Title: Investing 101 Etfs Index Funds Asset Allocation — LearnCoachAssist

Q: What is an index fund?
A: A pooled investment that holds the same stocks/bonds as a market index (e.g., S&P 500), in the same proportions — passive.

Q: Why beat 80%+ of active managers?
A: Most active funds underperform benchmarks after fees over 10+ year horizons (SPIVA reports).

Q: Three properties of a good core ETF?
A: 1) Broad diversification.
2) Low expense ratio (≤0.10%).
3) Liquidity (tight bid-ask, high AUM).

Q: VTI vs VOO vs VTSAX?
A: All Vanguard, broad US.
VTI: total US ETF.
VOO: S&P 500 ETF.
VTSAX: total US mutual fund (same as VTI).

Q: Three-fund portfolio?
A: Total US stock + Total International stock + Total bond. Adjust allocation to taste/age.

Q: Bond fund duration — what is it?
A: Average time to receive cash flows. Longer duration = more sensitive to interest rate changes (price drops more when rates rise).

Q: Why hold bonds in a portfolio?
A: Lower correlation to stocks; stabilize drawdowns; provide rebalancing fuel when stocks fall.

Q: Rebalancing — how often?
A: Annually or when allocation drifts more than ~5 percentage points from target. Tax-aware in taxable accounts.

Q: Sequence-of-returns risk?
A: Bad returns early in retirement do more damage than bad returns later, even at the same average. Mitigate with bond ladder or bucket strategy.

Q: Why dollar-weighted return differs from time-weighted?
A: DWR factors when money was added/removed; TWR isolates manager skill. Investor returns often lag fund returns due to bad timing.

Q: ETF expense ratio of 0.03% on $100k for 30 years vs 1%?
A: At 7% avg: ~$760k vs ~$574k — about $186k of fees lost to the higher-fee fund.

Q: Tax-efficient fund placement?
A: Bonds + REITs in tax-advantaged (interest taxed as ordinary income). Broad stock index in taxable (low turnover, qualified dividends).

Q: Avoid wash sale?
A: Don't buy a 'substantially identical' security within 30 days before or after a tax-loss sale.

Q: Why high-fee target-date funds can still be fine?
A: They handle allocation automatically; simplicity is worth a small premium for some investors.

Q: Risk tolerance — how to test it?
A: Look at your reaction to your portfolio dropping 30-50%. Adjust allocation so you can hold through the worst case.

Q: Why avoid individual stock picking with most of your portfolio?
A: Concentration risk; most stocks underperform the index; emotional decisions during volatility. Cap speculation at 5-10% of net worth.

Q: Dividend yield vs total return?
A: Total return = price change + dividends. Don't chase high yield in isolation — some 'high yield' is from price collapse.

Q: Why bond yields move opposite to bond prices?
A: Existing bonds with fixed coupons become less valuable when new bonds offer higher coupons (and vice versa).

Q: International diversification — typical share?
A: 20-40% of equity allocation in non-US developed + emerging markets. Some argue for market-cap weight (~40%).

Q: Common cognitive trap in investing?
A: Recency bias — buying what just went up. Counter: stick to written investment policy statement.

Q: Investment Policy Statement (IPS)?
A: A written document with your goals, allocation, contribution rules, rebalancing trigger, and behavior under stress. Re-read in crises.

Q: Why low-effort works better than 'trying harder'?
A: Markets are efficient enough that frequent trading + research adds cost + emotion without alpha for most people. Index + automate + ignore.

Q: Sharpe ratio?
A: (Return - risk-free rate) / standard deviation. Higher = better risk-adjusted return.

Q: Treasury Inflation-Protected Securities (TIPS)?
A: US Treasury bonds whose principal adjusts with CPI. Useful for inflation-sensitive liabilities (e.g., retirement).

Q: Why not hold all your cash in stocks?
A: Liquidity for near-term needs; cushion for emergencies; avoids forced selling at bad times.

Q: Market timing — what does evidence say?
A: Missing the 10 best days over decades dramatically reduces returns. Stay invested through volatility.

Q: Why bond ETF total return can be negative?
A: Rising interest rates drop existing bond prices; if the price drop exceeds coupon income, total return is negative — common in 2022.

Q: REIT — what is it?
A: Real Estate Investment Trust — owns income-producing real estate. Required to distribute 90%+ of income to shareholders; held in tax-advantaged accounts for tax efficiency.

Q: Rule of 72 — what is it?
A: A shortcut: years to double money ≈ 72 ÷ annual return %. At 8% returns, money doubles in ~9 years; at 6%, in 12 years.

Q: Real return vs nominal return?
A: Nominal = stated return.
Real = nominal minus inflation. 7% nominal during 3% inflation = ~4% real return. Plan retirement using real returns.

Q: Tax-advantaged account priority (US)?
A: 1) 401(k) up to employer match.
2) HSA if eligible (triple tax-free).
3) Max Roth/Traditional IRA.
4) Max 401(k).
5) Taxable brokerage.

Q: Roth IRA — when is it better than Traditional?
A: When current marginal tax rate is lower than expected retirement rate. Pay tax now at low rates; withdraw tax-free later.

Q: Traditional IRA — when is it better than Roth?
A: When current marginal rate is higher than expected retirement rate. Deduct now; pay tax later at presumably lower bracket.

Q: HSA triple tax advantage?
A: 1) Pre-tax contributions.
2) Tax-free growth.
3) Tax-free withdrawals for qualified medical expenses. After 65, withdrawals for any purpose are taxed as ordinary income (like Traditional IRA).

