The Benefit of Stock Buybacks

Comments posted to “Stock Buybacks: Misunderstood, Misanalyzed and Misdiagnosed,” by Aswath Damodaran, in the March 2014 AAII Journal.

This is the first balanced discussion on buybacks versus dividends I’ve encountered. It’s an excellent article.
—Cliff Rafter from Florida

This article does not dwell on the more obvious reasons for stock buybacks. The board of directors is charged with finding the best return on investment for use of all assets in the company. Excess cash should be invested in a way that best benefits the overall value for the shareholders. All things considered, if the best investment for the company is to invest in its own stock, the decision is therefore already made. A stock buyback with excess cash increases earnings per share (EPS) by reducing the number of shares available. Stock value should ultimately be tied to EPS. The increase in value is free of income taxes until the shareholder ultimately sells his or her shares.
—Edward Ward from Georgia

Fund Portfolio Insights From James Cloonan

Comment posted to “Dramatic Changes Help and Hurt the Model Fund Portfolio,” by James B. Cloonan, in the March 2014 AAII Journal.

You have good insights, Jim. Stay with it.
—Charles Kanenbley from California

Advantages of Retirement Annuities

Comment posted to “Greater 401(k) Focus on Retirement, But Not Annuities,” Briefly Noted, in the March 2014 AAII Journal.

I wish employers would consider this as a viable investment option. QLAC [qualified longevity annuity contract] will allow deferral periods past the RMD of 70.5 years. Allowing for the limit of 25% of total dollar amounts or $125,000, whichever is less, for some, deferring to age 85 might be a great option.
— Allen Jenkins from Louisiana

Lessons From Brad Perry’s Career

Comments posted to “Lessons Learned From Many Years of Investing,” by H. Bradlee Perry, in the March 2014 AAII Journal.

This is an excellent article from a man who knows his business. As we sit on the cusp of new records for the Dow and NASDAQ, there is much here to think about.
—Allen King from Texas

We’ve followed Brad Perry (and David L. Babson before him) for years. For those who want more, hunt down a copy of Perry’s book, “Winning the Investment Marathon” (Midas Press, 1999). Sage then. Sage now.
—Mark Robertson from Michigan

Pros of Converting to Roth IRA

Comments posted to “Converting to a Roth IRA Can Minimize RMDs,” by Judith Ward, in the March 2014 AAII Journal.

I have been doing staggered conversions for several years as I approach retirement. The key to the tax advantage in this strategy is that by paying taxes on conversions from non-qualified funds, you get to increase your qualified balances by the amount of taxes paid.

The tax advantage disappears if you pay the tax on your conversion from qualified accounts. That may still leave other benefits, such as if you expect your marginal tax rate to be higher in the future, and the advantageous treatment of Roth IRAs vs. regular IRAs when you die.
— Rob Gerritsen from Pennsylvania

For me conversion makes sense to control required minimum distributions. Hopefully I won’t need extra dollars in my seventies. If managed, the transfer of funds over a few years to control taxes on the amounts, you can gain the advantage of using IRA savings in a tax-efficient manner when you need it, or just leave it for future generations. In my case I hope the funds are not needed until age 84 or older, and based on a present worth analysis I will get a 2.5-to-1 advantage over the RMD method.
—John Flynn from Florida