Sequence Risk

Comments on “How Best to Mitigate Sequence Risk at Retirement,” by Craig L. Israelsen, Ph.D., in the June 2024 AAII Journal:

The math might work but take it from someone who lived through the 2000 downturns: The psychology outweighs the math when you see your portfolio drop by eye-popping amounts.

I forgot to take into account my required minimum distribution (RMD) when doing my financial planning for retirement, which meant excessive income that was not needed as I got older. I retired in 1998 at age 58 and basically planned on a 40-year withdrawal period at 3% per year. I adjusted for inflation when our checkbook said it was time. Luck is a critical component of investing and life.
—David L. from North Carolina

Outstanding article on the subject. I agree with the percentage withdrawal if it is meant to be spending. The RMD is not necessarily spending. My RMD and Social Security exceed my spending. The excess is simply a transfer from my individual retirement account (IRA) to my taxable brokerage account.
—Richard S. from Texas

Using data from Table 1, I calculated what a dollar invested at year 1 would be worth upon retirement at year 40. With the 20% stock/80% bond portfolio’s 5.68% return, that dollar would become about $8. With the 80% stock/20% bond portfolio’s 9.43% return, that dollar would become about $32. I think I’d rather start retirement with $32 than $8.
—John B. from Ohio

Beating Index Returns

Comment on “Active Investors Can Still Win in “Efficient” Markets,” by Brian Haughey, CFA, FRM, CAIA, in the June 2024 AAII Journal:

As an individual investor, I have found it relatively easy to pick individual stocks (and options) that have, for me, beaten the index averages substantially. Looking at Figure 5, one simply has to be overweighted toward the right end of that graph. I completely understand why fund managers can’t take the concentration risks that I have been able to.

I have chosen concentration in a few high-quality companies versus diversification. Much of my ability to determine which companies are more likely to appreciate comes from decades of reading what AAII has to offer. Articles like this continue to guide my investment decisions.
—Max C. from California

Using Momentum

Comments on “How to Boost Returns by Incorporating Momentum,” by Charles Rotblut, CFA, in the June 2024 AAII Journal:

Thank you for identifying the strategy I used many years ago with mutual funds in my 401(k). I compared their monthly, quarterly and year-to-date returns. If a fund showed a continued increase, I would put money in that fund. If it showed a decrease, I moved that money. From 1985 to 1999, I beat the market most of the time and did better than my coworkers.
—Catherine L. from North Carolina

It should be noted that relative strength momentum generally suffers greatly in volatile markets. Time series momentum has shown to be superior to relative strength momentum when encountering volatile markets.

Several years ago, I created securities selection overlays that incorporated both momentum factors. I have been applying the overlays to stocks screened through quality and growth factors. Returns have produced worthwhile alpha for me.

It is important to apply graded quality for both forms of momentum to reduce the frog-in-the-pan exodus. I applied my overlays to AAII’s Growth Investing strategy at the time of the model portfolio’s initial investment and my portfolio has more than doubled.
—Ronn K. from Washington

How Active Funds Were Chosen

Comments on “Active Strategies That Have Fared Well Among Mutual Funds and ETFs,” by Cynthia McLaughlin, in the June 2024 AAII Journal:

I did not see any Vanguard or iShares funds listed. Did they not make the cut, or do they not exist?
—Barry J. from Texas

Cynthia McLaughlin responds:
Barry, using our mutual fund and exchange-traded fund (ETF) screeners, we filtered on category rank between 41% and 100% for one-, three-, five- and 10-year returns. This eliminated some Vanguard and iShares funds. We excluded institutional and other special share classes and required the 12b-1 fees to be less than 0.1% for mutual funds. Funds not in the asset classes most used in individual investors’ portfolios were also excluded.

Vanguard has eight actively managed ETFs; none have a 10-year performance history. iShares/BlackRock has three ETFs with a 10-year performance history, but only one met the performance ranking criteria: The BlackRock Short Duration Bond ETF (NEAR) is included in Tables 3 and 4.