Investing the AAII Way

Comment on “A Tribute to James Cloonan’s Lasting Legacy,” by John Bajkowski, January 2021 AAII Journal:

Excellent article! I joined AAII back in the early ’80s but didn’t stay with it for more than a couple years. I retired right before 2000. Shortly afterward, the markets started dropping; it wasn’t until mid-2009 that I was back on my feet.

One day I came across something about AAII—this time I invested a very trivial amount in a lifetime membership. When Jim Cloonan’s book “Investing at Level3” was published, it was like an old friend: Someone had taken my investment beliefs and wrote a book describing them. I would likely never have achieved my retirement goals holding bonds.
—Bud S. from Washington

Broker Bankruptcy Protection

Comment on “Are You Protected If Your Broker Goes Bankrupt?,” by John Deysher, January 2021 AAII Journal:

All of the SIPC-member firms quote seemingly large excess SIPC amounts that are well beyond the size of most portfolios, but these amounts are “in the aggregate,” which means for all accounts at that firm. They certainly don’t compare their coverage limits to their assets under management. Isn’t excess SIPC coverage more marketing comfort from the firms than a true investor backstop in the event of a bankruptcy?
—Donald J. from Virginia

Behind the Broker Curtain

Comments on “Comparing Discount Brokers and Apps Given Recent Industry Changes,” by AAII Staff, January 2021 AAII Journal:

It would be nice if “trust account friendliness” were noted. Trust accounts require more work to set up and may need a paper application. After the trust is established, the account should be treated the same as a normal account for investments, deposits, money transfers, etc.

I found Ally Bank to be customer friendly—trust accounts are treated normally. I cannot say the same for Ally Invest—deposits are only by check or ACH transfer, which results in waiting three or more days for your money to be available. Given that Ally Invest pays 0% on cash, I find this unacceptable.

Bank of America/Merrill Edge treats trust accounts like “normal” people without these hurdles.
—John E. from Arizona

Thank you for a great survey of the current state of the industry. Recently, one of “the top 5 brokers” named in this article solicited me (as an existing client) to investigate their robo-adviser offering. I found that this broker selected 86% of the “primary” exchange-traded funds (ETFs) that its robo-adviser algorithms rely on from its own ETF offerings.

The reason given was that this broker had the cheapest fee structures (“at time of selection”) and it relegated many industry performance-leading ETFs—using AAII Journal data comparing ETF performance—as potential “secondary” investment vehicles.

The average differences in fees (the majority of total costs) amounted to around 50 basis points per $10,000 (or $500) per year, but the overall performance (return) differed by as much as 500 basis points (or 5%) per year. And the broker sweeps cash balances daily into its in-house bank, which it clearly states may not have the highest interest rates.

When company policy mandates that offerings intentionally prefer inferior internal resources over known superior alternatives that provide greater returns for clients, it takes several giant steps right up to—and only one tiny tiptoe away from—the SEC line defining conduct that violates the new definition of “fiduciary responsibility.” Caveat emptor.
—Barry J. from Texas

Calculating the Price of Gold

Comment on “Gold Price Neither Predicts Inflation Nor Protects Against It,” January 2021 AAII Journal Dispatches:

In calculating the ‘real’ price of gold, if the consumer price index (CPI) is 2%, do you divide the spot price by 2 or by 0.02?
—Harvey W. from Massachusetts

Editor Charles Rotblut responds:

The inflation rate would be used in decimal format, as would the return. For a specific period, the real return would be:
(1+return)/(1-inflation rate)] – 1

Tax Guide Late to Mailboxes

The December 2020 AAII Journal containing the annual tax guide was unusually late arriving to some members’ homes. The postal service experienced severe delays in delivering mail over the holiday season due to much greater volume. We apologize for the tardiness.

Please note that the AAII Journal is always posted at the beginning of the issue month to our website at www.aaii.com/journal for your convenience. In addition, online articles are revised as needed: The tax guide was updated to reflect the Consolidated Appropriations Act 2021.

Articles can be read on any computer or device, and PDF downloads are available. You can post comments and easily access related articles and more information about any stock or fund mentioned in an article. Visit AAII.com often to make the most of your member benefits.