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Model Mutual Fund Portfolio

Comment posted to “Model Mutual Fund and ETF Portfolios: Choosing a Benchmark Isn’t Easy,” by James B. Cloonan, in the May 2012 AAII Journal:

Is there a reason why the mutual fund portfolio doesn’t include an international fund? The Model ETF Portfolio does, and several past articles in the AAII Journal have said that international exposure would enhance performance and reduce risk. What am I missing?

Peter from Maryland

James Cloonan responds:

Thank you for your comment. We are making some changes to the Model Mutual Fund and ETF Portfolios in August, and the subject of international diversification will be examined more carefully.

In general, it appears that foreign index funds provide less return than similar domestic funds and that the diversification produces only very short-term risk reduction. Obviously, some foreign funds, such as emerging market funds, provide excellent returns, but, in general, they do not have the promised benefits. We would always consider a foreign fund on the same basis as domestic funds, but we wouldn’t include it just because it was foreign.

Holding Closed-End Bond Funds

Comment posted to “Notes on the Current State of the Muni Bond Market,” by Annette Thau, in the May 2012 AAII Journal:

A couple of comments about the sidebar on closed-end bond funds. Another reason for holding this type of security is unrestrained liquidity. Many open-ended bond funds (for example, Vanguard’s) have frequent trading and liquidation limits that may affect one’s ability to liquidate positions in down markets. Looking at the bond fund duration data will give an indication of interest rate volatility. Finally, many closed-end funds sell at either a discount or at a premium for long periods. Buying a fund at a discount to net asset value does not necessarily mean that it is a bargain. Looking at pricing history is a better w

William from Florida

Analyzing a Company’s Balance Sheet

Comment posted to “The Balance Sheet: Assets, Debts and Equity,” by Z. Joe Lan, in the May 2012 AAII Journal:

These articles are very informative. For those of us who have never been in finance on a business level, it is enlightening. I serve on the board of our regional hospital, and this helps me be a better steward of the finances, as well as helping me to better analyze a company. Thank you.

John from Washington

Momentum Trading

Comment posted to “Money From Momentum: Positive Feedback Can Drive Returns,” by Shelly X. Liang, in the May 2012 AAII Journal:

I believe momentum trading works, but nothing works perfectly all the time. I was one of the early members of the NY Traders Society, and tried many of their systems, but kept refining and trying to improve my 1970 system, which I now use in a somewhat revised customized fashion at StockCharts.com. It sure is faster than the slide rule. However, I still do a lot of pencil work, because I find just looking at computer outputs doesn’t give one the feel for change that one gets from recording certain data with a pencil or pen in hand.

I’ve found signposts in the system that say when to sell and move on, or buy and get in. But I still find that it’s hard to do what the system says, like sell a nice winner, or buy an investment early if it has been a loser. Experience in and a feel for the market is very important and should be developed over the years. Investor’s Business Daily can help. One needs to determine why one isn’t winning in the market and refine a momentum system that helps one to become a winner. Even then, systems need refining as the market changes, and that is a constant battle.

A. from Michigan


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