CRPC 2023/2024 Exam Graded A+

Diversification - ANSWER-Acquiring assets with low or negative correlations to each other with the goal of lowering overall risk Correlation - ANSWER-- 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 - ANSWER-- 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 - ANSWER-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 - ANSWER-- 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 - ANSWER-- 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 - ANSWER-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 - ANSWER- Dollar-Cost averaging - ANSWER-- investing regular amounts at regular intervals - reduce market timing risk, improve cost per share Low P/E strategy - ANSWER-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) - ANSWER-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 - ANSWER-P-purchasing power risk R- reinvestment risk I- interest rate risk M- market risk E- exchange rate risk Social Security- Fully insured - ANSWER-- 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 - ANSWER-- 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 - ANSWER-- age he starts - earnings history SS calculation before full retirement age - ANSWER-- 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 - ANSWER-- Payment increases by about 8% each year they delay, until maximum year 70 - actual math is 2/3 for each month Social Security milestones - ANSWER-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