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IRS’s Rules for Required Minimum Distributions

Comments on “Retirement Withdrawals: Can You Base Them on RMDs?,” by Wei Sun and Anthony Webb, in the December 2012 AAII Journal:

The article does not really address the income tax implications of the RMD [required minimum distribution] method. You should prepare a spreadsheet showing the current account balance and an expected rate of return on your investments. Then apply the withdrawal factors from the IRS’s Publication 590, Appendix C up until 100 years of age. This will give you a look at your taxable income each year. You will see that toward the end of life expectancy, the withdrawal amounts become quite large; therefore, you will pay higher tax rate

—Glen Morrill from Nevada

I’ve been using the RMD method since the first year I could. It requires a degree of conservative spending, which is a good thing, and leaves the maximum residual for a charitable bequest, unless I live too long. I’ll worry about that later.

—Michael Armstrong from Florida

The Permanent Portfolio’s Performance

Comments on “The Permanent Portfolio: Using Allocation to Build and Protect Wealth,” by J.M. Lawson and Craig Rowland, in the December 2012 AAII Journal:

I have used the Permanent Portfolio fund PRPFX for number of years with better-than-anticipated results. I also have coupled the underlying core allocations with other stocks, funds and assets with similar results. It’s not a panacea, but as part of the overall strategy of diversifying and rebalancing when the situation warrants it leads to positive returns. I whole-heartedly agree that tinkering with basics can have serious consequences.

— Charlie Troell from Texas

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Choosing Stocks Using Screens and More

Comments on “2012 Year-End Screens Review: Investors Caught in Political Cliffhanger,” by Wayne A. Thorp, CFA, in the January 2013 AAII Journal:

I’ve seen variations on the following several times in AAII publications: “It is important to take your list of passing companies and, at a minimum, perform some cursory qualitative analysis to decide whether or not they are right for your stock portfolio.” Can you point to some more spe

— Wm Schauweker from Massachusetts

Charles Rotblut responds:

Stock screens are merely database filters. They only know to identify stocks with the specific characteristics used by the screen. Anything outside the screen’s criteria is ignored. Thus, you could have a stock that passes a good screen but is still a lousy investment. This is why it is important to conduct additional analysis, including looking at the financial statements, valuation and current news.

A good place to learn about what to look for is at AAII’s Investor Classroom, which can be found at www.aaii.com/classroom. Two helpful lessons are “How to Choose a Stock” and “Digging for Gold: What the Financial Statements Reveal About a Firm.”

Analyzing Model Shadow Stock Returns

Comments on “Higher Prices Prompt Rule Change in the Model Shadow Stock Portfolio,” by James B. Cloonan, in the January 2013 AAII Journal:

The annual returns of the Model Shadow Stock Portfolio seem impressive, but from the management rules as stated it is impossible to know what these figures actually mean. Do they refer to the actual portfolio as it has evolved, or to something else, perhaps a periodically balanced portfolio of qualifying stocks?

— Robert Warnock from California

Jean Henrich responds:

The performance shows actual returns our chairman, Jim Cloonan, has achieved using the Shadow Stock approach; he holds the stocks shown in the portfolio. A detailed transaction history can be found at www.aaii.com/model-portfolios/stock-transaction-history-detailed. Equal dollar amounts should be put into each stock chosen. Jim suggests looking at stocks listed as “qualified” in the Notes column and keeping the rest of the amount you intend to allocate to the portfolio in cash until other Shadow Stock holdings are listed as qualified or new stocks are added to the portfolio.The portfolio is not rebalanced, but when new stocks are added, simply calculate a new average investment amount based on your total investment and the number of stocks you hold.


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