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TRUE
FALSE
For tax-managed portfolios, the after-tax return can be greater than the pretax return.
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You got just one out of the six questions right.
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Put Your Investing Knowledge to the Test
Six true-or-false questions to help you brush up on your financial literacy.
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You answered two of the six questions correctly.
But look on the bright side: It means there’s room
for improvement!
You’re halfway there
You got three of the six questions correct.
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The after-tax return can be greater than the pretax return because tax losses can count as a tax benefit, given their ability to help reduce current or future tax costs.
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This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
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You got zero out of the six questions right.
Zip. Nada. Zilch. You can do better
than that, can’t you?
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Pretty good
You answered four of the six questions correctly.
Not bad, but why stop there?
So close
You got five out six questions correct.
Just shy of perfection!
Nicely done
A+ for you—you got all six questions right!
You’re financially fluent.
INCORRECT
TRUE
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TRUE
FALSE
Screening out certain types of companies in a portfolio is a good way to get those companies to change their behavior.
An investor can sell their shares of a company only if another investor is willing to buy them, and presumably that buyer would be unconcerned by the company’s behavior. A more effective way to move the needle on corporate behavior is through active ownership—owning the company and exercising your rights as a shareholder (through proxy voting, for example).
FALSE
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INCORRECT
TRUE
FALSE
Wondering whether now is the right time to sell
a bond? Looking at the
bid-ask spread is the best way to find out.
The bid-ask spread captures the transaction cost of buying or selling
a bond—not a bond’s valuation. Evaluating the spread over Treasuries is a better way for investors to determine whether the market is near a top or bottom or what type of price they can get on a bond. Investors typically seek to sell at the narrowest spread over Treasuries.
CORRECT
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INCORRECT
TRUE
FALSE
The higher a portfolio’s tracking error, the worse it’s performing compared with its benchmark.
Despite incorporating the word "error," tracking error isn’t a bad thing, and it doesn’t mean a portfolio is lagging its benchmark. (In fact, it could be beating it.)
So what is tracking error? Simply put, it measures the magnitude—not the direction—of the differences in a portfolio’s excess return compared with its benchmark.
CORRECT
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INCORRECT
TRUE
FALSE
Tracking error is found
in every type of
managed portfolio.
All managed portfolios behave slightly differently from their benchmark indexes on a
day-to-day, month-to-month, and year-to-year basis. This difference creates a wobble in the portfolio’s performance in relation to its benchmark. Tracking error measures the degree of this wobble.
INCORRECT
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CORRECT
TRUE
FALSE
Investors use screens
to divide the investment universe into acceptable and unacceptable investments.
For example, investors often use screens to build a portfolio that’s consistent with their environmental, social, or governance (ESG) principles. Some also use screens as a means of seeking to generate strong financial performance by reducing risks in their portfolio.
INCORRECT
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CORRECT
This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
Stay financially savvy with our latest insights and research
YOUR RESULTS
This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
Stay financially savvy with our latest insights and research
YOUR RESULTS
This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
Stay financially savvy with our latest insights and research
YOUR RESULTS
This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
Stay financially savvy with our latest insights and research
YOUR RESULTS
This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
Stay financially savvy with our latest insights and research
YOUR RESULTS
This information has been provided for discussion purposes only. It does not purport to address all the financial, tax, and legal considerations relevant to investors. No representation or warranty can be given with respect to the accuracy or completeness of the information contained herein. Parametric does not provide legal, tax, or accounting advice or services. Investors should consult with their own tax or legal advisor prior to entering into any transaction or strategy described herein. The views and strategies described may not be suitable for all investors.
Stay financially savvy with our latest insights and research
YOUR RESULTS
CORRECT
INCORRECT
CORRECT
INCORRECT
An investor can sell their shares of a company only if another investor is willing to buy them, and presumably that buyer would be unconcerned by the company’s behavior. A more effective way to move the needle on corporate behavior is through active ownership—owning the company and exercising your rights as a shareholder (through proxy voting, for example).
The bid-ask spread captures the transaction cost of buying or selling
a bond—not a bond’s valuation. Evaluating the spread over Treasuries is a better way for investors to determine whether the market is near a top or bottom or what type of price they can get on a bond. Investors typically seek to sell at the narrowest spread over Treasuries.
The after-tax return can be greater than the pretax return because tax losses can count as a tax benefit, given their ability to help reduce current or future tax costs.
For example, investors often use screens to build a portfolio that’s consistent with their environmental, social, or governance (ESG) principles. Some also use screens as a means of seeking to generate strong financial performance by reducing risks in their portfolio.
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Despite incorporating the word "error," tracking error isn’t a bad thing, and it doesn’t mean a portfolio is lagging its benchmark. (In fact, it could be beating it.)
So what is tracking error? Simply put, it measures the magnitude—not the direction—of the differences in a portfolio’s excess return compared with its benchmark.
All managed portfolios behave slightly differently from their benchmark indexes on a
day-to-day, month-to-month, and year-to-year basis. This difference creates a wobble in the portfolio’s performance in relation to its benchmark. Tracking error measures the degree of this wobble.
Despite incorporating the word "error," tracking error isn’t a bad thing, and it doesn’t mean a portfolio is lagging its benchmark. (In fact, it could be beating it.)
So what is tracking error? Simply put, it measures the magnitude—not the direction—of the differences in a portfolio’s excess return compared with its benchmark.
All managed portfolios behave slightly differently from their benchmark indexes on a
day-to-day, month-to-month, and year-to-year basis. This difference creates a wobble in the portfolio’s performance in relation to its benchmark. Tracking error measures the degree of this wobble.
Despite incorporating the word "error," tracking error isn’t a bad thing, and it doesn’t mean a portfolio is lagging its benchmark. (In fact, it could be beating it.)
So what is tracking error? Simply put, it measures the magnitude—not the direction—of the differences in a portfolio’s excess return compared with its benchmark.
All managed portfolios behave slightly differently from their benchmark indexes on a
day-to-day, month-to-month, and year-to-year basis. This difference creates a wobble in the portfolio’s performance in relation to its benchmark. Tracking error measures the degree of this wobble.