well greetings and salutations test takers this is the series 7 Guru uh coming to you from my offgrid studio we have a brave test taker she's agreed to uh help us with some suitability people are always asking Hey Dean do you have suitability stuff and I have a suitability playlist uh that has four videos in it but this is something we haven't put up on the channel uh that we're going to put up on the channel in terms of investment objectives and goals uh suitability Association what I mean by associations I always say you know if you are struggling with suitability questions which are judgment questions the stronger you are on products investment vehicles the easier it will be to either do process of elimination know what's clearly unsuitable given somebody's investment objectives and get you closer to what is suitable and that's kind of the game plan when associating the product uh so here we go we're going to talk about preservation of capital so if I say to you as a a baby broker preservation of capital should be thinking money markets government securities agencies of those um what can you tell me about money market Securities as it relates to the test as an investment vehicle money market Securities are good during um shorttime Horizons when the customer wants um safety of principal um say they were purchasing um a home in 6 months and they needed something fairly liquid to be able to lock up their Securities for a short period of time um they're backed by the full faith in credit of the government which gives them whoa whoa whoa slow down my friend start it out very good you said Dean if a customer is looking for preservation of capital and has a short time Horizon we would recommend money market Securities or a money market fund would be an appropriate recommendation but then you went a little off the rails a little bit because money market funds money market Securities as high quality debt maturing in less than 12 months the best money market security is a treasury bill however there are other things that do not have the full faith in credit of the unit credit of the yes I call that instruments like um what was the question you said I get kind of slowed you down a little bit SL because you were talking about full faith and credit of the United States government and I then said whoa whoa whoa whoa whoa hold on we've got other money market instruments that aren't t- bills correct that aren't T t- bonds with less than a year right um commercial paper there we go commercial paper commercial paper which is issued at discount has a max maturity of uh commercial paper 270 days right on right on what else besides commercial paper t- bills T ones with less than a year uh Bankers acceptances sometimes excellent Bankers acceptances which are used to um Bankers uh export foreign um trade there you go so you're used to facilitate foreign trade excellent excellent okay we got one more what's one more money market security so far we got Bankers acceptances commercial Pap bers commercial paper t- bills BS and and I don't know why I'm blanking on this final one I'm trying to think no worries I'm asking to peel it out of the stratosphere negoti jumbo CDs oh yes negotiable jumbo CDs yes those are also money market and those are a 100,000 dollar 100,000 negotiable mean secondary Market excellent okay so let's move on to our next one we kind of hinted government securities uh T bills preservation of capital remember is the heading so preservation of capital government securities would be t-notes uh T bills t- bonds uh tips uh you know even I would even throw even treasury receipts in there even though those aren't really government securities they government securities are broker dealer stripped Jenny May is very testable I know you're getting this right what should you know about J ma besides they're in this C because they have the full faith in credit of the United yes and they pay interest in principle monthly very testable and they're considered the safest of the government agencies yeah because of that full faith and credit and then remember the other thing to know is they're fully taxable yes at the state okay so now my question to you is why are equities and direct participation programs why are those in the category of being unsuitable on the right hand of the screen here for preservation of capital right on um dpps are highly El liquid and they're a little bit more of a risky investment so if you're trying to preserve your Capital you're not going to do so by an eLiquid investment yep INE equities expose you to what kind of risk equities expose you to um inflation well they're good hedge against inflation we're not talking about INF hedge against inflation sorry I'm thinking of bonds I'm asking about they're bad for they expose you to systematic risk systematic risk yes Market risk move together all right so somebody tells me they're interested in current income uh we have lots of uh investment vehicles that can pay you uh invest interest income we have government Securities that pay you semiannually uh Municipal Securities that pay you semiannually and corporate bonds that pay you semi anually and so these would all be appropriate for somebody who says they need current income uh we have Jenny May if it says monthly that's a boy that's a layup on the test right comp customer says I need monthly income woohoo you know then we say all right um equities and again Partnerships would not suit this there are some equities that may be okay for this uh investment objective may be suitable and uh preferred stocks would certainly be suitable for this per perhaps uh customer right uh preferred stocks don't pay semiannually and Common Stocks don't pay uh semiannually if a stock does pay you it would be quarterly now sometimes uh if we're asking about debt Securities and preferred stocks we put that in a category called fixed income investment vehicles and so what is the risks of a fixed