like a successful hedge fund would do.

Forcing me to borrow or sell assets in the event I'm found at fault in an accident.

The state of Washington's Affordable Care Act (ACA) health insurance plan can be found at: HTTPS://www.wahbexchange.org HTTPS://obamacareplans.com HTTPS://wahealthplanfinder.org HTTPS://www.uwmedicine.org

HTTPS://wahealthplanfinder.org

We can address many cognitive biases by... Having systems and processes that "take the brain out of the process". Having detailed fundamental financial analyses. Having in-depth discussions with people we know are like-minded. Having a graduate or doctorate degree in finance.

Having systems and processes that "take the brain out of the process".

A strong foundation for investments requires we: Own stocks. Are born with great wealth. Identify risks and address (or accept) them. Pay fully into Social Security.

Identify risks and address (or accept) them.

According to the "Worldly Wisdom..." reading, having a "mental model" in place is better than just knowing the facts because... - This is already getting way too tough. - To the man with only a hammer, every problem looks like a nail. - If the facts don't hang together on a latticework of theory, you don't have them in usable form. - You've got to eat your carrots before you get dessert.

If the facts don't hang together on a latticework of theory, you don't have them in usable form.

Net Cash Flow is equal to: Expenses minus Income. Net Worth. The Consumer Price Index or CPI. Income minus expenses.

Income minus expenses

Nonfeasance, misfeasance and malfeasance can be defined as: Growth investments. Not doing something you should, doing something you should do wrong and doing something bad. Essential investor skills. Nonsensical.

Not doing something you should, doing something you should do wrong and doing something bad.

According to the article, "5 Biases..." belief perseverance bias occurs when... We invest. Recessions occur. Investors cling to their previously held beliefs. An investor has been exposed to blunt trauma.

Investors cling to their previously held beliefs.

Personal Net Cash Flow is important because: - It has a direct, one-for-one, inverse relationship with interest rates and the market cycle. - The lower my personal Net Cash Flow the more investment capital I will have. - It reveals what resources I will have to work with, which will impact my investment options. - Is tracked closely by Fundamental Research Analysts and Wall Street brokerage firms.

It reveals what resources I will have to work with, which will impact my investment options.

According the the class discussion the "...Worldly Wisdom..." speech is important because... - It was given by one of the most successful investors of all time and touches on just about everything we will review in class. - It's free. - It is long and learning to stick with long, boring reading material is essential to being a successful investor. - Life is short and best spent reading speeches from ancient times.

It was given by one of the most successful investors of all time and touches on just about everything we will review in class.

How will net worth be affected by a negative net cash flow? - It depends on the circumstances - It will go down - They are not related - It will rise

It will go down

In the reading, "...Worldly Wisdom..." Charlie Munger says the stock market is like the race track but with much less taken... - Into account. - For granted. - By traders. - Off the top.

Off the top

To best impact your credit score: - Avoid credit - Make the minimum payment on your credit cards - Open credit, pay if off early, in its entirety and pay often. - Open as many credit cards as you can

Open credit, pay if off early, in its entirety and pay often.

The Consumer Expenditure Survey shows: - Over time we earn more and spend more; then we earn less and spend less. - The complete failure of the American capital system. - The typical US household is on the brink of bankruptcy. - The typical American household has more cars than people.

Over time we earn more and spend more; then we earn less and spend less

Positive Net Personal Cash Flow is similar to what in a business? - Asset - Interest - Dividends - Profit

Profit

Owning insurance and maintaining a cash emergency fund helps my investment strategy directly by: Providing a return competitive with inflation albeit not by much. Leveraging returns with a positive skew. Paying high interest thus providing a return well ahead of inflation. Providing liquidity when I need it thus avoiding forced sales of my investments.

Providing liquidity when I need it thus avoiding forced sales of my investments.

Inflation can be defined as: Rising cost of goods over time Stock market bubble Bitcoin effect Bond market bubble

Rising cost of goods over time

According to class discussion the lesson of "Sailing" is: - Some people are sails, some are anchors, some are just holes in the boat. - Preparation is costly and generally a mistake. - Preparation is unnecessary because of Black Swans. - Some preparation slows you down but helps you survive.

Some preparation slows you down but helps you survive (think Titanic)

According to the article, "5 Biases..." Cognitive biases stem from... Societal constraints. Social deviations. Statistical, information processing or memory errors. Our evolutionary history.

