Greater 401(k) Focus on Retirement, But Not Annuities

Posted on March 27, 2015 | AAII Journal

About 93% of employers are very likely or likely to “create or broaden focus on financial well-being of employees beyond retirement” this year, according to an Aon Hewitt survey. Yet the focus for many employers will not extend to including annuities or other similar lifetime income products as investment options in defined-contribution [e.g., 401(k)] plans.

Aon Hewitt says seven Americans are reaching age 65 every minute. Given this, it is not surprising that nearly three-quarters of plan sponsors will experience an increase in retirement-eligible employees over the next three years. In response, 52% of employers say they are very likely and 38% say they are likely to offer retirement planning to near-retirees. Slightly more than half (51%) are very likely and 38% are likely to increase communication about the retirement process. Online modeling tools and mobile apps designed to help employees determine how much they will be able to spend in retirement may be made available by 53% of employers (“moderately likely action”), with 17% seeming more certain about providing them (“very likely action”).

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A Quiet but Eventful Week

Posted on March 27, 2015 | Stock Superstars Report

This week was a quiet one in the markets, which is not that unusual given that we are nearing the end of a calendar quarter. In fact, two of the lowest-volume days of 2015 occurred this week. The markets are in wait-and-see mode now that the Federal Reserve has removed the word “patient” from its guidance about when it may alter monetary policy.

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A Bright Spot This Week: Record Dividends

Posted on March 27, 2015 | Dividend Investing

Markets took a turn for the worse this week (narrowly escaping a five-day decline), but how much of it is due to news versus noise? We are currently heading into a quiet time period: The end of the quarter is near, and the next Fed meeting won’t be held until late April. In time periods such as these, we see that even fairly insignificant news items can move the market. On top of skittish investors, this week marked one of the lowest-liquidity weeks of the year.

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Achieving Greater Long-Term Wealth Through Index Funds

Posted on March 26, 2015 | AAII Journal

John Bogle (JB): Let’s start off with the obvious. Imagine a circle representing 100% of the U.S. stock market, with each stock in there by its market weight. Then take out 30% of that circle. Those stocks are owned by people who index directly through index funds. The remaining 70% are owned by people who index collectively. By definition, they own the exact same portfolio as the indexers do in aggregate, so they will capture the same gross return as the direct indexers. But by trading back and forth, trying to beat one another, they will inevitably lose by the amount of their transaction costs, the amount of the advisory fees they pay, and the amount of all those mutual fund management costs they incur: marketing costs, processing, technology investments, everything. When we look at the big picture of the costs of investing, including sales loads as well as expense ratios and cash drag, it is a foregone conclusion that active investors, in aggregate, will under perform index investors. It’s the mathematics.

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Responses to Fed Language Change Very Mixed

Posted on March 26, 2015 | AAII Survey

This week’s Sentiment Survey special question asked AAII members what they thought about the Federal Open Market Committee removing the “patient” language from its recent meeting statement. Responses were very mixed. The largest group of respondents, 25%, agreed with or otherwise approved of the message. Several of thought the Fed was purposely trying to avoid surprising market participants or was being conscious of the impact that an unexpected change in monetary policy would have on the markets. Slightly less than 24% of all respondents said the change in wording was not significant. About 10% disapproved of the meeting statement and/or current monetary policy. Roughly 9% thought interest rates should be raised. An additional 9% said a rate hike is forthcoming, while 6% said they were expecting the wording change in last week’s meeting statement.

Here is a sampling of the responses:

  • “All of this parsing of words tells me that [the Fed] is doing a good job and not trying to stampede the crowd in either direction.”
  • “I think it is about time that they raise interest rates. The economy has been doing well enough to have interest rates raised.”
  • “Big mistake. The so-called recovery is very fragile.”
  • “Gobbledygook. Fedspeak is right up there with doublespeak.”
  • “Simply one step closer to raising the interest rate.”

AAII Sentiment Survey: Optimism Rebounds

Posted on March 26, 2015 | AAII Survey

Optimism about the short-term direction of stock prices rebounded, but remains below its historical average in the latest AAII Sentiment Survey. Both neutral sentiment and bearish sentiment pulled back from last week’s readings.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 11.3 percentage points to 38.4%. Even with this week’s sizeable increase, optimism is below its historical average of 39.0% for the third consecutive week.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, pulled back by 4.2 percentage points to 37.2%. Even with the decline, neutral sentiment remains above its historical average of 30.5% for the 12th consecutive week. This is the longest such streak since a 32-week stretch of above-average readings between January 9 and August 14, 2014.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 7.1 percentage points to 24.4%. The drop puts pessimism back below its historical average of 30.5% for the 42nd time out of the past 52 weeks.

Optimism rebounded back to near its historical average after falling to an unusually low level last week. Some individual investors reacted favorably to the Federal Open Market Committee’s decision to remove the “patient” language, as the responses to this week’s special question reveal. Differences in specific AAII members who participated in this week’s survey versus last week’s may have also impacted the shift in sentiment readings.

The recent price fluctuations, prevailing valuations, disappointing earnings or guidance from certain companies, geopolitical events, the pace of economic growth and worries that an even larger decline in stock prices could occur are weighing on some AAII members’ short-term market outlook. Keeping other AAII members encouraged is the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

  • Bullish: 38.4%, up 11.3 percentage points
  • Neutral: 37.2%, down 4.2 percentage points
  • Bearish: 24.4%, down 7.1 percentage points

Historical averages:

  • Bullish: 39.0%
  • Neutral: 30.5%
  • Bearish: 30.5%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at:

High Buyback Yields

Posted on March 25, 2015 | AAII Journal

Companies with excess cash can pay out dividends as well as repurchase outstanding shares that have been issued to the public. When a company reduces the number of outstanding shares, remaining shares gain a slightly larger proportional claim to the company and its profits. This allows earnings per share to expand more quickly than net income. A share buyback can also signal to the market that management thinks that the shares are attractively priced at current levels.

The easiest way to calculate the buyback yield is to look at the change in the average shares outstanding from one fiscal period to another. For example, DST Systems (DST) had 42.1 million shares outstanding during its 2013 fourth quarter, but it reduced the number of outstanding shares to 37.9 million by its 2014 fourth quarter. The 10.0% reduction in the number of shares is the buyback yield. A company that issues more shares will have a negative buyback yield.

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Sell OF THE WEEK 3/25/2015

Posted on March 25, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why The Boston Beer Company (SAM) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Sell of the week


Posted on March 24, 2015 | Weekly Features


This week’s AAII Weekly Features has been updated.
View this week’s Top AAII Articles, Featured Stock Screen and Member Question.

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BUY OF THE WEEK 3/24/2015

Posted on March 24, 2015 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Methode Electronics Inc. (MEI) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

Audio url: Buy of the week

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