Editor's Note

by Charles Rotblut, CFA

Charles Rotblut will speak at the 2015 AAII Investor Conference this fall; go to for more details.

Editor's Note Splash image

Retirement planning articles are commonly focused on sustaining assets throughout one’s lifetime. But what if you were planning to spend it all? In other words, forget the kids and your financial legacy; live by the motto of “you can’t take it with you.” How much would you withdraw each year?

It’s an interesting question that should be asked more often. The question creates a theoretical exercise that forces you to think about your probable lifespan. After all, there is a real balance between spending the maximum amount possible and ensuring that you don’t spend too much. It’s easier to budget when you know exactly how much you have to spend. But when you don’t how long you need your nest egg to last, financial planning becomes a difficult task.

This is why when I first read “Spending Retirement on Planet Vulcan” in the Financial Analysts Journal, I knew I wanted the study for our journal. (I promise my enjoyment of Star Trek, or any desire to put the words “live long and prosper” into the AAII Journal, did not have anything to do with wanting to republish the study.) Moshe A. Milevsky and Huaxiong Huang looked at retirement withdrawal rates from the standpoint of economics. Rather than accept the commonly proposed rule of withdrawing 4% of assets as retirement gospel, they set out to determine what impact lifespan uncertainty has on retirement spending. It is an interesting study and one that I strongly suggest reading. You can see it here.

Another aspect of retirement is the decline in cognitive abilities that occurs as a person ages. I touched on the topic in the July 2011 AAII Journal (“Aging’s Adverse Impact on Decision Making”), but reached out to Harvard economics professor David Laibson for a more in-depth discussion. David explains how our mental abilities change with age and why dementia is a threat. He also gives steps investors can take to protect themselves. The interview starts here.

Two articles in this month’s issue ask how applicable long-term market data is to current stock valuations.

The first one looks at the Robert Shiller’s CAPE ratio, a cyclically adjusted price-earnings ratio. The CAPE ratio compares the inflation-adjusted price of the S&P 500 against the index’s average earnings for the past 10 years. A recent rise to 23.35 had bears arguing that stocks are too expensive. Stephen Wilcox counters that changes in how inflation and earnings are calculated make it difficult to draw comparisons between historical and current valuations. Find out why here.

The second article focuses on the long-term performance of large-cap stocks. Morningstar’s “Ibbotson Stocks, Bonds, Bills and Inflation Classic Yearbook” says large-cap stocks have an annualized return of 9.9% since 1926. Ed Easterling says the long-term return is inflated by the low valuations that existed back then. Had valuations been higher at the starting date, he believes long-term returns could be as much as 3% lower. Easterling explains his logic and why you may want to adjust your expectations for future performance here.

Speaking of performance, we publish a list of the mutual funds with the best five-year returns every March. I thought there would be interest in a similar type of analysis using exchange-traded funds (ETFs). Though there are differences between the two lists, including the shorter time span (three years) used for ETFs, there are also similarities. The biggest commonality is that diversification works. You can see the top-performing ETFs here.

Finally, many of you have expressed concern about the ongoing low bond yields. I have heard directly from some AAII members who are now favoring dividend-paying stocks over bonds. Both have a role in an investor’s portfolio; the question is how to strike a proper balance. For an answer, I spoke to Ned Notzon and Charles Shriver of T. Rowe Price. Some of the funds Notzon manages have consistently ranked among the best-performing balanced mutual funds in our annual Guide to the Top Mutual Funds. The interview starts here.

Wishing you prosperity,
Charles Rotblut, CFA
Editor, AAII Journal

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


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