income investment vehicle um that would be like interest rate and inflation risk it's fixed nailed it you nailed it it's exactly right right if interest rates go up these Securities in your portfolio are going down down now that's in the secondary market so I mean that doesn't affect you if you're not going to be you know transacting business and you also have purchasing power risk the risk that you know I always joke about going to noris which is my favorite Italian Restaurant in Las Vegas and you know if I have a bond paying me 8% $40 every quarter you know that $80 will buy me a nice dinner at noris but you know if I go into Norris 10 years from today you know that $80 may not buy me a nice Italian meal with a couple cocktails right so uh not all Common Stocks pay dividends not all Common Stocks do we associate dividends with mature stable businesses and utilities are certainly mature stable businesses as it relates to the test what else can you tell me about a utility stock besides that it's a a Rel reliable dividend paying kind of a stock uh wouldn't you wouldn't that be suitable for like period of um like deflation or if the you're right on you're right on these are considered utility stocks are considered defensive because their products and services are resilient to the business cycle know Peter Lynch is a legendary portfolio manager at Fidelity and I recommend reading everything he's ever written about Investments but one of his tenants is you should only buy stocks that any idiot could run companies because sooner or later some idiot will be and you know he says he likes the Simplicity of a utility company you know people don't pay their bill you shut down shut off their power right now these utility companies have what we call a higher dividend payout ratio of their earnings they pay out a larger portion as a distribution of their shareholders a dividend that's called the dividend payout ratio counterintuitive but utility companies borrow lots of money in terms of their capitalization which is equity debt a large suction of is debt so their interest rate sensitive now any type of investment vehicle we have you can find that same investment vehicle in mutual funds and so what would be the advantage of buying a mutual fund that owns government securities or a mutual fund that owns Municipal Securities or a mutual fund that owns corporate does uh debt Securities or preferred stock or dividend paying out St uh dividend paying stocks um wouldn't that just be more tax efficient and give you that a broader diversification there you go you nailed it the advantage of owning these debt Securities preferred stocks or dividend paying omon stocks in the context of a mutual fund is you get professional management and you get diversification and then it's just easier owning a mutual fund than it is to actually own the individual Securities all right so Capital Growth moving on uh my customer says he's interested in growth you know the the three major uh you know things that people are interested in the Holy Trinity if you will is growth income or safety a principle and so if my customer says growth is what they're interested in know the way I say this is there's only two ways to make uh money the income stream Andor price appreciation and so if somebody tells me they're interested in a Capital Growth in their portfolio their Investments we would not recommend a debt security yeah I mean could you get a little growth perhaps as the FED lowers interest rates but you know the way I think of debt Securities and why they're unsuitable here is because people who are buying bonds are for the most part already where they're at financially they're not trying to get ahead they're just trying not to get behind that is not true somebody who's buying common stock so that would be a great recommendation for somebody who wants Capital Growth uh what else would make that a good recommendation um it'd be a good recommendation for someone that's trying to um combat inflation there you go you nailed it right so somebody's trying to beat inflation you know the two major impediments to investment success are uh Taxation and inflation if you can be Taxation and inflation you're getting ahead so you nailed it right common stock be careful sometimes people confuse tips with common stock and you know the tip keeps Pace it doesn't beat inflation I mean if you get out of your time machine 10 years from today with tips you'd have the same purchasing power that's a little different than if you get out of your time machine 10 years from day and you had Common Stocks you would have hop you would actually have additional purchasing power I mean there's no sense in delaying gratification if you don't have more purchasing power all right as I just said the two major impediments to investment success are Taxation and inflation so you say Hey Dean I'm interested in tax advantaged Investments or tax favored Investments we wouldn't recommend corporate Securities because corporate Securities are taxable they're taxable the federal level they're tax at the state level we might still recommend them in the context of being an rapper of some sort and so what can you tell me about Iris um they're qualified Investments right well I like I'm not g to call you out on saying qualified because for test there's certain ones that mean by why I'm not going to call you out on that qualified would mean something like uh pre that's why I'm saying that's okay because I don't think that would cause you any misses on your test you know what you're going to do is reduce your adjusted gross income assuming you're qualify you know you may may not be able to do this but you know you might be able to fund an IRA and take your gross income you're paying taxes on down and what should you fund the IRA with you should fund the IRA with cash and then you should use it to buy Securities and so that money in your IRA is going to grow tax deferred