Q: Backdoor Roth IRA — how does it work?
A: Contribute non-deductible to Traditional IRA, then convert to Roth. Used when income exceeds Roth direct-contribution limit. Watch the pro-rata rule.

Q: Pro-rata rule for Roth conversions?
A: IRS treats all your pre-tax IRA balances as a single pool. Converting only post-tax dollars isn't allowed if pre-tax IRA balances exist — taxable portion is prorated.

Q: Mega backdoor Roth?
A: Contribute after-tax dollars to 401(k) (above the $23k limit, up to total $69k), then in-plan convert to Roth or roll to Roth IRA. Requires plan support.

Q: 4% safe withdrawal rule — origin?
A: Bengen's 1994 study + Trinity study (1998). 4% of starting balance, inflation-adjusted, survived 30-year retirements historically.

Q: Sequence of returns risk — what mitigates it?
A: Bond tent (raise bond % approaching retirement, lower again after), bucket strategy, variable spending rules, cash reserve for 2-3 years.

Q: Variable Percentage Withdrawal (VPW)?
A: Spend a percentage of current portfolio that increases with age. Never runs out of money but spending fluctuates with markets.

Q: Guyton-Klinger guardrails?
A: Increase withdrawal % when portfolio grows; cut spending when portfolio shrinks past a threshold. Allows higher initial withdrawal than 4% rule.

Q: Bond ladder — what is it?
A: Buy bonds maturing at staggered dates (1, 2, 3, 4, 5 years). As each matures, reinvest at the long end. Smooths interest-rate risk; predictable cash flows.

Q: TreasuryDirect — what is it?
A: US Treasury website to buy bills, notes, bonds, I bonds, TIPS direct from government. No fees; max $10k/year per person on I bonds.

Q: I bonds — what are they?
A: US savings bonds with two-part rate: fixed (set at issue) + inflation (resets every 6 months). Tax-deferred; state tax-free; min 1 year hold.

Q: EE bonds — what's their guarantee?
A: US savings bonds that double in value if held 20 years (effective ~3.5% min annual return). Useful for ultra-long horizon, conservative savers.

Q: T-bills vs T-notes vs T-bonds?
A: Bills: ≤1 yr, sold at discount.
Notes: 2-10 yr, coupons.
Bonds: 20-30 yr, coupons. All US-government backed.

Q: Yield curve — what is it?
A: A plot of yields for bonds of similar credit quality across different maturities. Normally upward sloping (longer = higher yield).

Q: Inverted yield curve — what does it signal?
A: Short-term yields > long-term yields. Historically precedes recessions by 6-24 months. Suggests bond market expects rate cuts.

Q: Credit rating — investment grade vs junk?
A: Investment grade: AAA to BBB- (S&P).
Junk / high-yield: BB+ and below — higher yield to compensate for higher default risk.

Q: Duration vs convexity?
A: Duration: linear sensitivity to small rate changes.
Convexity: curvature; bonds gain more when rates fall a lot than they lose when rates rise the same amount.

Q: Muni bonds — tax benefit?
A: Interest is federal-tax-exempt; often state-tax-exempt if you live in the issuing state. Best for high-bracket investors in taxable accounts.

Q: Tax-equivalent yield of a muni?
A: muni yield ÷ (1 − marginal tax rate). 3.5% muni at 32% bracket = 5.15% tax-equivalent yield.

Q: Why bond funds vs individual bonds?
A: Funds give instant diversification across hundreds of issuers, automatic reinvestment, easy rebalancing. Individual bonds give a known maturity value.

Q: Mutual fund vs ETF — key tax difference?
A: ETFs use in-kind creation/redemption to flush low-cost-basis shares — usually distribute no capital gains. Mutual funds may distribute embedded gains taxable to all holders.

Q: NAV vs market price for an ETF?
A: NAV = sum of holdings ÷ shares.
Market price = what shares trade for. Authorized Participants arbitrage gaps via creation/redemption.

Q: Bid-ask spread on an ETF — when does it matter?
A: Wider on low-volume / international / niche ETFs. Use limit orders, avoid trading near market open/close, prefer ETFs with >$1B AUM and tight spreads.

Q: Creation/redemption mechanism — why it matters?
A: Lets APs swap a basket of underlying stocks for ETF shares (and vice versa) — keeps ETF price near NAV and lets ETFs avoid forced sales that trigger capital gains.

Q: Modern Portfolio Theory (MPT) — core insight?
A: Combining assets with low correlation can produce higher returns at lower risk than holding either alone. Diversification is the only free lunch.

Q: Efficient frontier — what is it?
A: The curve plotting portfolios with the highest expected return for each level of risk. Optimal portfolios lie on the frontier; below it is suboptimal.

Q: Beta — definition?
A: A stock's sensitivity to market moves. β=1 moves with market; β=1.5 amplifies 50%; β=0.5 dampens by half. Calculated via regression vs benchmark.

Q: Alpha — definition?
A: Return in excess of what beta would predict — the manager's value-add (or luck). Most active managers have negative alpha after fees.

Q: R-squared?
A: Fraction of a fund's movement explained by its benchmark (0-1). High R² → close to a closet index fund; low R² → high active share.

Q: CAPM formula?
A: Expected return = risk-free rate + β × (market return − risk-free rate). Simple model linking risk to expected return.

Q: Fama-French three-factor model?
A: Extends CAPM with size (small-cap premium) and value (high book-to-market premium). Four-factor adds momentum; five-factor adds profitability + investment.

