Financial Plan Debate

Comments on “A One-Page Plan for Maximizing Long-Term Wealth,” by Charles Rotblut, CFA, in the July 2024 AAII Journal:

I’ve never had a written financial plan, never set a financial goal other than maximizing my wealth and never had a defined emergency fund held in cash or cash equivalents. For me, simply buying and holding good stocks through thick and thin over decades has worked best.
—Robert A. from North Carolina

Every “good” (actionable) plan requires the planner to measure results and use that data to improve performance. AAII is solidly in the systematic camp with PRISM’s feedback loop. Otherwise, your plan is just a wish list or a pipe dream.
—Barry J. from Texas

The bottom line is that whatever works for you, keep doing it. It really depends on how much time you want to spend managing your portfolio. For at least 25 years, I’ve been a self-directed investor. However, I am always willing to look at other ways to maximize my investment dollars. I started learning to invest way back when companies first started offering 401(k) plans. It was in the early days of online brokers and things have really changed since then. Personally, understanding your risk tolerance and managing risk is one of the most important aspects of investing. Maybe PRISM gives structure for people who know nothing about managing their wealth. It’s certainly worth a look. It might be a great place to start.
—Terrance O. from Ohio

I always thought Warren Buffett’s advice to “be greedy when others are fearful” was an investment strategy in itself. When others panic and sell, driving down prices, that’s the time to buy (i.e., buy low). I didn’t think it was advice to stick to your own strategy unless, of course, that happens to be your strategy already.
—John C. from Florida

The Error of Stock Buybacks

Comment on “Balance Sheet Basics: Demystifying What a Company Owns & Owes,” by Jack Gilleland, in the July 2024 AAII Journal:

Net tangible assets are increasingly relevant because of the disastrous effect on cash and balance sheet equity in the past 20+ years by stock buybacks. Cash is considered a tangible asset, as well as being an emergency reserve asset.

Consider Apple Inc.’s (AAPL) pending $110 billion stock buyback. As of March 31, 2024, Apple’s equity was $74.2 billion. If the buyback was completed on April 1, its equity would have become –$35.8 billion. The buyback will be paid to management for shares received from stock option compensation, as well as to large stockholders chosen by management. This proposed transaction is an example of the error associated with any buyback plan where the price paid per share is greater than the book value equity per share.
—Michael D. from California

Starting With Small Caps

Comment on “Summer Portfolio Refresher: Swapping Five Shadow Stocks,” by John Bajkowski, in the July 2024 AAII Journal:

Buying based primarily on numbers, without in-depth analysis of business fundamentals, strategy, management, etc., really is just trading, whether daily or quarterly. To me, investing is deciding to buy part of a business. It takes more effort to find stocks that pass the screening parameters one has determined. Shadow stocks are a good place to start investing in smaller companies.
—Michael V. from Virginia

Filing for Social Security

Comment on “Yes, You Can Rethink Your Retirement Decisions,” by Charles Rotblut, CFA, in the July 2024 AAII Journal:

You missed one problem that’s probably common. Married people often file for Social Security at different times. If the lower earner files first, their reward may be substantially less than if they waited for the higher-earning spouse to file. I filed at age 67, but my spouse is waiting until 70. Even though I’m only entitled to half of her benefit, my Social Security check would be triple if I had waited for her to file first. When she does file, I’m told I will be able to adjust my benefit upward to half of what she gets.
—Barry J. from Texas

Benchmarks for Beginners

Comment on “Beyond the Basics: Evaluating Stocks for Beginners,” by Jenna Brashear, in the July 2024 AAII Journal:

Anyone can get very close to average market returns by investing in a cheap index fund. But average isn’t good enough for some investors who believe they can do better through skill or good luck. My advice to those who want to play the stock-picking game: Benchmark your performance to an appropriate index fund. And if you can’t beat the index, join it!
—John L. from New Jersey