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Carrying Losses Forward

Comment Posted Online to “Capital Pains: Rules for Capital Losses,” by Julian Block, September 2010 AAII Journal:
One implication to be drawn from this very valuable article is that the couple should not let their $90,000 in losses be carried forward for 30 years, writing off $3,000 against income each year. That loss should be considered an asset and not allowed to just sit there. Capital gains now have a no-tax advantage for them over other forms of investment. The mistake would be to exclusively hide

Lee from Minnesota


Variable Life Insurance

To the Editor:
I enjoyed and educationally profited from the article about variable universal life in the September 2110 AAII Journal [“Variable Universal Life: Astute Management Required” by Peter Katt]. Table 1 on page 27, I think, has an error on line 3 (age 57). The amount carried over from the line above is 1M short. This, of course, makes no difference in the excellent points in the article—just the amount of money our theoretical friend has at the end of

C. Kelley Tibbels

The Editors Respond:
Beginning Cash Value at age 57 should read $3,840,138 in Table 1. However, there are no adjustments to be made in the other numbers in that row or succeeding rows. We regret the error.

Comment Posted Online to “Variable Universal Life: Astute Management Required,” by Peter Katt, September 2010 AAII Journal:
I find it interesting that there is no mention of the impact of “tax-free” loans and withdrawals—often the major emphasis from agents in pitches for these types of policies—and the author focuses on life insurance, in fact, being life insurance. So that does beg the age-old question—would a policyholder have been better off buying term or more conventional whole life insurance and avoiding the risk associated with variable life? I do own one of these types of policies, albeit much smaller than the example. Although I have not been terribly happy with cash values performance, I have tried to make “lemonade out of lemons” by taking loans for IRA contributions and premiums on other insurance policies while monitoring the account to make sure it is adequate to maintain the policy (I do pay back the loans).

Ken from Georgia
 


Screening on High Yield

Comment Posted Online to “Stocks With High Relative Dividend Yields,” by Charles Rotblut, September 2010 AAII Journal:
These screens are good and, as you say, a starting point. Personally I favor closed-end funds, usually traded as any stock on the New York Stock Exchange, such as those managed by Cohen & Steers, John Hancock, ING, and other highly professional managers. This way I can get higher yields, with leverage if I so choose, and the benefit of having professionals do the buying and selling of the portfolio held by the fund. Also in my mix are some preferred stocks, mostly financial and real estate, that pay fixed quarterly dividends and yield upward of 8%. Maybe the writers of these articles think this type of investing is more (or too) risky, but it h

Jerome from Arizona


Combating High Correlations

To the Editor:
If diversifying among various asset classes and sectors is now less effective in protecting one’s portfolio than in prior years [as discussed in the September 23, 2010, AAII Investor Update e-mail], perhaps the investor should look elsewhere for protection:

  1. Employ various options strategies, such as buying puts on, or selling calls against, holdings in one’s portfolio;<
  2. Employ options strategies on indexes or exchange-traded funds (ETFs) that reflect one’s portfolio or a portion thereof; or
  3. Buy inverse ETFs. Options strategies applied to these ETFs may be better than buying the ETFs outright. Albert Sloan

    Charles Rotblut Responds:
    The strategies Mr. Sloan describes can provide a hedge against a downward move in asset prices, but they do increase transaction costs and will hurt returns in a rising market. Furthermore, inverse ETFs are designed to produce the opposite return of their underlying index for one day or one month. Holding inverse funds for a longer period of time can result in tracking error and unexpected performance.
     


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