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91 Cards in this Set
- Front
- Back
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Fiscal Policy |
Controlled by politicians, how money is spent |
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Monetary Policy |
Federal Reserve, Ben Bernanke, not controlled by government, control interest rates of the world (QE3) |
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Leading Economic Indicators |
Employment Rates, CPI, PPI, Stock Prices (these things happened, we have an idea of what will happen in the future) |
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Lagging Economic Indicators |
The market did this, and lo and behold, this happened. |
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Elastic |
Stretches; steakhouse/diamonds = consumer discretionary (buy when the times are good) |
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Inelastic |
Doesn't change, consumer staples (food/milk) |
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Renting vs. Buying |
Things to consider: Credit Rating - Above 680 Debt to income ratio - (33%-36%) - doesn't count utility bills How long will you stay there - min of 5-7 years Pay for commissions and closing feeds |
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PMI (Private Mortgage Insurance) |
Protects the bank (not you). Not enough for down payment (<20%) you may be forced to buy. |
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Calculate compounded interest |
CD says 4% annually, but is compounded quarterly - more than 4%. BONDS DON'T COMPOUND (they have coupons) |
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Ratios |
Dashboard to give you idea on financial health, a comparison. Some for corps, some for you. Debt to Income ratio is the most important to a consumer, along with credit score. Use min monthly payment for debt (w/monthly income!) |
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Demographic household spending cycle |
19 - leave home 25.5 - get married 27 - have child 33 - buy first home 34 - largest debt to income ratio 43-47 - buy largest home then cycle repeats *starts on needs, changes to wants over time |
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Impact of the Baby Boom |
(1957-1961) Not as many babies born then until 2007. 1 out of 5 people in US is a baby boomer (just below Japan, Italy, and Germany) |
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Credit Limits |
Can only use up to 50% of my limit (by end of month) |
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Credit Scores |
Impacts lots of things. Cost of car insurance (pay all at one time!), mortgages, etc. |
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Systemic Risk |
The sick hand, whole body dies. Crash of '08 |
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Systematic Risk |
Undiversifiable risk from the market. It goes up, you go up. It goes down, you go down. |
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Unsystematic Risk |
Risk you choose. Picking a specific company is diversifiable |
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S&P 500 |
UNMANAGED Index, made up of 500 U.S. based companies that best represent the U.S. economy. Blitzer at S&P selects the companies. Divided into subsectors (technology, energy, staples, etc). |
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Stock Market Capitalization |
Small, Mid, Large. Lots of people want shares for a price. 68% of mutual funds are large. 18% of stocks are large. |
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Market Capitalization |
1 share of a company stock times the number of shares outstanding |
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Growth Stocks |
Investors that look at a company and believe the future value of the company will be much greater than it is today. |
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Value Stocks |
Buy stocks when it's a fair value for the stock based on the business today (when price = business model). Most pay dividends (Buffett) |
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Risk Management Strategies |
In regards to Harley Davidson: Retain (ride if I want), Reduction (use safety equipment), Avoid (never ride), Transfer (insurance). |
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Law of Large Numbers |
How insurance works. Transfer risk, low probability of occurrence but a high cost to you (if it does happen). Homeowners insurance (houses burning down, not common). Retain when it has a high probability of happening or a low cost to you. |
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Actuaries |
Decide the cost of insurance (Law of Large Numbers) probability of occurrence. |
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Insurable interest |
Decides whether or not you can take out an insurance policy on someone and be the beneficiary. Needs a financial interest |
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Open Peril Policy |
To cover bad things that can happen. Everything is covered, except for things excluded in the document. |
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HO3 & HO5 |
Homeowner's policy (HO5 is broader) |
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HO4 |
Renter's Insurance Policy |
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Effective Yield |
Bond and coupon rates. Coupons don't change, value of the bond changes whether it is trading at a premium or a discount. (interest rates up, effective yield of rate discount = down) Teeter-totter. Can trade at Premium (interest is down), Discount (interest is high or credit quality is down), or Par. Will mature at Par. |
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Bond Ladder Strategy |
Buy bongs that have different maturities. Counters Reinvestment Rate Risk. |
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Secured Bond Holder |
Has ability to go after inventory (or other things company owned) if it goes under. |
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Unsecured Bond Holder |
Has no ability to go after assets. (Higher risk, but a higher coupon too) |
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Incidents of ownership (life insurance) |
Change beneficiary, make payments, owner of policy |
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Viatical Settlement |
Someone buys your policy after issuance |
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Moral Hazard |
I make 5k, have 10k in disability |
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Life Insurance (lil side notes) |
All Life Insurance is annual renewable term. Permanent has a cash value, term doesn't. |
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Basis points |
For homes, charge 1 point = 1%. In our world 100 basis points = 1% |
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Recognized |
What IRA has on 1040 :( |
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Realized |
What you see on the statement :D |
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Open End |
Normal Mutual Fund in 401k (NAV) |
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Closed End |