Q: Factor investing — common factors?
A: Value, size (small-cap), momentum, quality, low-volatility, profitability. Historical premia exist but can vanish for long stretches.

Q: Smart beta — what does it mean?
A: Rules-based index alternative weighted by a factor (e.g., equal weight, fundamental weight) instead of market cap. Higher fees than pure index.

Q: Direct indexing — what is it?
A: Owning the individual stocks of an index in a taxable account to enable tax-loss harvesting at the single-stock level. Useful for high net worth + concentrated positions.

Q: Tax-loss harvesting — basic mechanics?
A: Sell a losing position; immediately buy a similar (not 'substantially identical') one; book the loss; offset capital gains and up to $3,000 ordinary income/year; carry forward forever.

Q: Net Investment Income Tax (NIIT)?
A: Additional 3.8% on investment income above $200k single / $250k MFJ. Applies to dividends, interest, capital gains, rents.

Q: Long-term vs short-term capital gains?
A: LTCG (held >1 year): 0%/15%/20% federal brackets.
STCG (≤1 year): taxed as ordinary income. Strong incentive to hold >1 year.

Q: 0% LTCG bracket — when does it apply?
A: When total taxable income (incl. gains) stays under thresholds: ~$47k single, ~$94k MFJ (2024). Useful for early retirees and harvest opportunities.

Q: Qualified vs non-qualified dividends?
A: Qualified: LTCG rates (most US large-caps held >60 days).
Non-qualified: ordinary income (REITs, MLPs, short holds). Place non-qualified payers in tax-advantaged accounts.

Q: Wash sale — definition and watch-outs?
A: Buying a 'substantially identical' security within 30 days before or after a tax-loss sale disallows the loss. Spouse's account counts; IRA repurchases permanently disallow the loss.

Q: Required Minimum Distribution (RMD) — age and amount?
A: Starts at age 73 (SECURE 2.0). Amount = balance ÷ IRS life expectancy factor. Failure costs 25% penalty. Roth IRAs are exempt during owner's lifetime.

Q: Roth 5-year rule — earnings withdrawal?
A: Each Roth IRA earnings withdrawal must satisfy both: account ≥5 years old, AND owner ≥59½ (or other qualifying event). Contributions are always tax-free.

Q: Roth conversion 5-year rule?
A: Each Roth conversion has its own 5-year clock for the converted amount to avoid 10% penalty if withdrawn before 59½. Used in Roth conversion ladders.

Q: Roth conversion ladder?
A: Convert Traditional → Roth over multiple years; each conversion waits 5 years to be penalty-free. Lets early retirees access pre-tax balances before 59½.

Q: Step-up basis at death?
A: Inherited stocks/bonds reset cost basis to the date-of-death value. Heirs sell with no capital gain on prior appreciation. Powerful for estate planning.

Q: SECURE Act — biggest IRA change?
A: Stretch IRA largely eliminated. Most non-spouse heirs must drain inherited IRAs within 10 years, not over their lifetime. Accelerates tax recognition.

Q: Mega backdoor — who can use it?
A: Anyone whose 401(k) plan allows after-tax contributions AND either in-plan Roth conversion or in-service withdrawal. Common at large tech employers.

Q: SEP IRA — what is it?
A: Simplified Employee Pension: a Traditional IRA funded by employer (or self-employed). Contribution up to 25% of compensation; high limits but no Roth option.

Q: Solo 401(k) — who's it for?
A: Self-employed with no employees (spouse OK). Contribute as employee + employer up to $69k (2024). Allows Roth + loans + high limits. Better than SEP for most one-person businesses.

Q: 529 plan — main benefit?
A: Tax-free growth and withdrawals for qualified education expenses. State income tax deduction in many states. New rule: up to $35k rollover to Roth IRA for the beneficiary.

Q: ABLE accounts?
A: Tax-advantaged accounts for people with disabilities. Doesn't disqualify SSI/Medicaid up to certain balance.

Q: 529 vs Coverdell ESA?
A: 529: high limits, K-12 + college + apprenticeships, state tax bennies.
Coverdell: $2k/yr limit, more investment flexibility, income limited. 529 is usually better.

Q: Annuity types — quick taxonomy?
A: Immediate: pay lump, get monthly income now.
Deferred fixed: like a CD inside an annuity.
Variable: subaccounts + insurance; usually expensive.
Indexed: capped equity participation; complex.

Q: SPIA (Single Premium Immediate Annuity)?
A: Pay a lump sum; receive monthly income for life. Simple longevity hedge. Use mortality credits; no liquidity. Best inflation-adjusted version is rare.

Q: Living off dividends vs total return?
A: Total-return is more efficient: sell appreciated shares at LTCG rates instead of chasing high-yield (often non-qualified) dividends. Yields are not a 'safe withdrawal' floor.

Q: Trinity study assumptions?
A: 30-year retirement horizon, 50/50 stock/bond, US historical returns, annual inflation adjustment, 4% initial withdrawal. Success defined as ≥$0 at end.

Q: Bond tent — what is it?
A: Increase bond allocation in the decade before retirement and decrease again afterward — buffers the worst sequence-of-returns years. Idea from Michael Kitces and Wade Pfau.

Q: Roth conversions in low-income years?
A: After leaving work and before Social Security, marginal rates may be very low — ideal time to convert pre-tax IRA money to Roth at the 12-22% brackets.

Q: Asset location vs asset allocation?
A: Allocation: how much in each asset class.
Location: which account holds each asset. Put tax-inefficient assets (bonds, REITs, active funds) in tax-advantaged accounts.

