CRPC Already Passed
Diversification - =Acquiring assets with low or negative correlations to each other with the goal
of lowering overall risk
Correlation - =- a relative measure of the degree to which the returns of two assets move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Asset allocation - =- the apportioning of available funds among a number of asset classes in a
way that meets the needs of a particular client, dampens the effects of periodic market
fluctuations, and meets investment goals
Four steps in the asset allocation process - =1) select asset classes to be represented
2) determine the percentage that each asset class should represent in the total portfolio
3) Select individual securities
4) Review and rebalance
Strategic Asset Allocation - =- determine asset mix that provides optimal balance of expected
risk and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Tactical Asset Allocation - =- used to develop short term strategies to exploit changes in market
conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments to undervalued
investments
- market timing strategy
,Core-Satellite asset allocation - =70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector funds or alt
investments like hedge funds
Contrarian Strategy - =
Dollar-Cost averaging - =- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - =Ratio of 1= fair value
Ratio > 1= overvalued
Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Bond Investment strategies (2) - =1) Ladder: Owning equal amounts of bonds along with
maturities of equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10 year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex. 100k of bonds with
10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20 year maturities
Systematic Risk - =P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured - =- having 10 years of employment covered by social security;
expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
,- fully insured workers are also eligible for disability if he has earned at least 20 work credits in
last 10 years
Social Security- currently insured - =- individual must has at least 6 quarters of coverage in the
13-quarter period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are available if a worker is
only currently insured at death
Components of SS calculation - =- age he starts
- earnings history
SS calculation before full retirement age - =- Payment reduced by 5/9th of 1% for each month
filed before FRA, up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36 months
SS calculation after full retirement age - =- Payment increases by about 8% each year they delay,
until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - =Ages
50: disabled survivors can start receiving benefits
60: nondisabled survivors can start receiving
62: earliest one can start receiving benefits at reduced rate
65-67: FRA, depending on birth year
70: delayed retirement age
Social Security income cap - =$15,720
- Those who are under FRA and working will lose $1 SS benefit for every $2 they earn above
$15,720
- At FRA it is reduced to $1 for every $3 earned
, After FRA there is no reduction
Max provisional income for SS - =Single or head of househouse:
Tax-free if provisional income is less than 25k
Filing jointly:
Tax free if provisional income is less than 32k
Provisional income - =Provisional income=AGI(excluding SS) +Nontaxable interest(muni
bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - =25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - =32k-44k: 50%
44k+:85%
maximum taxable SS amount - =85% of Total SS benefit
Spousal benefit - =- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - =Payroll taxes; FICA
What is the FICA tax; how is it split up - =15.3%; The employer and employee each pay 6.2%
for old-age, survivors and disability insurance (OASDI) and 1.45% each for hospital insurance
Social Security Wage Base - =$118,500
Covered employment - =Any position that participates in social security system
Diversification - =Acquiring assets with low or negative correlations to each other with the goal
of lowering overall risk
Correlation - =- a relative measure of the degree to which the returns of two assets move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Asset allocation - =- the apportioning of available funds among a number of asset classes in a
way that meets the needs of a particular client, dampens the effects of periodic market
fluctuations, and meets investment goals
Four steps in the asset allocation process - =1) select asset classes to be represented
2) determine the percentage that each asset class should represent in the total portfolio
3) Select individual securities
4) Review and rebalance
Strategic Asset Allocation - =- determine asset mix that provides optimal balance of expected
risk and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Tactical Asset Allocation - =- used to develop short term strategies to exploit changes in market
conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments to undervalued
investments
- market timing strategy
,Core-Satellite asset allocation - =70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector funds or alt
investments like hedge funds
Contrarian Strategy - =
Dollar-Cost averaging - =- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - =Ratio of 1= fair value
Ratio > 1= overvalued
Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Bond Investment strategies (2) - =1) Ladder: Owning equal amounts of bonds along with
maturities of equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10 year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex. 100k of bonds with
10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20 year maturities
Systematic Risk - =P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured - =- having 10 years of employment covered by social security;
expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
,- fully insured workers are also eligible for disability if he has earned at least 20 work credits in
last 10 years
Social Security- currently insured - =- individual must has at least 6 quarters of coverage in the
13-quarter period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are available if a worker is
only currently insured at death
Components of SS calculation - =- age he starts
- earnings history
SS calculation before full retirement age - =- Payment reduced by 5/9th of 1% for each month
filed before FRA, up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36 months
SS calculation after full retirement age - =- Payment increases by about 8% each year they delay,
until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - =Ages
50: disabled survivors can start receiving benefits
60: nondisabled survivors can start receiving
62: earliest one can start receiving benefits at reduced rate
65-67: FRA, depending on birth year
70: delayed retirement age
Social Security income cap - =$15,720
- Those who are under FRA and working will lose $1 SS benefit for every $2 they earn above
$15,720
- At FRA it is reduced to $1 for every $3 earned
, After FRA there is no reduction
Max provisional income for SS - =Single or head of househouse:
Tax-free if provisional income is less than 25k
Filing jointly:
Tax free if provisional income is less than 32k
Provisional income - =Provisional income=AGI(excluding SS) +Nontaxable interest(muni
bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - =25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - =32k-44k: 50%
44k+:85%
maximum taxable SS amount - =85% of Total SS benefit
Spousal benefit - =- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - =Payroll taxes; FICA
What is the FICA tax; how is it split up - =15.3%; The employer and employee each pay 6.2%
for old-age, survivors and disability insurance (OASDI) and 1.45% each for hospital insurance
Social Security Wage Base - =$118,500
Covered employment - =Any position that participates in social security system