when could you choose to draw down that tax deferral is why it's tax favored what age could you choose to draw down uh 73 and a half right now be careful what I asked I asked when could you choose oh 59 and a half there you go win must sorry I couldn't really hear you over the question that's okay that's all right rmd is right 73 right so rmd is very testable is there a type of Ira that has no rmd uh the Roth um has no rmd that's right on uh tax favored annuities annuities are tax favor the reason you have tax deferred right so both of those are tax favored Investments so if the customer says Dean I'm interested in tax favored Investments uh you know then we might uh you know these are arrows and our Quivers so to speak um it's important the customer understand whether it's an IRA or an annuity uh that uh they're going to be paying tax taxes at ordinary income tax rates when they're taking distributions so you know when they get to 59.5 you know they're going to have perhaps a you know tax implication there right uni bonds pay tax free interest so that would be great for somebody in the high tax bracket right so now by the way be careful if it's a mutual fund that has mun Bonds in it the taxfree interest is distributed you to a dividend so you know again for all these we might actually uh recommend the mutual fund version of it versus the individual mun bonds right um corporate diversification we talked about systematic risk and diversification uh you know is an important concept but in diversification is where you own more than one security or you own a mutual fund and you know the fewer the Securities you have the more exposed you're going to be to nonsystematic risk nonsystematic risk right systematic risk you told me earlier correctly is the tendency of securities prices to move together you still have that in a mutual fund non-systematic risk is associated with a lack of diversification and what we call selection risk right so which is like business legislative right on right on right and those are risks that can be Diversified away or mitigated through diversification right on right and then with systematic it's um Market purchasing power and interest rate risk are all systematic risks that cannot be Diversified away there you go there you go perfect perfect perfect we talked about pacing with inflation and we said if somebody's worried about purchasing power risk inflation risk they risk that in the future the same amount of dollars are not going to buy you the same level of products and services common stock or common stock mutual fund annuities yeah I this one with a passion so be careful here and what I hate about this with a passion is as compared to a fixed annuity yeah wellity is subject to inflation because it's fixed that's right the variable anity has that separate account now don't tell any of my insurance friends but I just think you know as it relates to Investments variable nties really kind of suck with the other things available to us so there are heightened suitability questions about that variable annuity that first we shouldn't be funding a variable annuity until we've taken advantage of every other thing available to us right you know like Iris for example or 401k or whatever you know we have available to us all right we talked about liquidity you nailed it there's an exact question uh about the uh buying a house you know the question goes something like you know uh your client is being relocated has sold their house in New York or California and they're being relocated to Texas or Florida and uh you know they're going to be renting until they just uh have a neighborhood they like and then they're going to buy a house and so they're going to need that money they got from the Arbitrage of the house in New York and the house in California versus the house that they're going to buy in Florida or uh Texas uh what should they do with the money and you nailed at money market is there um ever a situation where a um government agency fund like the Jenny May Fanny May um is going to be more suitable than a money market fund with someone with a shortterm no no no because the remember the jinny May portfolio has interest rate risk because the people in the mortgages uh can refund refinance I can't imagine where that would be the correct answer where I thought you were going and uh you know this could be uh we do have money market mutual funds for political subdivisions cities and counties and school districts called local government investment pools and they too would be buying these money market Securities so I thought that was where you're heading but no I can't think of where we would be buying that now listed Securities are very marketable right right you can turn your money back uh your stock and the money in t plus one I I I thought it was interesting I was watching an interview with Mark Cuban about selling the controlling interest in the Dallas Mavericks and and they were asking him what made him decide to sell his controlling interest and he said well he said you know when I first uh you know bought the Dallas Mavericks I was one of the more sophisticated owners in the in the league and and you know I had resources and I could buy like a draft pick for 10 million and then he says all of a sudden Steve Balmer shows up and sells $2 billion worth of Microsoft stock and uh buys the Clippers and then sells another $5 billion worth of Microsoft stock to build a new Arena and you know I thought man you know the the nature of this business uh is changing and there's all kinds of these folks that have a liquid net worth like Balmer $180 billion dollar right and I saw him being interviewed and he said he decided that he was going to come in with a knockout bid just sell some Microsoft stock to knock oer off there opr was bidding for the Clippers and David geffin these are all billionaire people but they just don't have a liquid net worth like Balmer does uh not