Estimating Social Security

Comments on “Double Your Lifetime Purchasing Power in 20 Minutes,” by Chris Pedersen, in the October 2022 AAII Journal:

You are doing a disservice by not including Social Security as part of lifetime purchasing power.
—Jim L. from Michigan

Chris Pedersen responds:
Jim, you’re right that Social Security is part of lifetime purchasing power. To include it in the calculations, I’d have to make assumptions about the average real return on investment (ROI). Estimates for the real ROI on Social Security vary widely based on income and timing. Lower-income non-savers will benefit the most, but higher-income savers will benefit too.

Building a Financial Roadmap Together

Comment on “A Financial Roadmap for Grief, Recovery and Well-Being,” by Lacy Garcia and Reilly Robbins, in the October 2022 AAII Journal:

This article covers a lot of good advice. I estimate that my wife will survive me by at least 30 years. We share all our finances equally. We make an annual budget together. She manages her own set of assets—and does it better than I do. For long-range planning, we have one spreadsheet with line items for every bank and brokerage account organized by cash accounts then asset accounts. Every Friday, we open a bottle of Cabernet, update the line items and toast to our love and to our health. The information AAII provides has empowered us to achieve this much control over our finances. For this we are thankful.
—Barry J. from Texas

High Asset Correlations

Comment on “Covering All the Bases With Your Asset Class Decisions,” by Charles Rotblut, CFA, in the October 2022 AAII Journal:

I think any discussion of asset allocation needs to go well beyond stocks and bonds—especially with the potential for increasing interest rates. All of the stock models noted here such as large cap, international, etc., are going to be highly correlated, especially in a down market. I would add small allocations to commodities, real estate, currency and, yes, cash, to complement a portfolio.
—Matthew P. from Texas

Emerging Markets Funds

Comments on “Emerging Markets Funds Offer Diversification Plus Growth,” by Matt Bajkowski, in the October 2022 AAII Journal:

I accept that adding emerging markets exposure could reduce portfolio volatility. But where is the proof that over the long term emerging markets will have higher returns?
—John L. from New Jersey

In October 2010, the Vanguard FTSE Emerging Markets Stock ETF (VWO) was $46.87 and is now $36.49. The Vanguard 500 Index ETF (VOO) was $108.30 in 2010 and is $328.30 now. It would seem that indexing brought on board more bad than good in the past dozen years or so. To truly make above-average gains (to offset increased risks versus the U.S. market), one would have to pick out only the best companies in each emerging market country or region.
—Craig B. from Wisconsin

Looking for Lasting Growth

Comments on “Uncovering Consistent & Sustainable Growth With the Revised Growth Grade,” by Wayne A. Thorp, CFA, in the October 2022 AAII Journal:

Congratulations on constructing a grading system that would have worked in the past. Now we need a time machine to go back and use this grading system, because there is no chance the future will be like the past.

The debate is whether your data mining has uncovered a method for identifying these companies before the market favors them with higher prices, resulting in market-beating returns.
—John L. from New Jersey

Wayne A. Thorp responds:
John, I am very pleased with what the backtesting data showed. You are correct that past performance is no guarantee of future returns, and there will definitely be periods where growth will underperform other factors. However, in the long run, the market will favor companies that can consistently grow sales and generate positive cash flows.

Saving for Future Generations

Comments on “Online Exclusive: Saving Early for Offspring With Custodial Accounts,” by Matt Bajkowski, in the October 2022 AAII Journal:

The author neglects an important type of custodial account: the custodial IRA, which can be either traditional or Roth. In fact, this is probably the best type of account to set up for a minor who has earnings that can be reported on a Form 1040. Ever since my children were old enough to earn a few dollars, I’ve been filing tax returns for them and matching their earnings in Roth IRAs. I hope they’ll remember me fondly when they turn 59½.
—Robert A. from North Carolina