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AAII.com: AAII Model Portfolios

For over 25 years, AAII’s major emphasis has been on investment education and information. Over the years, however, we became increasingly aware that many of our members wanted more specific guidance in developing an effective investment program.

Over the past few months, this initiative has developed in AAII.com’s Model Portfolios area.

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Each approach to selecting stocks and mutual funds shares the same philosophy: an emphasis on consistency, risk control, and selections that are ideal for individual investors, not institutions.

AAII Model Portfolios can be found by clicking here.

THE SHADOW STOCK PORTFOLIO


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SEE FULL SIZE.

The Shadow Stock Portfolio (formerly the Beginner’s Portfolio) provides guidance for investing in the promising micro-cap value sector of the market. Here, more specific direction is provided as to how this model portfolio, and variations on it, fit into an investment program.

Shadow Stock Portfolio Rules

  1. No bulletin board or pink sheet stocks will be purchased.

  2. Price-to-book-value ratio must be less than 0.80. (This figure changes gradually with changes in overall market values.)

  3. Market capitalization must be between $17 million and $200 million. (This figure changes gradually with changes in overall market values.)

  4. The firm’s last quarter and last 12 months’ earnings from continuing operations must be positive.

  5. No financial stocks or limited partnerships will be purchased.

  6. No foreign stocks will be purchased because of different accounting and/or withholding tax on dividends.

  7. The share price must be greater than $4.

  8. In order to reduce trading by avoiding stocks that are forever marginal, any stock that was sold within two years will not be rebought.

  9. If the quoted bid-ask spread is more than 4%, the stock is eliminated from consideration.

  10. Price-to-sales ratio must be less than 1.2.

THE MUTUAL FUND PORTFOLIO


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SEE FULL SIZE.
The model fund portfolio shares the same philosophy as the Shadow Stock Portfolio. Over time, AAII is examining the different selection criteria, discussing variations that can affect risk, and showing how these stock funds can be combined with low-risk holdings to match a desired overall risk profile.

Fund Portfolio Rules

  1. It must be a pure no-load fund.

  2. It must have been in existence for at least 10 years.

  3. It must have had higher returns than the S&P 500 index on both an absolute and risk-adjusted basis for the most recent five-year and 10-year periods.

  4. It must never have had a three-year period with negative returns.

  5. Net assets must be less than $5 billion for giant- and large-cap funds, $2.5 billion for mid- and small-cap funds, and $1 billion for micro- and nano-cap funds.

  6. It must have an expense ratio of less than 1.25% if assets are less than $2.5 billion and 1% or less if assets are over $2.5 billion.

  7. It must currently be open to individuals.

  8. New qualifiers are listed in terms of preference based on a number of quantitative and qualitative factors.



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