Fixed # of shares outstanding. When you go to sell it to get $, someone must actually buy your shares from you (usually at discount). |
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Unit Investment Trust |
No manager, basket of stocks like ETSs |
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Closed fund |
Fund that was open end and manager decided to close it. Open End and Closed Fund are the same funds, just open or closed. |
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Investment Policy Statement (IPS) |
This is how I have to manage this money, playbook of investments. Must use discretion as a fiduciary. Needs to be signed and follow the guidelines. |
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12B1 fee |
Internal fees paid every year inside of mutual funds. Does not include trading costs or commissions, cost of existence |
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Annuity |
Issued from life insurance company. 2. Period Certain (will last at least # of years 10-20) |
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Marginal Tax Rate |
Highest rate you'll pay on the last dollar earned. (matters for Roth conversion) |
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Effective Rate |
Overall Income. Amount of taxes they've paid. |
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Tax Credit |
Dollar-for-dollar reduction! Good :D (Have to pay taxes to use the credit) |
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Tax Deduction |
Higher income earners; reduced amount of income that will be taxed. Kinda good :/ |
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Itemized |
Mortgage interest, charitable, state taxes |
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Tax evasion |
Jail! Don't report income |
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Tax avoidance |
Penalties, taking deductions that you actually can't |
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Taxable interest |
You'll get 1099R. Based on Marginal Bracket. (like for regular bonds) |
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Tax exempt |
Municipal bonds. GOB(general obligation bonds pay you back) ROB (revenue- more risky but better coupons) |
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SS & Medicare |
Up to 85% of what's received. More income, more you pay. |
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FICA |
Goes to government for Social Security, maxed around 100,000 (50% you, 50% employer) |
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FUTA |
No cap, 2.9% per year (1.45% you, 1.45% employer). Self employed? You pay both w/ reduction |
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Taxes for IRA fund movement? |
None, inside the candy wrapper! |
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Medicare vs. Medicade |
Medicare - old people & federal Medicade - poor people & state |
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Filing status |
Single, Married Filing Jointly (or separately) |
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1040 |
Annual Report |
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1099 |
Money in motion |
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1099R |
Reportable |
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W2 |
From employer at the end of the year, earnings |
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W4 |
Withholdings from paychecks (exemptions) |
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706 |
Final tax for when you die - state |
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Charitable gifts |
Give 50% of your income, if qualified organization. Itemized taxation 501c3 (nonprofit) |
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501c3 |
Classification for a nonprofit organization |
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Taxable gifts |
Gifts where it's not present interest (strings) or money is above annual exclusion - 14k |
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Long term care insurance |
Take care of you while in nursing home. Based on ADLs. |
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72T |
Get money out of IRA before 59.5 without 10% federal penalty. |
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72Q |
Same as 72T but out of annuity; very rare |
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1035 |
Transfer tax code. Move money in Life Insurance to Life Insurance or Annuity Contract. Move money in Annuity to Annuity. |
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Per Stirpes |
Following the bloodline. Inheritance tax is cheaper when closer to bloodline. (No longer in Indiana). |
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Gifting |
Give asset ABOVE cost basis. Or cash, but try to give asset ABOVE basis. |
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Estate planning objectives |
Reduce federal estate taxes, privacy, simplicity, and control where money will go. (CPS?) |
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Probate |
Legal form of transferring assets when you die from one person to another. Probate and will go together. Probate is a process. |
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Trust |
Another form of ownership. Must stronger than wills (most are revocable) |
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Operations of Law |
Happen before probate or will or trust. JTWROS |
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Crummey Letter |
Gift that would be in present interest, makes it present. Irrevocable trust, where money is used to pay premiums in life insurance policy. |
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Disclaimer |
Beneficiary says "I don't want this asset," lets you make the choice. |
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Modified Endowment Contract (MEC) |
Put too much money in life insurance policy. Be like an annuity during life, 59.5 LIFO (interest out first - not basis) then act like an insurance policy at death (INCOME TAX FREE). |
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Roth IRA |
No deduction, grows tax-free. No RMDs. If you have income, you can continue to make contributions |
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Traditional IRA |
Tax deduction meow. 70.5 - have to RMD |
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Stretch provision (for IRA) |
Beneficiary can take money out over their life expectancy and not yours (spouse). Everyone else can't use this, it would be an inherited IRA. Without stretch, taxes must be paid upon death within 5 years. |
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Contributions |
$ you can put in IRAs and 401(k)s based on earned income this year. Under 70.5 and have earned income. |
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Conversion |
Take money from IRA, pay taxes, then put it in Roth. |
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Basic Annuity Retirement Plan |
Like a pension, no money left at end |
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403b |
Nonprofit (schools, hospitals, etc.) |
