US RPA 2 Module 1 Vocabulary

Vocabulary-style flashcards covering key terms and concepts from US RPA 2 Module 1, as detailed in the session transcript.

Types of investment risk

Includes purchasing power, business, interest rate, market, and specific risks.

Tax aspects of investments

Characteristics of investments categorized as tax-exempt, tax favored, or taxable.

Liquidity

The ability to quickly convert an investment into cash.

Historical returns of major asset classes

Performance over time relative to one another; riskier assets on average perform better but exhibit more volatile returns.

Performance measurement

The process of evaluating investment performance.

Internal rate of return

A measure of an investment's profitability based on a series of cash flows.

Time-weighted rate of return

The average return over time periods that will smooth out cash flows.

Capital Asset Pricing Model (CAPM)

A model used to determine the expected return on an asset.

Alpha value

Return independent of market return, indicating a manager's ability to generate above-market return on the asset they manage.

Beta value

A measure of volatility relative to the market.

Risk-adjusted rate of return

Performance measurement that has been adjusted for risk.

Money market instruments

Short-term debt securities that seek parity with the dollar.

Bonds

Debt securities issued by entities such as municipalities or corporations.

Common stocks

Equity securities representing ownership.

Mutual funds

Investment vehicles that pool funds from many investors.

Real estate

Property investments including houses, land, and buildings.

Futures

Financial contracts obligating the buyer to purchase an asset at a predetermined future date and price.

Investment manager selection

Process of choosing investment managers, often involving a questionnaire.

Active investment management

A strategy that may involve frequent buying and selling of investments selected by a manager.

Passive investment management

A strategy aiming to replicate market index returns.

Index funds

Funds designed to track a specific index.

Dedication and immunization techniques

Strategies used to match cash flows with liabilities, such as bonds maturing when pensioners retire and need income.

Pension Protection Act of 2006 (PPA)

Legislation governing pension plans that allowed for higher contribution limits, conversion to a Roth IRA, and introduced more protections for plan participants.

Fiduciary responsibilities

The duty of plan sponsors to act in the best interest of participants.

Employer stock

Company shares offered as an investment option.