Longevity Annuity Options

Comment posted to “What Is a Longevity Annuity?,” by Stan Haithcock, in the November 2014 AAII Journal.
Can the deferred life annuity be converted to an immediate period-certain annuity in the event of a qualified long-term care need? This could possibly be used to preserve other assets for survivors.
—Gerald Quigley from New Jersey

Stan Haithcock responds:
You can choose a life guarantee, a period-certain guarantee, or a combination of the two. You make this decision at the time of application. So you could choose to have the income pay for 20 years only, instead of life. The only drawback, in my opinion, is that you would have to make this structural decision at the time of application; you cannot change it in the middle of the contract. Most longevity annuities do not provide that type of flexibility.

Expanding on Active Equity Mutual Funds

Comments posted to “Selecting Active Equity Mutual Funds: Don’t Get Caught in the Middle,” by Thomas Howard, in the November 2014 AAII Journal.
A much more detailed explanation of these concepts is found in Howard’s book titled “Behavior Portfolio Management.” There is a mountain of statistical analysis to support his claims. This is high-level stuff, not easy to understand. However, I found Howard’s book user-friendly. References are given in all chapters for those who would care to investigate further.
—Timothy Moore from New Hampshire

An interesting analysis of portfolio management, but no active fund recommendations at the end… disappointing.
—Roger Greenberg from California

Questions Regarding “Millennial” Screens

Comments posted to “A Strategy Millennial Investors Can Use to Beat the Market,” by Patrick O’Shaughnessy, in the November 2014 AAII Journal.

This compares very favorably to the Trending Value portfolio from James O’Shaughnessy’s “What Works on Wall Street” book. Per page 589 of that book, the Trending Value averaged 24.16% per year starting in 1973 (the same year quoted in this article; I just plugged the annual data into Excel). Has anyone tried the screens from this article yet? I’m wondering how difficult it is versus the Trending Value portfolio. After a lot of work, we were able to use a screener and Excel to duplicate the Trending Value portfolio and have been using it.

I can’t recommend Patrick’s book (“Millennial Money”) enough. It should be required reading for all college students. For number crunchers, “What Works on Wall Street” is excellent, too.
—Susie Jacobsen from Washington

A crucial detail has been omitted. How does one rebalance the portfolio? For example, the Model Shadow Stock Portfolio sells when a company has reached a certain market capitalization. When do you sell one of the 25 millennial stocks? How do you re-invest the proceeds: buy newly qualifying stocks, the current highest-rated stock, etc.?
—Paul from Texas

Patrick O’Shaughnessy responds:
The strategy is based on a once-per-year rebalance. It can be traded once per year (with short-term losses traded on day 364 and everything else on day 366 for tax purposes) or traded in “tranches” if the portfolio is larger and the investor wants a smoother, less lumpy rebalance process. In that case, the investor can trade quarterly or semiannually, treating each “tranche” as a separate portfolio and trading one of the four (quarterly) or one of the two (semiannually) at a time.