Q: Reasons to avoid whole life insurance as 'investment'?
A: High fees, opaque returns, illiquidity, agent commission misalignment. Buy term life; invest the difference.

Q: Term vs whole life — when does whole life make sense?
A: Estate liquidity for high net worth (>$13M exemption issues), funding a buy-sell agreement, special-needs trusts. Almost never as an investment vehicle.

Q: HSA receipt-tracking trick?
A: Pay medical bills out of pocket; let HSA grow; save receipts. Reimburse yourself decades later — tax-free, with no time limit on reimbursement.

Q: Dollar-cost averaging vs lump-sum — what does evidence say?
A: Lump-sum beats DCA ~2/3 of the time historically because markets rise more than they fall. DCA's value is psychological, not financial — helps you actually invest.

Q: Behavioral trick: automate everything?
A: Set up automatic contributions and rebalancing. Removes timing decisions. Strongest predictor of investment success isn't picking funds — it's contributing consistently.

Q: Index fund vs index ETF — Vanguard's quirk?
A: Vanguard's mutual fund and ETF share classes are linked — they have the same tax efficiency as ETFs because they cross-share the in-kind redemption mechanism.

Q: Closed-end fund vs ETF?
A: CEFs have fixed share counts; price can deviate widely from NAV (premium or discount). ETFs use AP creation/redemption to stay near NAV.

Q: Money market fund — what is it?
A: Mutual fund holding short-term debt; aims to keep NAV at $1. Three types: government (T-bills), prime (commercial paper), municipal (tax-exempt).

Q: Money market vs HYSA?
A: Money market fund: brokerage product, often higher yield, but not FDIC-insured (SIPC only).
HYSA: bank product, FDIC-insured up to $250k, slightly lower yield. Both fine for emergency cash.

Q: CD ladder?
A: Buy CDs maturing in 1, 2, 3, 4, 5 years. As each matures, reinvest at 5-year. Locks higher rates while keeping rolling liquidity. Use brokered CDs for highest yields.

Q: Brokered CD vs bank CD?
A: Brokered: sold via brokerage, often higher yields, secondary market for early sales (but may sell at loss). Bank: lock-up; early withdrawal penalty fixed.

Q: Yield to maturity (YTM)?
A: Total return if a bond is held to maturity, factoring price, coupon, and reinvestment. More meaningful than current yield for comparison.

Q: Current yield vs YTM?
A: Current yield = annual coupon ÷ price.
YTM includes capital gain/loss to maturity. YTM is the right comparison metric.

Q: Convertible bond?
A: Bond that can convert to a fixed number of issuer's shares. Hybrid risk: bond floor + equity upside. Lower coupon to pay for the option.

Q: Junk bond default rates?
A: Long-term average ~4%/year, but spikes to 10%+ in recessions. Diversification across hundreds of issuers (a fund) handles this — single junk bonds are dangerous.

Q: Investing in foreign-currency bonds — risk?
A: Currency moves can dominate bond return. A 5% Japanese bond yield can become -10% USD return if yen weakens 15%. Most foreign-bond funds hedge to USD.

Q: Hedged vs unhedged international stock funds?
A: Unhedged (default): you get the currency exposure. Adds diversification.
Hedged: removes currency. Tracks the index more tightly but loses diversification. Most prefer unhedged for stocks.

Q: Emerging markets — typical weight?
A: 5-15% of equity allocation. Higher growth potential but more volatility, governance risk, currency risk. Lower correlation to US helps diversification.

Q: Small-cap value premium — does it still work?
A: Historical excess return ~2-3%/yr; has lagged for ~20 years. Live debate whether anomaly has been arbitraged away or just on a long drought.

Q: Total stock market vs S&P 500?
A: S&P 500: ~500 large-cap US. Total market: ~3,500 stocks incl. mid/small. 85% overlap. Either works as a US core; total market is slightly more diversified.

Q: Reasons to add international stocks?
A: Half of global market cap is non-US; concentration in US is a bet; valuation diversification; currency diversification. Skeptics cite US dominance of global megacaps.

Q: Bogleheads three-fund portfolio — exact tickers?
A: VTI (US total) + VXUS (intl total) + BND (US total bond). Or Fidelity: FZROX, FZILX, FXNAX. Or Schwab: SCHB, SCHF, SCHZ.

Q: Why low-cost passive beats high-cost active over time?
A: After-fee returns track index minus expense ratio. A 1% fee compounded over 30 years removes ~25% of terminal wealth. Few managers consistently beat their bench by 1%+.

Q: Index fund concentration concern — top 10 stocks of S&P 500?
A: ~30-35% of index weight in top 10 names (mostly mega-cap tech). Some recommend equal-weight S&P 500 (RSP) to reduce concentration. Adds tracking error to the cap-weighted index.

Q: Direct vs equal-weight S&P 500?
A: Cap-weight (VOO, SPY, IVV): bigger company = bigger weight.
Equal-weight (RSP): each stock ~0.2%. Equal-weight has a small-cap and value tilt; higher turnover; higher expense ratio.

Q: Why ETFs of high-turnover strategies are still tax-efficient?
A: ETF wrapper (in-kind redemption) flushes appreciated shares without realizing gains. Active ETFs (e.g., ARKK) achieve this even with frequent trades.

Q: What is tracking error?
A: Annualized standard deviation of (fund return − index return). Low tracking error = good index fund. High tracking error means the fund is making active bets.

