Flashcards

A donor advised fund (DAF) is an investment account that an individual can establish to benefit IRS-qualified public charities. It is a separate account opened with and maintained by a 501(c)(3) “sponsoring organization” (donor advised fund provider). The individual can fund the DAF account with cash or a wide range of acceptable assets (complex assets, stocks, gold, bonds, and real estate). The fair market value of the contribution is an immediate tax deduction. Donating appreciated assets saves the individual capital gains taxes, allowing more dollars to be available for charitable donations, as well as increasing the individual’s tax savings.

Dark pools are where many institutional transactions take place. Dark pools are alternative trading systems run by large broker-dealers, offered to their best clients. Trading information from dark pools is very limitedly disclosed.

A day order is an order that is valid for that day only. If it is not executed by the close of business that day it is canceled.

A dealer is a person who deals in the buying and selling of securities as a principal, for the firm’s account.

A debenture is an unsecured bond. Debentures are backed only by the good faith of the corporation. Repayment of the debt is based on the company’s promise to repay.

The debt-to-equity ratio compares a company’s long-term debt to total shareholders’ equity. The debt-to-equity ratio is a measurement of leverage.

DeFi refers to financial activities conducted without the involvement of an intermediary like a bank, government, or other financial institution.

The declaration date is the date on which the company declares an upcoming dividend, set by the board of directors.

When an issuer fails to pay interest or principal when due they are in default.

Defensive industries are those industries that resist market cycles. Defensive industries include alcohol, tobacco, pharmaceuticals, utilities, and the food industry.

A defensive strategy is an investment method through which investors try to minimize the risk of losing principal. One example is the policy of making purchases and sales according to predetermined objectives without regard for market changes, such as dollar cost averaging.

A deferred annuity is an annuity contract that repays principal and interest in the future. Interest earned during the accumulation (pay in) period is tax deferred. A deferred annuity is not immediately annuitized but may be annuitized in the future.

A deferred compensation plan is a type of non-qualified retirement plan. Generally only offered to highly paid workers, the employee defers some current compensation in favor of a payout in retirement. Deferred compensation is unfunded.

A defined benefit plan is a type of qualified plan. Defined benefit plans are covered by the Pension Benefit Guaranty Corporation (PBGC). A defined benefit plan specifies the amount of money the employee will receive at retirement.

In a defined contribution plan is a type of qualified plan. In a defined contribution plan the employer and the employee may defer a percentage of the employee’s income annually towards retirement.

Deflation is when there is an overall decrease in prices. Deflation is usually found during an economic contraction.

A demand deposit is a type of account held by a client at a bank or financial institution. In a demand deposit account, the client can request a full withdrawal at any time. Checking and savings accounts are demand deposit accounts.

Depreciation is used to write down (expense) over time fixed assets. Depreciation is a non-cash expense that has the effect of lowering a business’s taxable income, but not affecting their cash flow. Depreciation is found as an add-back item on a company’s statement of cash flow.

A depression is at least six consecutive quarters of decline in GDP (gross domestic product).

A derivative is a financial product that may or may not have value, depending upon the value of the underlying asset. Options, rights, warrants, LEAPS, futures, and forwards, are all derivatives.

Today, instead of using the term specialist, the term designated market maker is used to describe the individual who works on the floor of the exchange, matching buyers and sellers, and providing liquidity as needed by trading out of their own account.

A digital asset that is a security is referred to as a “digital asset security.” As such, it’s regulated by the SEC.

Digital assets are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.

This is a type of currency that represents a fiat, or government-backed currency, on the blockchain. For example, digital fiat in the U.S. would be pegged to the U.S. dollar.

Dilution is a decrease in an investor’s holdings, due to the issuance of additional shares.

Directed brokerage may or may not be allowed by an investment adviser. If the investment adviser allows directed brokerage it can take place in one of two ways. Either the investment adviser directs the clients’ trades to be executed through a specific broker-dealer, or the investment adviser allows the client to tell the firm which broker-dealer they would like to use for execution.

A discount occurs when a bond is trading in the secondary market for less than par value because interest rates have gone up since the bond was originally issued.

The discount rate is the interest rate set by the Federal Reserve for a short-term loan from the Fed to a member bank. The loan is from the lending “window”.

Discounted cash flow is used to determine the present value of an investment’s future cash flow.