a coincidence Cuban sold to the Adon family the Adon family again did the same thing as Balmer they just sold X number of shares of the Venetian uh to you know cash out you know Mark Cuban so a NASDAQ New York Stock Exchange security can be turned into uh money very quickly now I'm going to talk about something I don't usually talk about and I'm going to talk about it now in this video uh thank you for uh sharing and allowing people to you know take a free ride with you there's a difference between marketability and liquidity you know so I want to bring this up as it relates to listed Securities liquidity is how quick can you turn an investment Into Cash marketability is how quick can you turn it into cash at close to the price you paid right so money market funds are both liquid and marketable they're liquid and marketable because the nav is held at a dollar same thing with local government investment pools now that Microsoft stock could go up or down right so on any given day that could be a difference right uh mutual funds how do uh you get access liquidity to mutual funds you know how you would access liquidity in a mutual fund well the mutual fund is an open-end fund so you would do it at the nav there you go so if you send in a Redemption request to your mutual fund how long before you would expect to have that cash seven days good job excellent seven days right so anytime you want you can put in the Redemption request uh how much money are you going to get when you put in the Redemption request um the nav at the end of the business day yeah from when you receed forward yeah there you go you nailed it that's that's an idea of forward pricing thenly traded Securities don't have much liquidity because again there's going to be a bigger spread you know the thing here in terms of unsuitability I like to use is automobiles right you know I have a hondai Santa Fe you over the course of my career I've had many different cars some of them pretty exotic and those cars aren't very marketable or liquid like turning a you know Audi R8 back into money it's going to be a bigger difference between the bid and the ask same thing with Securities right if I am a Lamborghini dealer I probably don't sell buy or sell many Lamborghinis but when I do the spread's huge if I sell hondai or you know K or you know things like that you know uh my spread's going to be a little smaller now be careful not every security that is thinly traded is a penny stop right what we're saying here is thinly traded Securities would be an inappropriate unsuitable recommendation for somebody needs liquidity but there are penny stocks and tially penny stocks are thinly traded there's a huge difference between the B the ask could be a nickel on the bid and uh you know 25 cents on the ask uh what is the definition of a penny stock one of the risks in penny stocks is this idea of they thinly traded at bigger spreads but what is that definition um it's an over-the-counter um under five stock um it's not traded on any National Exchange there you go so non NASDAQ OTC stock under five you're you're absolutely correct why are direct participation programs guaranteed test question why are direct par participation programs an unsuitable recommendation for somebody needs liquidity um they're I know that they're on um El liquid and they're El liquid because they're private yeah because you can't get in or out out without the permission of the general partner and they're very risky Investments and you have to sign a oh I like yeah suitability saying you understand what you're doing right so you know later on when you say you didn't understand that we say you know you said you did customers go backwards a lot so speculation derivative products uh I wouldn't worry about Futures as it relates to your Series 7 because we don't offer Futures with our Series 7 you know I I joke with your Series 7 registration you're going to be a master of disaster a jack of all trades master of none you can pretty much do anything except Futures but what are some of the speculative option strategies uh available somebody who wants to speculate um wouldn't that be all the hedging well it would be the opposite the hedging the opposite of the hedging right speculation is the option of hedging so it's everything oh okay I don't know why I misunderstood that's all right that's no big deal right opposite of hedging yeah so this would be where you're buying or selling volatility on a stock price that's it period you're not you're not buying the stock you're not going along the stock you're not going short the stock You're simply using options to either buy or sell the volatility you're betting on the volatility of a stock and we have some strategies for making bets you're either buying the volatility or selling it uh what would be some bets you could be uh I'm saying this a little differently by the way in this video than I usually uh express it yeah because it's a new video and you know we're always trying out new things and thanks for you know being a beta for trying out new things so uh I'm referring to this instead of being bullish or bearish I'm referring to this as either buying or selling volatility so if you're buying upward volatility you're buying upward volatility that means you're making a bullish bet on the stock price it is very difficult to be a Speculator and buy an option and make money and here's why you would have to be right about three things Direction here I'm telling you we're buying upward volatility you'd have to be right about how far and you got to be right about timing so what are some things where we could speculate by buying upward volatility uh buying upward volatility I would think of buying a straddle uh well that would be buying non volatility okay I think I'm just misunderstanding by the way well I'm saying I'm saying it rather I'm saying it purposely in a bad a harder way right so if we're buying upward volatility one