Q: What is alpha — practically?
A: Excess return after adjusting for beta exposure. Persistent alpha (above noise) is rare; most apparent alpha is luck, beta-mismatch, or hidden risk.

Q: Behavioral edge — how to actually capture market returns?
A: Sit still. Studies (e.g., DALBAR) show investor returns trail fund returns by 2-3%/yr due to bad timing. Automation + IPS + low-info diet beats active management.

Q: Survivorship bias in fund performance?
A: Failed funds get closed or merged; their bad returns disappear from history. Index databases overstate active-manager survival rate.

Q: Backtesting trap?
A: A strategy that worked over historical sample data may simply have been data-mined. Without out-of-sample evidence, don't bet real money on it.

Q: Sharpe ratio — typical range?
A: S&P 500 long-run ~0.4-0.5. Diversified 60/40 ~0.5-0.6. >1 is rare and usually short-lived or hides illiquidity (LTCM, Madoff).

Q: Sortino ratio?
A: Like Sharpe, but only penalizes downside volatility (uses semi-deviation). More meaningful for asymmetric returns — many investors only care about losses.

Q: Maximum drawdown — definition?
A: Largest peak-to-trough decline of a portfolio. S&P 500 max drawdown 2007-2009: ~55%. Use as a 'stomach test' when choosing allocation.

Q: Information ratio?
A: (Fund return − benchmark) ÷ tracking error. Measures consistency of active outperformance; preferred for evaluating active managers.

Q: Calmar ratio?
A: Annualized return ÷ absolute value of max drawdown. Tail-risk-adjusted return; popular with hedge funds and CTAs.

Q: Sequence risk illustration?
A: Two retirees, same average return, different order — one runs out of money, the other has 3× the wealth at end. Order of returns matters far more than averages.

Q: Liability-driven investing?
A: Match assets to specific future cash flows (e.g., pension obligations). For individuals: TIPS ladders sized to spending; mortgage paydown vs investing.

Q: Sortino vs Sharpe — when to prefer Sortino?
A: When return distribution is skewed (options, junk bonds, hedge funds). Sortino ignores 'good volatility' (upside), reflecting investor preferences better.

Q: Tax efficiency ranking (most → least)?
A: 1) ETFs of broad indexes.
2) Mutual funds with low turnover.
3) Active funds.
4) REITs/junk bonds.
5) MLPs (UBTI issues).

Q: MLP — Master Limited Partnership tax gotcha?
A: MLPs issue K-1s, can generate UBTI inside IRAs, and distributions are partially return of capital (lowering basis). Generally hold in taxable accounts; size carefully.

Q: ADRs — what are they?
A: American Depositary Receipts — US-traded shares of foreign companies (e.g., Toyota, Nestle). Settle in USD; dividend tax withholding varies by country.

Q: Foreign tax credit on international funds?
A: You can claim a US credit for taxes foreign countries withheld on dividends. Available only for taxable accounts; not for retirement accounts.

Q: Why hold international funds in taxable accounts?
A: Foreign tax credit is wasted inside IRAs. Many advisors put international stocks in taxable; bonds and REITs in tax-advantaged.

Q: Dollar-cost averaging a windfall — when does it make sense?
A: When psychological barrier prevents lump-sum investing. Otherwise, expected returns favor lump-sum. Choose what lets you actually invest.

Q: Glide path?
A: The schedule for shifting allocation as you age (often more conservative). Target-date funds embed a glide path; you can manage your own with periodic adjustments.

Q: Age-in-bonds heuristic?
A: 'Age in bonds, rest in stocks'. Useful starting point; modern guidance leans more aggressive (e.g., 120 − age in stocks).

Q: 60/40 portfolio — historical performance?
A: ~7-8% nominal annualized over decades with much lower drawdowns than all-stock. 2022 was an outlier (both legs down). Long-run case remains intact.

Q: Permanent Portfolio (Browne)?
A: 25% each in stocks, long bonds, gold, cash. Lower volatility than 60/40; lower long-run return. Useful template for capital preservation.

Q: All-Weather Portfolio (Dalio)?
A: ~30% stocks, 40% long bonds, 15% intermediate bonds, 7.5% gold, 7.5% commodities. Diversifies across economic regimes (growth, inflation, deflation).

Q: Risk parity — core idea?
A: Allocate by risk contribution, not capital. Often uses leverage on bonds to balance with stocks. Sensitive to rising rates (saw painful 2022).

Q: Inflation hedges — what tends to work?
A: Short-term: TIPS, I bonds, commodities. Long-term: equities have outpaced inflation over decades. Cash erodes; bonds vary by maturity.

Q: Gold as hedge — what's the evidence?
A: Long-run real return near zero; zero yield. Diversifier in tail events; not a reliable inflation hedge in standard 1-10 year horizons. Cap at 5-10% if used.

Q: Crypto in a portfolio — sizing logic?
A: No earnings, no yield, highly volatile. If included at all, treat as a small speculative position (≤5%); rebalance back when it spikes.

Q: Margin investing — main risk?
A: Forced liquidation in drawdowns at the worst possible time. Magnifies losses faster than gains because of borrowing cost + sequence risk. Generally avoid.

Q: Options for income — covered calls trade-off?
A: Sell upside to collect premium. Caps your return in bull markets; doesn't protect downside. Most studies show worse risk-adjusted return than buy-and-hold.

Q: Cash-secured puts?
A: Sell put options backed by cash. If assigned, you buy stock at strike (potentially below current). Generates income; reduces upside. Tax-inefficient (short-term).