A discretionary account is an account permitting a client to designate an individual such as a broker-dealer to exercise authority over the selection, timing, and amount of investment for the client. The authorization for the discretionary account must be in writing, and the account must be approved and accepted by a principal of the broker-dealer firm.

Diversification is the practice of spreading out investments among the securities of different companies and different industries. Diversification helps to reduce nonsystematic risk. An S&P 500 index fund offers a client broad diversification. To diversify by asset class is to invest some money in stocks, bonds, real estate, and gold (different asset classes). Diversifying by asset class helps to reduce systematic risk.

A diversified fund is a type of mutual fund that has most of its assets invested in many types of securities, many issuers of a single type of security, or both. The Investment Company Act of l940 defines a diversified fund as one where at least 75% of its assets are invested so that 5% of its total assets own no more than 10% of the total outstanding stock of any one company. Also known as the 75 – 5 – 10 rule.

A dividend is that portion of the earnings of a corporation declared by the board of directors to be paid to shareholders.  Each shareholder receives a pro-rata distribution based on the number of shares owned.  Corporations may pay dividends up to quarterly. Dividends are never guaranteed. Blue chip stocks are more likely to pay dividends than growth stocks. In a mutual fund, a dividend is a distribution of net investment income, usually paid quarterly. Dividends are taxable in the year of distribution, even when reinvested.

The dividend payout rate looks at the amount per share of common stock that was paid out versus the amount that could have been paid.

Mutual fund companies, along with many publicly traded companies, allow their investors to automatically use their dividend distribution to buy additional shares. The dividend distribution is taxable in the year of distribution, even when reinvested, increasing the investor’s cost basis.

Dollar cost averaging is a defensive method of investing that requires a specified amount of money to be invested, at regular intervals. By investing the same dollar amount, when shares are priced low, the investor will purchase more shares. When shares are priced high, fewer shares are purchased. Over time, when the market prices are fluctuating, the average cost per share may be lower than the average price paid.  DCA does not guarantee a profit.

The Dow is a price weighted index consisting of 30 large cap industrial stocks. It is the most widely used market indicator.

Due diligence is the duty of the underwriter, the issuer, and the attorneys that are involved in the new issue to conduct an inquiry into the circumstances surrounding the new offering.  The underwriter(s) or party charged with discovery must not be negligent in its attempt to discover and disclose relevant facts that would affect the offering. Neither the SEC nor the state performs due diligence.

A durable power of attorney is a document that grants either limited or full authority to a third party. The word durable ensures that the power of attorney survives a declaration of mental or physical incompetence of the grantor. A durable power of attorney ceases upon the grantor’s death.

Duration is a measurement of a bond’s market price volatility as interest rates change. Zero coupon bonds have the highest duration. A long-term bond would have a higher duration than a bond maturing in the near term.

Earned income includes the income derived from active participation in a trade or business. Earned income includes wages, tips, salary, commission, and bonuses. An individual must have earned income to contribute to an Individual Retirement Account (IRA).

Earnings per share takes the earnings available to common (after preferred stocks’ dividends have been paid) divided by the number of shares of common stock in the hands of the public. Earnings per share are found on a company’s income statement.

The effective date is the date that the registration of an issue of securities becomes effective with the SEC. Shares of a new issue can be sold as of the effective date.

The effective tax rate is the overall tax rate paid by a taxpayer. The effective tax rate will always be less than the marginal tax rate.

The efficient market hypothesis has three forms: weak, semi-strong, and strong. In the weak form, fundamental analysis may produce excess returns. In the semi-strong form, trading on inside information may work to produce excess returns. In the strong form, there is no way to beat the market, it is best to build a broadly diversified portfolio and invest for the long run.

Employee stock options are designed to align the employee’s interests with those of the company by allowing the employee to buy shares of the company’s stock at specific prices, over time. Employee stock options may be qualified (incentive) or non-qualified.

With ESG investing a set of standards for a company’s operations is used to screen investments. ESG investing is a form of socially conscious investing.

An equipment trust certificate is a type of secured bond. It is backed by rolling stock, such as airplanes, fleet vehicles, or railroad cars. The title to the equipment is held by a trustee until the company pays off the bonds.

Stock (common or preferred) is sold to individuals and institutions. In return for the money paid, the individual or institution receives an ownership interest in the corporation.