Letters to the Editor
To the Editors:
In the article “Optimizing Your Retirement Income: What Works Best and Why,” by Christine Fahlund, Monte Carlo analysis was used as the basis for the recommendations [August 2008 AAII Journal]. However, Monte Carlo for stock analysis does not predict the future. It only says what the statistics were for the past. Even then, it does that wrong when it assumes inflation was constant over the whole period and there is no serial correlation. It makes no sense to have a scenario where one moment the input may be from 1933 and the next input may be from 1999. It would be better to admit that the statistics only reflect past history and use actual scenarios with the correct inflation and r
H. K. Hebeler
To the Editors:
James Cloonan errs in discussing the PowerShares FTSE RAFI US 1000 exchange-traded fund (PRF) [“AAII Model ETF Portfolio Review and How to Take Advantage of ETFs” November 2008 AAII Journal]. This ETF tracks the Fundamental Index devised by Research Associates and maintained by FTSE—1,000 large-capitalization U.S. stocks compose the index. Dr. Cloonan states that the index weights its components with proprietary fundamental factors. However, these factors are publicly and plainly disclosed in the book “The Fundamental Index: A Better Way to Invest.” The four metrics employed by the authors—Arnott, Hsu, and West—are the last quarter’s book value and trailing five-year sales, cash flows, and dividends. These authors, who are also the inventors of the method, explain how they weight companies that pay no dividends. They give enough information for any investor—institutional or individual—to learn to weight his own port
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