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CRPC
Diversification - ANS-Acquiring assets with low or negative correlations to each other
with the goal of lowering overall risk
Correlation - ANS-- 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 - ANS-- 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 - ANS-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 - ANS-- 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 - ANS-- 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 - ANS-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
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Contrarian Strategy - ANS-
Dollar-Cost averaging - ANS-- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - ANS-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) - ANS-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 - ANS-P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured - ANS-- 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 - ANS-- 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 - ANS-- age he starts
- earnings history
SS calculation before full retirement age - ANS-- Payment reduced by 5/9th of 1% for
each month filed before FRA, up to 36 months
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- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36
months
SS calculation after full retirement age - ANS-- Payment increases by about 8% each
year they delay, until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - ANS-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 - ANS-$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 - ANS-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 - ANS-Provisional income=AGI(excluding SS) +Nontaxable
interest(muni bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - ANS-25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - ANS-32k-44k: 50%
44k+:85%
maximum taxable SS amount - ANS-85% of Total SS benefit
Spousal benefit - ANS-- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - ANS-Payroll taxes; FICA
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What is the FICA tax; how is it split up - ANS-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 - ANS-$118,500
Covered employment - ANS-Any position that participates in social security system
Excluded
- Railroad employees
- Fed gov employees hired before 1984
Average SS benefit - ANS-$1300 pm
Max benefit - ANS-$2639 pm
Quarter of Coverage - ANS-earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
= $5040 in year
need 40 quarters of credit
Fully insured - ANS-Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured - ANS-have earned at least 6 credits during previous 13 quarters
before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings - ANS-used to determine the amount of ss you will
receive
- TOP 35 years of earnings/420 (months in 35 years) =AIME
** if client doesn't have 35 years, any missed years will be factored as 0's
Full Retirement Age (FRA) - ANS-born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
Primary Insurance Amount (PIA) - ANS-Benefit received at full retirement age
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CRPC
Diversification - ANS-Acquiring assets with low or negative correlations to each other
with the goal of lowering overall risk
Correlation - ANS-- 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 - ANS-- 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 - ANS-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 - ANS-- 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 - ANS-- 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 - ANS-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
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Contrarian Strategy - ANS-
Dollar-Cost averaging - ANS-- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - ANS-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) - ANS-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 - ANS-P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Social Security- Fully insured - ANS-- 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 - ANS-- 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 - ANS-- age he starts
- earnings history
SS calculation before full retirement age - ANS-- Payment reduced by 5/9th of 1% for
each month filed before FRA, up to 36 months
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- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36
months
SS calculation after full retirement age - ANS-- Payment increases by about 8% each
year they delay, until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - ANS-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 - ANS-$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 - ANS-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 - ANS-Provisional income=AGI(excluding SS) +Nontaxable
interest(muni bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - ANS-25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - ANS-32k-44k: 50%
44k+:85%
maximum taxable SS amount - ANS-85% of Total SS benefit
Spousal benefit - ANS-- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - ANS-Payroll taxes; FICA
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What is the FICA tax; how is it split up - ANS-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 - ANS-$118,500
Covered employment - ANS-Any position that participates in social security system
Excluded
- Railroad employees
- Fed gov employees hired before 1984
Average SS benefit - ANS-$1300 pm
Max benefit - ANS-$2639 pm
Quarter of Coverage - ANS-earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
= $5040 in year
need 40 quarters of credit
Fully insured - ANS-Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured - ANS-have earned at least 6 credits during previous 13 quarters
before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings - ANS-used to determine the amount of ss you will
receive
- TOP 35 years of earnings/420 (months in 35 years) =AIME
** if client doesn't have 35 years, any missed years will be factored as 0's
Full Retirement Age (FRA) - ANS-born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
Primary Insurance Amount (PIA) - ANS-Benefit received at full retirement age
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