Sustainable Investing

Comment on “Finding ESG Mutual Funds and ETFs,” by Wayne A. Thorp, CFA, in the May 2022 AAII Journal:

I’ve found that most people don’t give a hoot about the environment and social awareness/responsibility and won’t invest in these areas. While I rode the Pax World fund train for years with below-average returns and am reaping the benefits of rooftop solar electric and water, drive a Chevy Bolt and a bike and cistern months of rainwater, there are too few of me and too many not committing to lifestyle and investing changes. The first-quarter 2022 responses from my Fidelity and Vanguard advisers as to where their ESG funds were was that there weren’t enough subscribers to those funds. It’s great to hear there’s an ESG fad currently happening, but I fear it’s too little too late for all of us.
—Laurence H. from California

Spending Strategies

Comments on “Strategies for Determining How Much You Can Spend in Retirement,” an interview with Wade D. Pfau, Ph.D., CFA, RICP, in the May 2022 AAII Journal:

Sequence of returns risk is a function of market valuation. When the stock market is overvalued; future intermediate-term returns will be lower than the long-term average of 6.5% plus inflation. Good retirement planning requires adjusting the withdrawal rate depending on how over- or undervalued the market might be from its long-term average at the start of retirement. This is especially critical when retirement begins at a time when the market is grossly over- or undervalued.
—John L. from New Jersey

Several years ago, AAII published a methodology to increase the withdrawal along with your age. Withdrawal percentage = [Age ÷ (20 – [(Age – 60) ÷ 5])] ÷ 100. While the formula reduces your income in the early years, in the later years it is increased and can provide more income for health care.

I forecast the average growth of each of my sources of income, and at the end of each year I update the forecast account values with actual funds in the accounts or account payments. Thankfully, at age 73, I have never had a year when I needed to withdraw the amount suggested by the formula.
—G. Thomas W. from Texas

Comparing the Retirement Calculators

Comments on “Important Differences Exist Among Retirement Calculators,” by AAII Staff, in the May 2022 AAII Journal:

Of the calculators listed here, I use the free Fidelity retirement calculator. It’s pretty good; however, it doesn’t do long-term income tax planning, which I consider to be important for retirees. More robust calculators for planning retirement income based on available income and assets over your remaining life expectancy include www.firecalc.com (free and popular with the Boglehead crowd); www.pralanaretirementcalculator.com (free and a robust paid version of an Excel-based calculator); https://maxifiplanner.com (robust and cloud-based, by an economic expert in retirement planning); and www.newretirement.com (I have not tried this paid cloud-based calculator, but it was recommended to me). Most of these calculators will do consumption income smoothing, which is a technique for maximizing one’s aftertax income and spending over their remaining life expectancy.
—J.M. from New Jersey

NewRetirement.com has perhaps the most customizable planning tool that I’ve found.
—Jim M. from Washington

Estimate Revision Screens

Comments on “Profiting From Analysts’ Revisions to Earnings Estimates,” by Jack Gilleland, in the May 2022 AAII Journal:

What is the sell rule? I see in a footnote to Figure 1 that the portfolio is “rescreened and rebalanced monthly using month-end prices,” so does that mean a stock is sold at the end of the month unless it has another estimate revision by the end of the month? What if the revision comes out on the 25th of the month—is the stock bought on that date and sold five or six days later? It seems that following this strategy would be difficult for anyone who isn’t in front of their computer all day constantly refreshing their screen for earnings revisions.
—Robert A. from North Carolina

The Editors respond:

AAII tracks this and other stock screens mechanically by rescreening and rebalancing at month-end so that performance is comparable among the screens. This is not the way a “real” investor would implement a screen.

There are several criteria a stock must pass to make the list of an Estimate Revision screen, and the article makes clear that further analysis should be done before investing in any stock that passes.

As for sell rules, since screens are basically idea generators, they usually do not specify when to sell. Individuals would not sell simply because a stock no longer met the screen criteria, rather they would set up their own sell rules based on a set of criteria they deem important.