Q: Leveraged ETFs — daily reset trap?
A: Leveraged ETFs (e.g., 3× S&P) reset daily — over long periods, volatility decay can produce big losses even when the underlying ends flat. Don't hold long-term.

Q: Inverse ETFs — same problem?
A: Same daily-reset decay. Useful only for very short-term hedges, never long-term shorting strategy. Use options or short the security directly for that.

Q: Robo-advisor — basic value proposition?
A: Automated allocation, rebalancing, tax-loss harvesting at low fees (0.25%/yr). Reasonable choice for hands-off investors with taxable accounts.

Q: Best brokerage for index investing?
A: Vanguard, Fidelity, Schwab — all offer zero-fee broad-index funds and free trading. Fidelity has ZERO-fee mutual funds (FZROX, FZILX). Differences are minor.

Q: Why Fidelity ZERO funds aren't strictly better than Vanguard?
A: Proprietary indexes can't be transferred in-kind to other brokerages. Locks you in. Vanguard funds are portable.

Q: Treasury Direct vs Treasury ETF (e.g., SGOV)?
A: TreasuryDirect: direct ownership, no fee, illiquid until maturity.
SGOV / BIL: brokerage-traded T-bill ETFs, tiny expense ratio, instant liquidity. SGOV is great for emergency-fund parking.

Q: SGOV vs HYSA?
A: SGOV: state-tax-exempt T-bill ETF, market-rate yield, brokerage-held. HYSA: FDIC-insured, no state tax bennie. SGOV often wins in high-state-tax states.

Q: Why not just hold cash long-term?
A: Inflation. $100 cash in 1990 buys ~$45 of 2024 goods. Cash is a short-term tool, not a long-term asset.

Q: Emergency fund — size and location?
A: 3-6 months expenses, in HYSA or short-T-bill ETF. Bigger if commission income or job risk. Don't 'invest' it in stocks even with 'extra' returns.

Q: Loss aversion — Kahneman finding?
A: Losses feel about 2× as bad as equivalent gains feel good. Drives panic-selling in drawdowns. Counter: pre-commit allocation via written IPS.

Q: Recency bias — investing example?
A: Chasing last year's hot fund; piling into crypto after a 10× run. Cool-off rule: never make allocation changes within 30 days of a big move.

Q: Mental accounting — pitfall?
A: Treating 'house money' (recent gains) differently from 'principal'. Money is fungible — manage the whole portfolio together.

Q: Anchoring — example with stocks?
A: 'I'll sell when it gets back to what I paid.' Cost basis is irrelevant to the forward-looking decision; only intrinsic value and tax cost matter now.

Q: Confirmation bias — antidote?
A: Seek the strongest case against your position; subscribe to a contrarian source. Or: just hold an index fund and skip the debate.

Q: Endowment effect — example?
A: Inherited stock you'd never buy fresh, but won't sell because it's 'the family stock'. Step-up basis is a powerful nudge to evaluate fresh after inheritance.

Q: Investor returns lag fund returns — how much?
A: ~2-3%/yr (Morningstar 'Mind the Gap', DALBAR studies). Mostly from poor timing — buying after rises, selling after falls.

Q: Why automate contributions?
A: Removes monthly decisions. Tax-day timing studies show no clear advantage to picking dates — consistent contributions over years swamp timing.

Q: Lazy portfolio idea?
A: A handful of index ETFs, rebalanced annually, ignored otherwise. Most lazy portfolios match or beat sophisticated portfolios after fees.

Q: Why most market predictions fail?
A: Markets price in known information almost immediately. To beat the market, you need a non-consensus view that turns out correct — rare and unrepeatable.

Q: Hedge funds — typical fees?
A: '2 and 20': 2% management fee + 20% of profits above a hurdle. After fees, average hedge fund has trailed simple 60/40 for years.

Q: Private equity — main investor caveats?
A: Illiquidity (10-year lockups), lagged mark-to-market (smooth volatility is reported, not real), high fees, manager-selection risk. Public markets simpler for most.

Q: J-curve in private equity?
A: Returns dip negative early (fees, write-downs) then rise as investments mature. Plan liquidity around it.

Q: Venture capital — base-rate reality?
A: Most startups fail; a few 100×s carry the fund. Highly skewed, illiquid. Diversify across many funds and vintages if accessing at all.

Q: Vintage diversification — what is it?
A: In PE/VC/real estate funds, diversify across years (2020 fund, 2021 fund, etc.). Smooths economic-cycle risk.

Q: DRIP (Dividend Reinvestment Plan)?
A: Automatically reinvest dividends into more shares of the same security. Compounds without action. Most brokerages offer free DRIP on ETFs/mutual funds.

Q: Why DRIP can complicate taxes?
A: Each reinvestment creates a new lot with its own cost basis and holding period. Tracking matters when selling — use specific-lot accounting.

Q: Specific-lot tax accounting — when use it?
A: When holding both short-term and long-term lots and want to control which is sold. Default (FIFO) often sells lowest-basis first; specific lot lets you minimize gains.

Q: Average cost basis — pros and cons?
A: Simpler; mutual funds may default to it. Less optimization but adequate for most. Can switch to specific-lot, but not back.

Q: Cost basis reporting — covered vs non-covered?
A: 'Covered' shares (purchased after 2011 for stocks, 2012 funds) have basis reported to IRS. Non-covered: you report it. Save brokerage statements forever.

