Portfolio Survival in Retirement

Comment on “Asset Allocation, RMDs and Portfolio Survival,” by Craig Israelsen, in the April 2017 AAII Journal.

Thanks for a very useful article. I’d be interested in how the “all-stock” scenario would have played out if there had been any kind of quality control on the stocks used—e.g., a Dividend Aristocrats portfolio, adjusted every year for entries and exits, maybe rebalanced, either by market cap or just equal weighting. If in the RMD phase all dividends went to cash instead of being reinvested, you’d have a pretty good cushion of income to cover each year’s RMD requirement, at least in the early years.
—George Bussey from Hawaii

Using a Bucket Strategy to Fund Retirement

Comments on “A Six-Bucket Strategy for Funding Retirement,” in the Briefly Noted column in the April 2017 AAII Journal.

The biggest unknown here is the health savings bucket. Not many can allocate $250,000 to this, or need to for that matter. Much is dependent on the health care insurance you have and the cost of it, not to mention what health issues you end up having.
— Dave Gilmer from Washington

I suggest that readers download and read the longer paper authored by Diane Garnick of TIAA, the link to which is posted at the end of the article and here. The AAII Journal article is a brief summary of the ideas explained in more detail in the longer paper.
— Gregory Lawton from Pennsylvania

A Closer Look at Using Closed-End Funds

Comments on “Closed-End Bond Funds Versus Individual Bonds: A Case Study,” by Hildy Richelson and Stan Richelson, in the April 2017 AAII Journal.

Shines a bright light on a rarely discussed topic. Closed-end funds (CEFs) are broadly touted in Barron’s without getting into the details of these investment types. This article helps to make sense out of CEFs.
— Robert Myers from California

The real question for investors is whether one should pursue CEFs versus buying individual bonds. The answer suggested, but not explicitly stated in the article, is that it depends.

If you are trading CEFs with a specific plan, then they represent a viable option. However, a bond ladder makes the best sense for investors. Given the low return environment today and the fees associated with CEFs, it is hard to see how they can beat a bond ladder for yield. For retirees cash is king, so a buy-and-hold strategy for CEFs is a sub-optimal approach.

Thanks for the article.
— Ronaldo Jenkins from Maryland

Diving in to Factor-Based Investing

Comments on “Factors Allow Investors to Think Differently About Diversification,” by Larry Swedroe, in the April 2017 AAII Journal.

Sounds like the blending of factors—perhaps quality, value, momentum, etc.—can over time increase returns with lower risk due to their negative correlation. My view is that this article is trying to get us to think beyond traditional diversification. Maybe you could give us a follow-up article of examples of these factors being used in a sample portfolio?
—Dave Samuels from California

Larry Swedroe and Andrew Berkin’s book, “Your Complete Guide to Factor-Based Investing” (BAM Alliance Press, 2016), makes these concepts rather more clear and actionable than this short article does. I read the book on a vacation trip and it flows pretty fast, but it is not a beginner’s strategy and seems to target not only individual investors but also professionals. I wish they had included the article’s Table 4 with the fuller explanation in the book in order to give us a clearer picture of how the odds of underperformance correlate with holding times for various strategies. I personally found size and value applicable, but the other factors were not so convincing.
— David Lambert from Ohio

This article lacks some clarity on its implementation in the real world. From some of the comments, it seems that reading the book is required.

I will be following (Jim Cloonan’s) Level3 for my passive portfolio. It follows most of what I thought was working for me for the last few decades.
— Cynthia M. from Minnesota