thing we could do is a long call right that's long call so we're speculating on the price going up right so you say Hey Dean I think this stock is going up and I say well you know you want to buy the stock or you want to make a bet buy a lottery ticket on the stock when you say volatility with options my mind just goes into a straddles well that that's okay for test purposes it certainly is uh we can buy a call so we we'd be buying upward volatility we would be bullish bullish correct what else could we do you could sell a put we could sell a put right on and if we sell the put we're selling the upward volatility right we're we wanted to go up so we can keep the money right on so you know one thing you could add to this as a Speculator is I might say hey uh we could lower our out-of-pocket cost on the long call by doing a debit call spread we would need less volatility less upward volatility cover our out- of-pocket cost if we sold the higher strike to help us pay for the lower strike we'd still be buying a call basically right we're buying the spread now if you sell the put is you're absolutely right that's a bullish transaction and here what you're doing is you're selling the volatility you know upward volatility or selling the downward volatility however you want to think about it but you're bullish you're absolutely right I say now the problem with that put is if you're wrong somebody's going to stick it to you if you're wrong and that stock doesn't go up you're going to have some problems so maybe you want to consider taking some of your money and buying a lower strike put just in case just in case so those are and you kind of are on the right track once again because you said Dean you know what happened you're saying this differently than you usually say these things I say yes we're trying in this video to stretch your mind it doesn't come back to the same spot that may not happen you know that's what we're trying to do so we started by saying there are two players that come to the options market hedgers and I said no no no this is speculation and people were speculating right and so we have bullish transactions we have bearish transactions and again the way I've said this differently the way I've said this differently is I've said when I buy a put I'm buying downward volatility you know when you're selling buying options volatility is your friend and when you're selling volatility it's your enemy right so that's what we're basically doing and so when we buy a put we are buying downward volatility so we're speculating on the price going down now as if you've been with me and I know you have you've been with quite a while and something that I always always say is be a smart bear do not be a dumb bear there's all kind of foolish things you could do as a bear and as line says don't be a dumb bear buying a put is a much Kindler gently way to be bearish right because if you're wrong you just lose your what Your premium you know be a smart bear you know I uh tell the story a lot maybe you know I apologize we just crossed a million hours of watch time can you believe that I know you've spent some hours with me and I appreciate it oh my goodness I never my wildest dreams ever thought uh people million hours watching my YouTube channel anyways I tell a story and I'm going to tell it again so you know I went into this chat room and I was bearish on the stuck and I hadn't done anything yet as a bear and so I said are there any bears in the woods and uh you know this lady pops up she goes I'm a bear and I said well listen you and I uh have to convince these people they're wrong you know these people are all kinds of Raging Bulls in here and so we need to convince them they're wrong and she says well what have you done I said well I haven't done anything yet and I'm haven't decided what I'm I doing she said well I H sold 10 of the 40 calls naked I said well of all the bearish things I can do I can assure you that's not what I'm going to do and she I got four points I said that's $4,000 so if the stock is 40 uh or you know uh if the calls or stock is 40 or higher the the calls will excuse me 40 or lower the calls will expire and you make $4,000 I just think that's a stupid thing I said what I might recommend to you is that you take some of your premium and buy a lower strike call just in case anyways you know uh I said I told her what I did I said I bought the puts I bought the 40 puts for four 10 of them that's $4,000 if dena's wrong I'm just going to lose $4,000 so this is a better way to go now I could lower my out of pocket cost by doing a debit put spread you know this case I I why I mean for points there's no sense in selling a 30 put for for a point there all right so those are ones now you brought up a uh speculative strategy uh and you brought up a straddle and you were correct on the straddle a straddle is indeed a speculative strategy and we have two versions of that right again you can buy the volatility now you're buying non-directional volatility you're not quite sure whether you're going to do this or you're going to do this so you do them both and that would be a long straddle right so we have long straddles and we have short right so those would be two of our speculative by the way speculating strategies right so long and short are usually a higher level of approval at the broker dealer than is you know hedging right so we talk about hedging because this customer isn't interested in hedging they're interested in speculation you know I don't like that we put high yield bonds here into the speculative category but yeah you're speculating that the bonds aren't going to default so we we don't call them junk on the test because that's prejudicial uh we call them high yield bonds and the reason they hire high yield is because they have lower credit quality uh test question what is the credit rating of S&P below which a bond is a jump what is the credit rating yeah what is the