Wealth Management Strategies Flashcards

Which wealth transfer strategy uses annual exclusion gifts to reduce an estate without using the lifetime exemption?

Answer: Annual gift tax exclusion

The annual gift tax exclusion allows donors to give up to the IRS-set limit per recipient per year without incurring gift tax or reducing the lifetime exemption.

Core-satellite portfolio construction combines which two components?

Answer: A passive low-cost core with active satellite positions

Core-satellite investing uses a diversified, low-cost passive core (often index funds or ETFs) paired with smaller active or thematic satellite positions intended to generate alpha.

Which financial planning ratio measures whether liquid assets can cover short-term liabilities, indicating emergency fund adequacy?

Answer: Current ratio

The current ratio (liquid assets divided by current liabilities) indicates whether an individual can meet near-term financial obligations from immediately accessible funds.

Monte Carlo simulation is used in financial planning primarily to model which type of uncertainty?

Answer: Sequence of returns risk

Monte Carlo simulation runs thousands of random return scenarios to estimate the probability that a retirement portfolio will sustain withdrawals across different market environments.

Which insurance product provides guaranteed income for life in exchange for a lump sum, addressing longevity risk?

Answer: Immediate annuity

An immediate annuity converts a lump-sum premium into a stream of guaranteed income payments that continue for the annuitant's lifetime, eliminating the risk of outliving assets.

Environmental, Social, and Governance (ESG) investing integrates which additional layer into traditional financial analysis?

Answer: Non-financial sustainability criteria

ESG investing incorporates environmental stewardship, social responsibility, and corporate governance factors alongside traditional financial metrics to assess long-term risks and opportunities.