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Investment Strategies Flashcards

7 cards from real CPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Investment Strategies flashcards as text

  1. Which investment strategy involves spreading contributions across asset classes to reduce portfolio risk?

    Answer: Asset allocation

    Asset allocation divides investments among different asset classes (stocks, bonds, cash) to balance risk and return based on the investor's goals.

  2. A participant in a 403(b) plan works for a public school system. Which unique contribution rule may benefit long-term employees at retirement?

    Answer: A 15-year rule allows additional catch-up contributions for qualifying employees

    The 403(b) 15-year rule allows eligible employees with 15+ years of service at a qualifying organization to make additional catch-up contributions beyond the standard limit.

  3. What is the annual IRS limit for total contributions (employee + employer) to a 401(k) plan in 2024?

    Answer: $69,000

    The total annual additions limit under IRC Section 415 for 2024 is $69,000 (or 100% of compensation, whichever is less).

  4. A Qualified Domestic Relations Order (QDRO) is used in which situation?

    Answer: Dividing retirement plan benefits between divorcing spouses

    A QDRO is a legal order that assigns retirement plan benefits to an alternate payee, typically a spouse or dependent, following divorce.

  5. Which investment approach involves purchasing index funds rather than actively managed funds to minimize fees?

    Answer: Passive investing

    Passive investing uses index funds or ETFs to replicate market performance, resulting in lower management fees compared to actively managed funds.

  6. When an employee receives incentive stock options (ISOs), what tax event occurs at the time of exercise?

    Answer: No regular income tax is owed, but AMT may apply

    Exercising ISOs does not trigger regular income tax, but the spread may be an AMT preference item, potentially triggering the alternative minimum tax.

  7. Under the 'prudent investor' standard required by ERISA, plan fiduciaries must:

    Answer: Act solely in participants' interests with care, skill, and diligence

    ERISA's prudent investor rule requires fiduciaries to act with the care, skill, and diligence of a knowledgeable investor acting solely in participants' best interests.