Statistical, information processing or memory errors.

An insurance deductible is: Not easily predictable. The amount you pay in the case of an insurable event. The amount the insurance company pays when you make a claim. Always exactly equal to the premium you pay.

The amount you pay in the case of an insurable event.

According to the reading, "...Worldly Wisdom..." a magazine like "Motocross" can make a lot of money because... - They have a well defined niche. - They have all the patents. - They hedge their bets. - They know Motocross fans are naive and easy targets.

They have a well defined niche

According to class discussion, the lesson of "Aunt Rosie's German Pancakes" is: - Mix the ingredients before you bake. - Be wary of the risk of salmonella. - Time and proportion matter. - Don't forget the powdered sugar and the lemon

Time and proportion matter

According to the "Investment Math" article, by combining an investment's price change and the income it generated, you can calculate the investment's ___________. Weighted Return Standard Deviation Total Return Investment Yield

Total Return

According to the reading, "...Worldly Wisdom..." Carl Braun of Braun company developed his own accounting system and mandated all communications in the company include: - There was no mention of this in the speech. - A detailed analysis of breakpoints and a hefty margin of error. - Elementary mathematics of permutations and combinations. - Who, What, Where, When and Why

Who, What, Where, When and Why

According to the reading, "...Worldly Wisdom..." Warren Buffett says he could improve (your) ultimate financial welfare by... - allowing you to invest in Berkshire Hathaway. - teaching you how to hire an investment professional. - sending you all to Harvard Business School. - limiting your investments to 20 over a lifetime.

limiting your investments to 20 over a lifetime

A Gaussian or normal distribution looks like...

a hill

According to "Worldly Wisdom" we can think of the stock market as "Mr. Market"

a manic-depressive that comes to you every day with a desire to buy or sell at a different price

Investors acting on emotion (specifically greed and fear) tend to ________, ______ when the market is up and ______ when the market is down. act rationally, sell, buy act irrationally, sell, buy act irrationally, buy, sell act rationally, buy, sell

act irrationally, buy, sell

According to class discussion, the lesson of "Aunt Betty's House" is: - Buy low, sell high. - First you need a good foundation. - Location, location, location. - Nobody knows what the future holds.

first you need a good foundation

In general the lower the premium you pay for insurance: The higher the deductible will be. The lower the deductible will be.

higher deductible

Among many other things, global warming could lead to: Higher taxes More interesting space programs No-cost higher education Free child care for all

higher taxes

It is far more likely you will earn a positive return investing in a diversified portfolio of stocks if you: Hold the stocks for at least one year Hold the stocks for at least ten years Hold the stocks for at least five years The likelihood is the same, regardless of the length of the holding period

hold the stocks for at least ten years

Adding bonds to a stock portfolio should result in: A lower standard deviation of the total portfolio. A higher standard deviation of the total portfolio

lower standard deviation

Among other things, recessions can cause job loss, stock declines, real estate declines and... Low unemployment rates Difficulty obtaining credit Stock market bubbles Higher taxes

difficulty obtaining credit

When interest rates rise, bonds tend to: Fall Accelerate payments There is no correlation Rise

fall

With regard to investing, "liquidity"... ...refers to the efficiency or ease with which an asset or security can converted to cash. ...refers to mark-to-market pricing mechanisms used to find dislocations in the economic system. ...is only available to the ultra wealthy. ...is a constant among all assets.

refers to the efficiency or ease with which an asset or security can converted to cash

An example of anchoring is: - when investors chase the top-performers - investing the bulk of your money in your employer's stock - investing money received as a gift in a high-risk investment while you normally invest in a diversified portfolio (with deductions from your paycheck) - refusing to sell shares of Apple common stock that you bought for $189 per share but has since dropped in value

refusing to sell shares of Apple common stock that you bought for $189 per share but has since dropped in value

Per the St. Louis Fed and Case-Shiller data reviewed in class, home ownership in the United States has not been without... ...taxes. ...risk. ...mortgages. ...insurance.

risk

We can directly hedge the risk of rising interest rates and inflation with

short term bonds and TIPS (Treasury Inflation Protected Services)

According to "Worldly Wisdom" the brain uses very crude...

shortcuts

According to class discussion, a "Black Swan" is...

something totally unexpected