Q: Tax-loss harvesting — annual income offset?
A: Capital losses offset gains 1:1. Excess loss offsets up to $3k of ordinary income. Carries forward indefinitely. Married filing separately: $1.5k.

Q: Substantially identical security — IRS guidance?
A: No bright line. Practically: don't swap SPY for IVV (both S&P 500). Safer: swap S&P 500 for total US market or large-cap value during 31-day window.

Q: Why hold the alternative fund for at least 31 days?
A: Sale + repurchase within 30 days triggers wash sale. Hold the alternative through day 31, then swap back if desired.

Q: Capital gains distribution — surprise tax bill?
A: Mutual funds distribute embedded gains to shareholders late each year — taxable even if you reinvest. ETFs almost never distribute. Bad if you bought a mutual fund in November.

Q: December tax-gain-harvesting (0% bracket)?
A: If income is low, sell appreciated lots, immediately re-buy. Realize gains at 0% LTCG and reset cost basis higher. Repeats yearly while in 0% bracket.

Q: Stock-based comp — what concentration risk?
A: Concentration in employer stock + paycheck dependency. Vest → sell → diversify is a common rule. Specific-lot harvest if locked up.

Q: 83(b) election — RSU vs RSA?
A: 83(b) elects to be taxed now (at low value) on restricted stock awards. Pays small tax now to start LTCG clock; great when share price is low. RSUs cannot use 83(b).

Q: ISO vs NSO — tax difference?
A: ISO: no tax at exercise (AMT may apply); LTCG if held 2 years from grant + 1 year from exercise.
NSO: ordinary income at exercise on spread; LTCG only on subsequent gain.

Q: AMT trap on ISOs?
A: Exercising ISOs without selling triggers AMT on the spread. Many employees got crushed in 2000 dotcom crash. Plan ISO exercises carefully.

Q: Social Security claiming basics?
A: Full Retirement Age (FRA): 66-67. Each year delayed to 70 = ~8% larger benefit. Claim early (62) for ~30% reduction. Higher-earning spouse usually delays.

Q: Spousal Social Security?
A: Up to 50% of spouse's PIA available. Survivor benefit equals deceased's larger benefit (own or spouse's). Important to maximize the higher earner's benefit.

Q: Spend-down order in retirement (common heuristic)?
A: Taxable → Traditional → Roth. Lets Roth grow tax-free longest. Real planning often shuffles between to manage brackets and Roth conversions.

Q: 'Tax torpedo' — what is it?
A: Social Security taxation kicks in based on combined income. Adding $1 of IRA withdrawal can push 50-85% of SS into taxable income, creating effective marginal rates >30-40%.

Q: Health insurance subsidy cliff (pre-65)?
A: ACA subsidies phase out by income. Early-retiree Roth conversions or capital-gains harvesting can blow up subsidies. Model carefully.

Q: Estate exemption (US, 2024)?
A: $13.61M per individual; $27.22M per couple. Scheduled to halve in 2026 unless extended. Above the exemption: 40% federal estate tax.

Q: Portability — what is it?
A: Surviving spouse can claim unused estate exemption from deceased spouse (DSUE). File a 706 to elect, even if no tax due. Easy way to double exemption.

Q: Why a revocable trust isn't an estate-tax tool?
A: It avoids probate (state-level cost/delay) but doesn't reduce estate tax. Irrevocable trusts reduce estate tax by removing assets from the estate.

Q: QCD (Qualified Charitable Distribution)?
A: After 70½, donate up to $105k/year directly from IRA to charity. Counts toward RMD; not in taxable income. Best charitable tool for older IRA owners.

Q: DAF (Donor-Advised Fund) — quick mechanics?
A: Front-load multi-year charitable giving in one year for big deduction; grant to charities over time. Works well with appreciated stock (no capital gain).

Q: Charitable remainder trust?
A: Donate appreciated asset to trust; you (or a beneficiary) get income for life or a term; remainder to charity. Defers/avoids capital gains; gets partial deduction.

Q: Real estate vs REITs — which counts as 'real estate'?
A: REITs trade like stocks; high stock-correlation. Direct real estate has unique cash flow, leverage, depreciation, and is illiquid. They behave very differently.

Q: Cash-on-cash return (real estate)?
A: Annual cash flow ÷ total cash invested (down payment + closing). Measures yield on the cash you actually deployed.

Q: Cap rate?
A: NOI ÷ property value. Compare across properties. Doesn't account for financing; pair with cash-on-cash for leveraged returns.

Q: 1031 exchange?
A: Defer capital gains by reinvesting real-estate proceeds into 'like-kind' property within 180 days. Lets you compound pre-tax. New limits exclude personal-property exchanges.

Q: Depreciation in rental real estate?
A: 27.5-year straight-line for residential, 39 years for commercial. Creates paper losses to offset rental income; recaptured at sale (25%).

Q: House hack?
A: Buy multifamily; live in one unit; rent the others. Owner-occupant financing terms (lower down, lower rate). Common entry path into real estate.

Q: Why low expected returns on bonds in 2024-2025?
A: Real yields are positive again (TIPS ~2%) after years of zero. Bonds re-priced; forward expected real returns better than the 2010s.

Q: Bucket strategy in retirement?
A: Bucket 1: 1-2 years cash. Bucket 2: 3-10 years bonds. Bucket 3: 10+ years stocks. Spend from cash; refill periodically. Behavioral aid against panic-selling.

Q: Donating appreciated stock vs cash?
A: Donate stock: deduct fair market value; avoid capital-gain tax. Donate cash: deduct cash. Stock is strictly better for appreciated long-term holdings.

