Letters to the Editor


    To the Editors:

    I am new to AAII and was attracted by James Cloonan’s Model Shadow Stock Portfolio [see April AAII Journal or go to www.aaii.com/aaiiportfolios]. I noticed that in 2002 or 2003 the return began a protracted up-swing. I also noticed that before this protracted up-swing, the Shadow Stock Portfolio was pretty much like compared indexes.

    Does Mr. Cloonan have comments on this subject?

    Robert Bainbridge
    Via E-mail

    James Cloonan Responds:

    Sometimes there is a temptation to analyze differences in returns when it really is randomness. However, I believe there are several reasons for the Model Shadow Stock Portfolio doing so much better over the last five or six years. In the case of the S&P, the dominance of tech stocks creates a difference. Small-cap indexes have less weight in technology. In the case of comparison to other smaller-cap indexes, the emphasis on value varies through time and has been more important in investment decisions in recent years. Randomness also plays a part in the differences.

    To the Editors,

    We always find your annual October guide to exchange-traded funds (ETFs) extremely helpful and keep it all year as a convenient reference [also available in the AAII Guides area of AAII.com].

    Perhaps I missed it, but no where did I see the risks of, or safeguards in place to prevent, the abuses and investor damage that plagued the mutual fund industry recently with after-the-close transactions.

    For example, the total asset size of the DIAMONDS Trust Series ETF listed on page 13 of your ETF guide suggests $250 million in holdings in each of the 30 Dow stocks. One-minute advance knowledge of a deletion and selected substitution provides, using advanced computerized trading, an opportunity for abuse.

    As the explosive growth of ETFs places a larger and larger percentage of all equities inside the ETF container, some of these “open-end mutual fund” ETF structures seem to sow the seeds of future financial industry abuses as we have had in the past.

    Robert E. Eckert
    Via E-mail

    To the Editors:

    Your Briefly Noted column on page 2 in the January 2007 issue rightfully indicated that a major retirement mistake is underestimating life expectancy [“Baby Boomer Boo-Boos: The 5 Biggest Retirement Planning Mistakes”]. However, in quantifying the problem, the author somewhat misspoke. It is absolutely not correct that “half of the men reaching age 65 have an additional life expectancy of approximately 17 years.” If that were the case, most of us would dead before reaching age 82! What the author meant to say was that about half of the men who reach age 65 will die within 17 years and the remainder will live beyond that point.

    Lee Parks
    Via E-mail

    To the Editors:

    I am surprised that “Invest or Delay? Strategies for Taking Social Security Benefits,” by Christine Fahlund, did not address the issue of spouses [February 2007 AAII Journal]. This is particularly important for a low-income spouse who gains significantly by both parties delaying Social Security as long as they have sufficient savings to support them in the interval between retirement and the start of Social Security. In fact, if savings are large enough, the greatest benefit in this case is often for the low-income spouse to start Social Security at 66 and the high-income spouse to start at 70 (there is a more comprehensive Social Security calculator at my site www.analyzenow.com). The other thing that is important is to look at all retirement resources simultaneously. It doesn’t make sense to do an analysis assuming that you will save your Social Security checks without considering that you will draw more from your savings.

    Henry K. Hebeler
    author, “J.K. Lasser’s Your Winning Retirement Plan”
    Via E-mail

    To the Editors:

    Thank you Mr. Kobrick for the wake-up call on stock investing [“The Secrets of Picking Great Growth Stocks,” April 2007 AAII Journal]. I’ve been a “multiple choice” picker instead of an “essay” picker for some time. Picking stocks by past performance ratios is “multiple choice” as compared to the “essay” part of Mr. Kobrick’s “BASM” that requires you to reach into your abilities to visualize future events.

    I’ll be reading those annual reports now with intent.

    David R. Hoey
    Via E-mail