credit rating that would make a bond less than investment grade oh that's going to be um B um AA well if you I as I asked you standard in pores standard in pores Triple B is investment grade triple yes and then underneath that sorry I was thinking of Moody I don't know why my brain's going no worries no no worries whatsoever uh anyways uh here recently Boeing sold $30 billion worth of Securities a little under 30 billion to shore up their balance sheet and one of the reasons they wanted to shore up their balance sheet is not only did they need the additional liquidity but stanard B said they were strongly considering down raing uh Boeing to doubleb if they didn't do something to uh fix the uh you know holes in their balance sheet so boom sector funds again are specul ulation I have not listen I'm not a Speculator you know but I'd be surprised I'm sure if you're watching this video this video is being made in uh the end of 2024 uh I don't know if we've rolled out yet a sector fund for AI we're betting on a particular sector uh of the economy whether it would be you know Tech or whatever it happens to be uh if this is a mutual fund we would expect the sector fund to have a higher level of volatility you know a sector fund would be like my Mexico fund it's Diversified but only within Mexico within the certain sector right on okay so uh another thing that somebody might be interested in is leverage my favorite yeah making a little money do a lot making a little money do a lot there's uh a couple ways you can get some leverage uh one way you can get leverages to open a margin account and you'd be making money twice as fast we should warn this customer they're going to be making money twice as fast but they're also going to be losing money twice as fast so to open a margin account there's going to be additional documentation required yep and what is the additional documentation required to open up a margin account the hypothecation agreement you are correct very testable the hypothecation agreement which is is mandatory that's where you say you understand you're pledging your securities as collateral for the loan and therefore your securities are going to be in street name the name of the broker dealer in a cash account we still want you to put your securities in street name the name of our broker term as it make backstage makes it very easier much easier for us but a mar oh sorry go ahead yep you're correct so what's next um isn't that the credit agreement right on the credit agreement you are once again correct it's mandatory that tells the customer they're borrowing money and they're paying interest based on broker call very important a margin account that loan either to buy Securities or you can borrow money to do other things uh can be a very competitive loan so that too is mandatory so we've got the credit agreement we got the hypothecation agreement what else the loan consent agreement but that is not mandatory that is um the agreement where you are letting your broker dealer pledge Securities out um and you don't know yeah the loone C inform you're absolutely correct is optional I'll just clean it up a little bit this is where you give us permission to lend your securities to other customers who wish to go short and you say Hey Dean it's not in my best interest to let people use my security they go I know that's why this part of the document is optional risk right for the Securities not being returned to you well yeah I mean that's true I you know I haven't heard of it where we don't get our Securities back I mean we have people the broker term are charge of fiscal responsibility you know make sure that doesn't happen but uh it's just not in your best interest to help the Bears if you're a bull right I doubt that Larry Ellison would let Morgan Stanley lend out his Securities right he's a Morgan Stanley customer uh cash accounts have no leverage but again that means less risk right you you can't go bankrupt if you don't owe anybody any money right so that's the cash account is out for leverage option account provides tremendous leverage you know we were talking about buying a call contract and if I buy an Apple call contract at 230 and uh let's say I pay 10 my break EV 240 Apple goes to 260 I've tripled my money now on both margin and options the same supercharge speed we're making money with is the same supercharge speed we lose money now you nailed the a documentation required to open a margin account there is again very testable going to be additional documentation and proceses to open an option account so how do we open an option account that's the option disclosure uh Disclosure document and it has returned within 15 days of um I can't remember if it's account approval of or the first trade but I know you have like a okay well we have there you go and we're on your actual exam and we said we're asking you to pull things out of the stratosphere and on your actual exam they would have uh you know an answer set for you and I think based on that answer set you would be able to get this correct so I give the Disclosure document that's the D I go back to a registered option principle I get your account approved that's the a we do our first trade I say hey I got your option account approved you go great let's do our first trade I say okay now just by way of reminder within 15 days we need back the option agreement that you read and understood that that Disclosure document uh what happens if the 15th day comes and goes and we don't have back from you that uh option agreement what happens yep you're only going to be allowed offset to do closing yes transactions offsetting transactions indeed right setting transactions I say listen for me to do a really good job for you over time I need to know a lot about you the more I know about you the better I'm going to be and determining suitability you say well it's none of your damn business I say well actually it is you know we have