Editor's Note

by Charles Rotblut, CFA

Editor's Note Splash image

You have, no doubt, seen many ads about planning for retirement. Numerous companies and advisors are more than willing to help you build a retirement nest egg. Yet, saving for retirement is just one part of the process. There is also the decision of what to do with your portfolio at retirement.

Conventional wisdom says an investor should increase his allocation to bonds when he retires; the assumption being that risk tolerance is lower later in life. However, it does not explain whether this change should be made gradually or abruptly. Two new studies shed light on this issue.

The first is from Jerome Clark of T. Rowe Price. Clark advocates that investors gradually change their allocations over the course of retirement, placing a greater percentage of their portfolios in bonds each year. He explains his rationale here.

The second is from Josh Cohen of Russell Research. Cohen advises investors to abruptly increase their allocation to bonds at retirement by lowering their exposure to stocks. You can see his rationale here.

So who is right—Clark or Cohen? I explain some of the key points that you should consider when looking at both studies in this month’s Investor Professor.

The VIX, a volatility index calculated by the CBOE, is often talked about, but many investors do not understand what exactly it measures. Wayne Thorp explains what this fear indicator is and shows you how to use it in the CI in the Journal column.

This month’s Beginning Investor introduces the four major asset classes: stocks, bonds, commodities and real estate. Each asset class has unique characteristics, and knowing what they are will help you better manage your portfolio and your expectations. Learn more here.

The late spring correction in stocks called into question whether full-year profit forecasts are too optimistic. While we will not know the answer for several months, one of things you can do is to allow for a margin of error by seeking out stocks that are trading at discounts relative to their growth rates. Cara Scatizzi shows you two screens on AAII.com that find such companies.

I know many of you are investing not only for yourselves, but also for the broad benefit of your families. In fact, one member requested an article about how grandparents can help contribute to the cost of a grandchild’s college education. I asked Dawn Brown at Altfest Personal Wealth Management to give us her thoughts. Dawn responded with a detailed article explaining the various factors that need to be considered. They range beyond just the grandparents’ financial ability to give and encompass both tax issues and the grandchild’s ability to obtain external financial aid. Dawn reviews the advantages and the disadvantages of the various gifting options here.

A few of you have asked about my forthcoming book, “Better Good Than Lucky: How Savvy Investors Create Fortune With the Risk-Reward Ratio.” I am happy to tell you that the book will be published later this summer by W&A Publishing. (It will be available on Amazon.com.) One of the key concepts I stress in the book is the importance of valuation, with my favorite indicator being the price-to-book ratio. In this month’s issue on page 25, I’ve included an excerpt from the book opining why I prefer it.

My book will also include the key characteristics I look for in a stock, including a low price-to-book ratio. John Bajkowski uses these concepts as the basis for this month’s First Cut. You can see what the criteria are and a list of companies that best match them here.

Three stocks were sold from the Model Shadow Stock Portfolio. Though we list the names in this month’s issue, I would encourage you to also pay attention to the reasons they were sold. During periods of market uncertainty, relying on your portfolio management rules can help you keep your emotions at bay. You can see the rules that James Cloonan uses for the Model Shadow Stock Portfolio and the changes he recently made here.

Wishing you prosperity, Charles

Charles Rotblut, CFA
Editor, AAII Journal
twitter.com/charlesrotblut

Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/charlesrotblut.


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