Behavioral Finance
The tendency of investors to become attached to a specific price as the fair value of a holding
Anchoring
<= 28% of gross income
<= 36% of gross income
<= 20% of net income
Housing Expenses (PITI)
Total Monthly Debt
Consumer Debt
A condition where there is a possibility of loss (a situation where an exposure to loss exists)
Risk
Diversifiable Risk
examples: business risk, financial risk
Unsystematic Risk
April 15th
June 15th
September 15th
January 15th
Dates for Paying Estimated Taxes
The feeling that because you own an asset, it is more valuable and special since it is yours. In reality, you might not even purchase the asset if you didn't already own it.
Endowment Bias
expansionary/easy money policy
The cause of a possible loss, the event insured against perils like windstorm, fire and theft
Peril
Types of systematic risk
PRIME
P - purchase power risk
R - reinvestment rate risk
I - interest rate risk
M - market risk
E - exchange rate risk
Failure to File Penalty
Penalty is 5% of the tax due per month, up to a maximum of 25%
The challenge of reconciling two opposing beliefs
Cognitive Dissonance
2 consecutive quarters of economic decline (negative GDP)
6 consecutive quarters of economic decline (negative GDP)
Recession
Depression
A condition that may create or increase the chance of loss arising from a given peril
Hazard
FDIC Insured Amounts (per bank/per type of account)
Individual - $250k
Joint - $250k
Trust (per beneficiary) - $250k
IRA/Keogh - $250k
Failure to Pay Penalty
.5% per month, max of 25% paid
Investors tend to diversify evenly across whatever options are presented to them
Diversification Errors
Uniform Investments Advisor Law Exam
Series 65
Name of Insurance Rating Services (2 of them)
A.M. Best (grade A++ to F)
Standard & Poor (AAA to CCC)
Type of bond
-non-marketable, nontransferable, cannot be used for collateral
-sold at face value
-interest rate based on the 10-yr treasury note yields
-fixed interest rate that is in effect at the time of purchase
-subject to federal taxation when redeemed (unless used as education bonds)
-not subject to state or local taxes
EE Bonds
How to avoid federal withholding tax underpayment penalty?
pay 90% of estimated tax payment
pay 100% of last year's tax payment (110% if AGI > $150,000)
An individual erroneously believes that the onset of a certain random event is likely to happen following an event or a series of events
Gambler's Fallacy
What comes after a trough in the business cycle
Expansion/Recovery
Sections of Homeowners Policy
A, B, C, D, E, F
A - dwelling and attached structures
B - structures separated from the dwelling (detached structures)
C - contents & personal property
D - loss of use
E - liability
F - medical payments
Corporate and Municipal Bond Risks (DRIP)
D - default risk
R - reinvestment rate risk
I - interest rate risk
P - purchase power risk
Adjustments/Deductions for Adjusted Gross Income
IRA Contributions
Self-employment tax
Self-employment health insurance
Keogh or SEP
Alimony paid (pre-2019 divorce)