Q: Insider trading — Rule 10b5-1 plan?
A: Pre-arranged trading schedule for company insiders to avoid being accused of trading on material non-public info. Common for executive RSU sales.

Q: Liquidity premium?
A: Extra expected return demanded for illiquid assets (private equity, real estate, lockup hedge funds). Often overstated because illiquidity-driven smoothing hides volatility.

Q: Why volatility is not the same as risk?
A: Volatility = short-term price wiggle. Risk = permanent loss of capital, or failure to meet goals. Long-horizon investors should fear permanent loss more than volatility.

Q: Reinvestment risk in bonds?
A: Coupons received when rates are low must be reinvested at low rates. Important for ladders and bullet strategies. Bond funds smooth this automatically.

Q: Floating-rate bonds?
A: Coupons adjust with a benchmark rate (e.g., SOFR). Low duration; benefits in rising-rate environments. Higher credit risk in floating-rate loan funds.

Q: Stable Value funds (in 401(k))?
A: Guaranteed-rate cash-like option; insurance-wrapped short bonds. Yield often beats money market. Only available inside retirement plans.

Q: TDF (Target-Date Fund) — main critique?
A: Glide paths vary widely between providers; some are too conservative or too aggressive for your situation. Fees range 0.04% to 0.60%. Audit before defaulting.

Q: Why TDF still wins for most people?
A: Auto-allocation, auto-rebalancing, age-appropriate risk. Replaces dozens of decisions with one. Default isn't optimal but is far better than 'I'll figure it out later'.

Q: Lifecycle finance — Bodie's idea?
A: Human capital (future earnings) is bond-like for most workers. Compensate with stock-heavy portfolio early career; shift toward bonds as human capital depletes.

Q: Marginal vs effective tax rate?
A: Marginal: rate on the next dollar earned.
Effective: total tax ÷ total income. Investment decisions (Roth vs Traditional, harvesting) use marginal rate.

Q: Standard deduction (2024)?
A: $14,600 single; $29,200 MFJ. Itemize only if SALT + mortgage + charity exceeds this. Most retirees take standard.

Q: Tax-bracket targeting — common retirement strategy?
A: Withdraw / convert just enough to fill the lower brackets (12% or 22%) each year, avoiding the next bracket. Smooth lifetime taxes.

Q: Why marginal tax rates may rise in retirement?
A: Loss of deductions (mortgage interest, dependents), Social Security taxation, RMDs forcing income, brackets indexed slower than wage growth.

Q: 529 superfund?
A: Front-load 5 years of gift-tax-exempt contributions in one year (currently $90k single / $180k joint per beneficiary). Maximizes tax-free growth runway.

Q: Custodial accounts (UTMA/UGMA) — caution?
A: Becomes child's property at majority (18-21). Affects financial-aid more than 529. Use sparingly; 529 usually better.

Q: Kiddie tax — what is it?
A: Unearned income for kids under 19 (24 if student) over $2,600 (2024) taxed at parent's rate. Limits the 'invest in the kid's name' trick.

Q: Why volunteer work doesn't generate Roth contribution room?
A: You need 'earned income' to contribute. Children's allowances, dividends, gifts don't count. Real W-2/1099 work does.

Q: Married filing jointly vs separately — investing impact?
A: MFJ usually better. MFS restricts Roth, harms passive losses, halves capital-loss limit. Only good in narrow cases (income-driven student loans, large medical bills).

Q: SALT cap and high-tax-state strategies?
A: $10k state and local tax deduction cap. Hits high earners in CA/NY/NJ. Strategies: muni bonds (federal-exempt), Roth heavy (no state tax later if relocating).

Q: Pre-tax 401(k) salary deferral limit (2024)?
A: $23,000 ($30,500 with catch-up at 50+). Roth and pre-tax share the same limit. Employer match is separate.

Q: Mega backdoor — total 401(k) limit (2024)?
A: $69,000 (employee + employer + after-tax). $76,500 with catch-up. After-tax space = $69k − $23k − employer match.

Q: Catch-up contributions?
A: At 50+: extra $7,500 in 401(k); $1,000 in IRA. SECURE 2.0 increased 60-63 catch-up to ~$11k starting 2025.

Q: 'Backdoor Roth' clean-up — Form 8606?
A: File Form 8606 to track non-deductible Traditional IRA contributions (basis). Prevents double-taxation on conversion. Required every year you contribute non-deductibly.

Q: Net Unrealized Appreciation (NUA) — when use?
A: If you have appreciated company stock in your 401(k), distribute it in-kind at retirement. Pay ordinary tax on cost basis; LTCG on growth. Significant tax savings for long tenured employees.

Q: Why pay off mortgage early vs invest?
A: Tradeoff: mortgage rate (after tax) vs expected investment return. With 3% mortgages, math favors investing. With 7% mortgages and lost SALT deduction, math closer.

Q: Liquidity vs asset allocation trade-off?
A: Highly illiquid assets (real estate, private equity, business equity) deserve a discount in 'how much to count toward retirement' — you can't sell them at any price.

Q: What's a 'core and explore' portfolio?
A: 80-90% boring index core. 10-20% explore (individual stocks, sector tilts, alternative bets). Caps damage from bad ideas; satisfies the urge to do something.

Q: Yearly portfolio review checklist?
A: 1) Rebalance toward target.
2) Tax-loss harvest losing lots.
3) Max retirement contributions.
4) Update beneficiaries.
5) Re-read IPS. Set a recurring calendar event.