Low Bond Yields Affect Backtesting

Comment on “The Advantages of Simple Allocation Strategies,” by Wesley R. Gray, Ph.D., in the November 2015 AAII Journal.

Historical testing is fine, but the unavoidable fact is that we are starting at historically low bond yields that will eventually rise. This will reduce bond principal. Thus backtesting any allocation scheme may be not fully relevant to the future for asset allocations that have a high proportion of bond investments. Here we may legitimately say “this time is different,” at least from the interest rate environment starting in 1979 and going forward.
—Adam Gallucci from Massachusetts

Importance of Having an Investment Policy

Comment posted to “Defining Your Investment Philosophy,” by Ben Carlson, in the November 2015 AAII Journal.

Good article. I have spent the last several years creating and rewriting an investment policy statement that now captures both my wife’s and my investment philosophy. It is analogous to a football game plan. It helps keep me on course with my investing. It addresses the 10 questions that are stated in your article. In particular, it has been a great help in getting my wife involved with our investment portfolio. We reduced the portfolio’s holdings which, combined with the investment policy statement, gives my wife confidence in managing the portfolio should I not be able to.
—Paul Manka from Oregon

Alternate Fiduciary Designations

Comments posted to “Why Your Financial Adviser Should Be a Fiduciary,” by Larry Stein, in the November 2015 AAII Journal.

I agree that the CFP is a wonderful designation. However, it’s too bad the article doesn’t address the CPA, PFS (personal financial specialist) and/or a few other well-qualified designations who act as fiduciaries as well. The qualifications and testing for these designations are very similar.
—Michael Farris from Missouri

Is there a way that I can forward this article to my adviser?
—Herbert Hanson from Florida

Charles Rotblut, CFA, responds:
In the April 2011 edition of the AAII Journal, Chuck Jaffe’s article “How to Check Out a Financial Advisor” includes definitions of the many designations that advisers tend to have.

Regarding forwarding an article, if you are logged in to AAII.com, on the left side of the article, you should see a list of options for sharing. This option is available for all AAII Journal articles.

ETF Trades Compared to Stock Trades

Comment posted to “A Behind-the-Scenes Look at How Trades Are Executed,” an interview with John Ramsay, in the November 2015 AAII Journal.

Very clear and useful. By the way, since exchange-traded funds (ETFs) are just baskets of (very) different stocks, how applicable are these concepts to ETFs versus stocks?
—Yefim Revutsky from California

Charles Rotblut, CFA, responds:
It’s the same process for ETFs. Orders to buy or sell them can be sent to a variety of exchanges and trading venues.

Extended Longevity Risk Charts

Comment regarding “How Big Is Longevity Risk?,” by Bob Collie, in the October 2015 AAII Journal.

As a long-time AAII member, I was especially interested in the article regarding longevity risk. However, I was dismayed to see that all the graphs ended at age 80, since I am 93 and still an active investor.
—Herbert Bell from North Carolina

Russell Investments responds:
Bob Collie apologizes for cutting off the charts at too young an age. Extended versions of exhibits 4 and 5 from the paper are available at http://www.russell.com/us/institutional-investors/research/longevity-risk-aaii.page.