a know your customer rule right so current or future financial needs what is your financial destination I always think of it as I'm taking my client on a financial journey together you know I Jud as who would have ever thought it but I hard to believe I actually have friends before I started a YouTube channel but you know now some of my friends see me on there one of my friends said D I see you are on the you know and I have uh you know some investment things and you know I'm trying to be nice if I say well no that's not what I do any longer I'm not trying to sell Investments on YouTube that's not the goal but anyways uh here we've talked about it it seems like you did a pretty good job on this Current financial needs if they Current financial need is shortterm then we recomm money market liquid security shorter term debt we wouldn't recommend a longer term debt because remember longer term debt test point is more volatile yes long and low right and yeah go ahead I think it's important to recognize in this specific section um that you need to pretty much do that equation like 100 minus the um customer's age to figure out what level of um there we go so let's see let's say down here see you're front running I like that you're front runner trading ahead a little bit but as you see here we are going to ask you your age now I know you're a young lady so uh what is your age uh 20 uh s so 100 minus 27 means again it's a cocktail party to to this extent trick what I mean by that is we wouldn't have somebody come into our office and go hey 27 100 minus 27 we're done no but on the test right Series 7 fantasy land this works because that gets me to okay I'm thinking 70% yeah I'm 62 so 100 minus 62 even though Dean doesn't believe this I would probably have a problem with a compliance officer because I believe in being fully equitized so but right assuming I'm a you know not a high volatile person you'd say well Dean about 38% would be where you should have your Equity allocation so indeed I think that's a neat trick thanks for sharing that with others because that is something that can get you if not the appropriate answer sometimes the right answer but at least get you to a 5050 and when it comes to suitability man 50/50s are something we need to embrace right I mean that's just right got to do so your current and future financial needs again now we're tying the product itself to the customer so that's what we're doing here now is your age I've got a question for you you told me that you're 27 you being 27 is that a financial consideration or a non-financial consideration my age is a non-financial you are correct and that's very testable that doesn't mean that's not important it's very important it's very important but that's non-financial Financial would be more like my balance sheet my income statement something that goes final documents something that goes on your balance sheet or income statement that is exactly the way to get that correct right your marital status your marital Financial that's right now if you are married if you are married and filing jointly what would be the number that would make you as a couple an accredited investor um 300,000 um combined income together if you were single with no other partner it'd be 200,000 um and then 1 million excluding your primary residence right on right on now if you are married and you have a joint account right you have your own personal account your husband has his personal account and you have a join is that join account a separate account for purposes of cpic the if I had my own joint account or if my two accounts or three accounts in their cpic uh Mr and Mrs Mr Jones we'll call you Mrs Jones Mr and Mrs Jones Jones joint tenants with rights or survivorship is that three accounts or two accounts for purposes specific what I'm asking is that's two accounts that's actually three oh it's three accounts okay three different Ben inial ownership there so that that's kind of a trick on terms I didn't even think of that well you know I'm just I'm throwing extra stuff in right yeah that is very extra I RIS tolerance risk tolerance is again a nonfinancial consideration but again very test so again we're tying now the investment vehicles we've discussed to the potential of losing all your money right pretty easy to qualify somebody who wants to buy a call or buy a put or buy a spread or buy a straddle because if you're buying a call buying a put buying a spread debit spread and then all I got to say is hey or buying a stradle is this money you can afford to lose for every body that's a different number but it is something we should uh make sure they're comfortable with I mean I've had customers who have lost sums of money that would make me go wobbly but it's certain they do the everybody's different I like to gamble and when I go to the casino and I'm gambling I sometimes think man it's not like our business because they don't even ask these people if it's money they can afford to lose and they give them adult beverages while they're playing right you it'd be hard for you to lose money in government security are money market Securities all right so inflation risk inflation risk the risk the inflation will outpace your investment returns uh how do we measure inflation how do we measure inflation um wouldn't that just be like looking at the duration of something duration is fancy word for volatility what I was looking for is the Consumer Price Index oh well yeah the CPI inflation will your investment re return so we hit a a high of a 9% inflation and if I have a 5% Bond you know I actually win in the hole right I mean you know right but also the duration has to do with it as well because if the the longer the duration the more inflation RIS you have I don't I I I would rather we call that volatility oh okay duration is a measurements of a bu's volatility so longer term bonds with lower coupons have higher or longer duration more volatility