The Role of Luck and Skill in Investing

Posted on July 25, 2014 | AAII Journal

Since luck plays a bigger role than skill in influencing investment returns, investors need to focus on their portfolio management process.

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“Market Wizards” Advice: Doing the Uncomfortable Thing

Posted on July 24, 2014 | AAII Journal

Basing trading decisions on what feels emotionally satisfying often leads to the worst portfolio performance.

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Five Common Traits of Successful Value Screens

Posted on July 22, 2014 | AAII Journal

Though investing gurus differ in what they look for in a stock, there are five common traits we see across the AAII value-oriented screens.

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The Right Type of Life Insurance for Your Estate Planning Needs

Posted on July 15, 2014 | AAII Journal

Life insurance works well for estate planning because of when benefits are paid and the ability to create wealth for heirs outside of the estate.

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Valuation Ratios: The PEG Ratio

Posted on July 8, 2014 | AAII Journal

The PEG ratio factors in a company’s growth into its valuation, allowing investors to compare companies with different rates of growth.

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Editor’s Note

Posted on July 6, 2014 | AAII Journal

John Bogle and Jack Schwager are two names not commonly mentioned in the same sentence. John Bogle started a mutual fund company to offer index funds in 1975 when nobody thought the idea would work. Today, Vanguard is one of the largest fund companies in the world. Jack Schwager interviewed several top traders and wrote about his conversations in 1989. His book, “Market Wizards,” became a bestseller and sits on my bookshelf at home. (Yes, I know John Bogle goes by “Jack,” but to avoid confusion here, I’ll use “John” to refer to him.)

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Which IRA Should You Contribute to and When?

Posted on July 3, 2014 | AAII Journal

Contributing to a Roth IRA early in a tax year results in the greatest ending wealth.

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Avoiding Probate Through Account Titling

Posted on July 1, 2014 | AAII Journal

Joint ownership can make transferring assets at death easy, though the three types have implications that must be thought through.

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Valuation Ratios: The PEG Ratio

Posted on June 25, 2014 | AAII Journal

The PEG ratio factors in a company’s growth into its valuation, allowing investors to compare companies with different rates of growth.

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Investment Knowledge Boosts Portfolio Returns

Posted on June 23, 2014 | AAII Journal

Investing knowledge enhances risk-adjusted returns by at least 1.3 percentage points annually. Over a 30-year investment span, the improved portfolio performance leads to 25% greater wealth. This was the finding of a study, possibly for the first time, linking results from a test of financial knowledge to actual portfolio performance. The researchers believe their conclusion may understate the actual return differential.

A key driver of the return differential is a willingness to invest in stocks. The most knowledgeable investors had a 66% allocation to stocks, whereas the least knowledgeable held about 49% of their retirement assets in stocks. The larger stock allocation did lead to more volatility, but also higher risk-adjusted performance.

Researchers with the Pension Research Council at the University of Pennsylvania’s Wharton School gained access to the retirement plan of a large financial institution with 22,000 employees. The defined-contribution [401(k)] plan offered 16 funds. The plan’s offerings included stock funds, bond funds and a real estate investment trust (REIT) index fund. The study’s authors used this data to analyze account balances, returns and volatility.

Employees were also invited to take an online survey. The survey measured the ability to do a simple interest rate calculation, tested respondents on their understanding of inflation, looked to see how well respondents knew the difference between a stock and a mutual fund and how well they understood risk diversification, determined their understanding of the impact of tax incentives for saving and measured knowledge of employer match incentives.

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