Clarifying Siegel Interview

Comment posted to “Real Returns Favor Holding Stocks,” by Jeremy Siegel, in the August 2014 AAII Journal.
Does anyone know what Jeremy means by “fundamentally weighted” indexing, instead of “capitalization weighted” indexing?
— Edward Mueller from Illinois

Charles Rotblut responds:
Fundamental weighting means weighting an index by measures such as valuation, sales, earnings, yield, etc., instead of by market capitalization. See page 16 in this month’s issue for more about fundamental indexing.

Covering Fixed Expenses in Retirement

Comment posted to “Retirement Planning: Focus First on Covering Fixed Expenses,” by Michael Falk, in the September 2014 AAII Journal.
Best commonsense retirement planning article I have read in my 20+ years of retirement. It relates directly to my 1994 retirement plan, where I used the budget process to create the retirement expenses based on three retirement age stages, and the plan is successfully working today at age 85. Hindsight indicates that I should have layered my monthly fixed-income investments to provide about 50% to 60% monthly expense income at retirement at age 70 rather than providing 15% to 20%.
— Vern Andrews from California

In-Depth Look at ETFs

Comment posted to “An Inside Look at Exchange-Traded Funds,” by Rochelle Antoniewicz and Jane Heinrichs, in the September 2014 AAII Journal.
Very informative article, worth the read from start to finish. I buy and sell ETFs routinely, some long-term holdings and some short-term, but have really never known this much about their inner workings, creation and structure.
—Greg Nolen from Texas

Understanding ETF Returns

Comment posted to “The Top ETFs Over Three Years: Health Care Takes Top Four Spots,” by Charles Rotblut, CFA, in the September 2014 AAII Journal.
Do you have any AAII reference on the comparison of performance of index funds and ETFs? An executive summary would be useful. Some 195 ETFs are listed in the table; it is kind of hard to find important metrics. Is NAV return the same as annualized return? As investors, we wish to know the return and that is all. For financial analysts, other metrics might matter.
— Vaidy Bala

Charles Rotblut responds:
Nearly all of the ETFs covered in this article are index funds. Most ETFs overall are index funds, for that matter. If you want funds that track a broad index, such as the S&P 500, then I would start by scanning the names in the large-cap category.

NAV return measures the annualized returns of the fund’s assets. The market return shows whether a fund has historically traded close to or at a significant premium or discount to its net asset value.

Cash Flow in Retirement

Comments posted to “Managing Cash Flow in Retirement,” by Harold Evensky and Deena Katz, in the September 2014 AAII Journal.
One of the most valuable articles I’ve seen. The Evensky and Katz Portfolio Approach makes more sense than anything else I’ve read. I’m 71 and retired last year.
—John from Florida

A good option in the “what else” category was not covered in the article. Delaying Social Security beyond your full retirement age gives you 8% a year more in monthly benefits plus inflation adjustment, it can be transferred to your spouse upon your death, and there is no worry about the financial security of the insurance company (although you have a slight risk that Uncle Sam may decrease everyone’s benefits at some point). An annuity with these qualities would be very expensive.
—David P. from Illinois