Investing for the Long Run

Comments on “Filling Your Coffee Can Portfolio to Stash Away,” by Brian Haughey, CFA, FRM, CAIA, in the June 2023 AAII Journal:

Thank you for this article! Over more than 40 years of investing, I’ve tried many different strategies, but the overwhelming bulk of my net worth has come from a small handful of successful companies that I’ve held for 20 years or more. Young investors should take a lesson from this. Far too few investors have the patience and resilience to sit still and do nothing, but I believe that’s precisely the most effective tactic for building wealth.
—Robert A. from North Carolina

Good article that reaffirms the basics, along with the idea that successes can make up for mistakes. Another worthwhile read along this line is “The Rip Van Winkle Portfolio” by Jason Zweig in Money Magazine, March 2004: https://jasonzweig.com/the-rip-van-winkle-portfolio. At the link, he revisits the article in 2017. At the very bottom are two 20-year portfolios by John Bogle and William Bernstein. It might be interesting for someone to run the numbers to see how these portfolios would have done if someone had invested in them 20 years ago.
—Bob K. and B. from Illinois

Thoughts on Equal-Weight Funds

Comments on “Incorporating Equal-Weighted Funds Into Your Allocation,” by Charles Rotblut, CFA, in the June 2023 AAII Journal:

This approach has another benefit: Since you are using index funds as your investment vehicle, rather than investing in each stock directly, you have access to a specific variance statistic for the overall covariance of the portfolio relative to the overall market index it tracks (beta). So you know the approximate level of risk for this investment.
—Barry J. from Texas

If you compare the Invesco S&P 500 Equal Weight ETF (RSP) to the SPDR S&P MidCap 400 ETF (MDY), which is capitalization weighted, you will find that the returns are highly correlated. There are backtesting tools that can project investments in both. A $10,000 investment made in January 2004 in RSP versus MDY would result in $2,649 more for the RSP investment. This difference may be due to the slightly smaller management fees. The graphics show a nearly identical trajectory through time.
—Jacques G. from Canada

Preparing for the Worst in Retirement

Comment on “Key Numbers for Your Retirement Prep Checklist,” by Craig L. Israelsen, Ph.D., and Jason R. Parker, RICP, in the June 2023 AAII Journal:

Retirement is a moving target, not just a destination. “Preparing” for retirement at age 65 is probably different at age 75 and different even more at 85, try 92. The longer one lives, the more chances for things that go bump in the night. Think about tax law changes—especially 2017, 2020—as well as changes that are already scheduled for 2026. Think about the market at the end of January 2022.

Think about possible personal emergencies: In the space of three months, we had severe roof damage (freak windstorm), we were rear-ended at a stop light and a water pipe broke under the kitchen slab. Insurance covered part of the roof costs but not all. The other driver had insurance but it was too expensive to repair so they hunted all over the country for the cheapest possible replacement to make the settlement. To fix the water leak (and preclude other leaks), it was necessary to replace all the water pipes in the house; insurance would have covered digging a huge hole in the concrete. All told, it cost us more than $25,000.

Think about the pandemic, the invasion of Ukraine, Federal Reserve chairman Jerome Powell. Even if you got by relatively unscathed in 2001–2002, 2015, 2019, etc., that was no protection in 2022. The key numbers are necessary but not sufficient. Even with Medicare, it is possible to go bankrupt because of health problems. Is your pension plan safe? It is clear that Social Security and Medicare are not safe.
—Donald M. from Arizona

When to Sell I Bonds

Comment on “I Bond Yields Are Down From Their Peak,” by Charles Rotblut, CFA, in the June 2023 AAII Journal:

In my opinion, there are normally only two reasons to sell a Series I bond: 1) Because you have all the I bonds you need and you may want to unload one without a fixed rate and swap for one with a fixed rate, or you may want to reduce your I bond exposure; 2) You need the money.

In many cases, because of the purchase limits involved, people are trying to build up their I bond allocation over time. If this is the case, there is usually no advantage to selling one I bond just to turn around and buy another.
—Dave G. from Texas