but you know yeah I'm I'm not going to you know be correcting you too much on that but yeah bonds longer term bonds are much subject to that uh debt Securities fixed annuities these are all the things that have inflationary risk uh timing risk the risk of uh buying instead of buying low and selling High selling high and buying low right you know frequent or sure I always think here uh about the when we went into the pandemic and a lot of uh sector rotation funds actually rotated out of what they thought would stocks that W wouldn't do well during the pandemic and then when the pandemic we thought it was over they rotated back into those stocks and whoops we had another year of the pandemic so they missed it twice which is a problem right uh interest rate risk we talked about reinvestment risk all right love this one uh What uh bonds do we have that do not have reinvestment risk reinvestment risk is a associate to Falling interest rates and then you have call risk you're going to have to give up your bonds and so what bonds do we have where we have no call risk uh zero coupon bonds right on you NE zero coupon bonds would be great for somebody who wants to walk in a rate of return so you say Hey Dean right now uh the FED has said they're low interest rates they've done 50 bips now they've done 25 bips and as these rates come down I'm my bonds are going to get called how could I lock in a return I said well we could buy some long-term zeroc coupon bonds o IDs and those would be a way of locking in that rate of return what else besides zeros what it tips as well be a zero coupon Bond well no tips remember do have a coupon that never changes oh yeah okay and then they have the income well yeah there you go the 5% is based not going to change but it's based on the principle that would be adjusted for inflation right so what else is not callable besides zero coupon bonds what else is not callable I need to like think because I'm pulling completely out of me that's me being a jerk I'm asking you to pull it completely out of the the trying to think what else is zero coupon BS the zero coupon bonds are non oh oh non um T notes and t-s are non-callable yes right so treasury are t- bills well t- bills you're just going to be doing whatever rates you're not going to be able to lock in a rate of return right investing at today's rate you know it depends on the context there you know again we need some context up but I like it t- bills uh yeah because I just remember reading something that they're not callable yeah well they're not they're not you know but they been remember what the t- bill is you know we say that the two risk and debt denominated Securities are interest rate risk and credit risk and in t- bills you don't have interest rate risk because whatever interest rates are doing that's what you're going to get and you don't have uh credit risk so sometimes we refer to the T bill as the risk-free rate of return that's what you get for not hazarding your Capital right and the reason that's important is we use that as a benchmark I mean how silly would it be if I came out and sayy I'm going to try and do under the T Bill rate so we're all trying to beat the risk-free rate of return the reason we use t- bills a lot of people I mean you can use whatever rate you want but a lot of people don't use a t-note or t-bond is the risk-free rate of return because there you do have interest rate risk right interest rates go up uh call risk we talked about that the falling interest rates yes I remember just just again just the heading is more risk less risk right so more risk less risk you don't have reinvestment risk with Rising interest rates because you know the issuers are going to refinance at higher rates right call risk we talked about that so more or less Market risk the risk of losing your principle exchange traded marketable Securities that remember is systematic risk the risks in the system the tendency of securities prices to move together we have less risk if you're buying a non-marketable security like a CD that can't be sold uh credit risk we talked about that risk of default we talked about credit quality credit quality M we have liquidity risk we've talked about that yep and we've T oh this is one you brought up earlier a lot of people are concerned right now because fiscal policy may change fiscal policy test questions controlled by Congress and the president and it looks like all of that is going to change you know the Republican Party looks like it's going to take control of the presidency and the Senate and the house and they may make changes in regulations in fact right now A lot of people are referring to these as the Trump trades the idea here is to try and figure out what's going to change right uh legislative risk you can diversify away right you can stay away from Investments that you think Congress may make mess with you know I always joke what Congress giveth Congress can take it way right uh maybe we call it legislative risk and reward perhaps all right so uh this second part of the suitability exercise is available on the channel uh I'm not sure if it's done with just me and you hit pause and I explain it or if I've had somebody kind enough like you have been to share the ride with others uh I'll check if not uh maybe we'll do it again in this kind of a setting uh but I think that's available to you so thank you very much for allowing other people to take a free ride with you in this hour on talking and discussing about suitability I'll put this in the suitability playlist and that'll make five videos that are available to you in my suitability playlist uh for the series 7 all right uh remember inch by inch your Series S is a CCH yard by yard is at hard and maybe we will talk you into joining us and sharing with others again thanks uh any comments to test acers out there I don't think so okay everybody we'll see you for the next time byebye okay we're we're out well