Target date funds, for instance, use glide paths. Over time, a glide path changes a portfolio’s allocation from being more aggressive to being more conservative. This evolution is intended to reduce the risk a person is exposed to as retirement approaches. It’s a logical approach from the standpoint of reducing the damage from a bad sequence of returns occurring near the expected retirement date. Some detractors will point out that such strategies are the most aggressive when the least amount is invested—when the investor is young, has a lower salary and is just starting to set aside money for retirement. There is relatively little money to benefit from the power of compounding. Other detractors criticize target date funds for being too aggressive at retirement or not continuing to evolve for a long enough period of time after the retirement date.
Among the alternatives to target date fund glide paths is a strategy proposed by professors at the University of Waterloo and a portfolio manager at Canadian money management firm PWL Capital. They used a fixed allocation of 60% stocks/40% bonds to demonstrate how their target wealth approach works. The portfolio is rebalanced annually to maintain the allocation. Though there is nothing new about a 60/40 allocation, what happens next is interesting: Once the wealth target is exceeded (the study’s authors suggest aiming to overshoot the target in order to reach it), the portfolio is de-risked. This occurs by allocating an amount equal to the targeted wealth to risk-free assets. This shift is not time-dependent—meaning an investor does not make the change, say, at the planned date of retirement, but rather when the goal is exceeded. In other words, you move your retirement savings out of the market once your retirement is funded. Continue Reading »
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The AAII.com website is a treasure trove of investment knowledge and tools that are all geared toward making you a smarter and more profitable investor. The site offers a full archive of AAII Journal articles, our library of stock screens, investor classrooms, discussion boards, investment guides and topical areas covering investing basics, stocks, mutual funds, bonds, research and much more.
Please note, this small description doesn’t do justice to our website. It houses almost every imaginable investment tool, resource and service you might need. Once you dig into the AAII website, you’ll have a difficult time signing off! As a brief example of the power of AAII.com, let me take a moment to share with you a little bit about the free members-only stock screens we provide online. Tom D. from Pittsburgh, Pa., says, “The AAII.com stock screens are awesome!” We tend to agree.
The Stock Screens area allows you to quickly tap into the investment philosophies of popular professional investors as well as to see the resulting stock picks. As a user, you’ll be able to pick a name (or investment strategy) from our online menu and see the resulting companies that meet the criteria of each specific stock screen.
Here’s a quick peek at some of our more popular screens
and their impressive 2017 returns:
O’Neil’s CAN SLIM Revised 3rd Edition up 22.4%…
Driehaus up 20.3%…
MAGNET Simple up 16.3%…
NASDAQ 100 up 14.8%…
Buffettology: EPS Growth up 14.4%…
(Return data as April 28, 2017)
More on AAII.com
- A Second Look at How Target Date Funds Change Their Allocations – Though all target date funds follow a glide path, the rate at and the time period over which they adjust their allocations varies.
- Retirement Planning: Focus First on Fixed Expenses – Michael Falk discussed the logic behind immunizing all expected fixed expenses in retirement in this AAII Journal article.
Highlights from this month’s AAII Journal
- Power Your Portfolio with Value – An all-value portfolio realized higher long-term returns and its excess performance can even allow for a bigger allocation to bonds.
- How to Take Advantage of Risk Factors – Factors have been proven to lead to higher returns. What you need to know about tilting your portfolio toward them.
AAII Sentiment Survey
Optimism rebounded, but remains below average for the 20th out of the past 21 weeks. Plus, members discuss how the market’s record highs are influencing their outlooks. More about this week’s results.
- Bullish: 35.4%, up 8.5 points
- Neutral: 35%, down 6.5 points
- Bearish: 29.5%, down 2.0 points
- Bullish: 38.5%
- Neutral: 31.0%
- Bearish: 30.5%
Take the Sentiment Survey.
The Week Ahead
The Federal Open Market Committee (FOMC) will hold a two-day meeting, starting on Tuesday. The meeting statement will be released at 2 p.m. ET on Wednesday along with the committee members’ updated forecasts. Chair Janet Yellen will hold her quarterly press conference at 2:30 p.m. A quarter-point (0.25%) rate hike is widely expected to be announced. Insight into the central bank’s plans to unwind its balance sheet may also be provided.
The week’s first economic reports will be the May Producer Price Index (PPI), released on Tuesday. Wednesday will feature the May Consumer Price Index (CPI), May retail sales and April business inventories. The June Philadelphia Fed business outlook survey, the June Empire State manufacturing survey, May import and export prices, May industrial production and the June housing market index will be released on Thursday. Friday will feature May housing starts and building permits and the University of Michigan’s preliminary June consumer sentiment survey.
The Treasury Department will auction $24 billion of three-year notes and $20 billion of 10-year notes on Monday and $12 billion of 30-year bonds on Tuesday.
Local Chapter Meetings
AAII Local Chapter Meetings offer you a variety of presentations from expert speakers who will give you their view on the world of investing. A bonus of attending a Chapter Meeting near you is the opportunity to meet other AAII members who share your interest and enthusiasm for investing. You can even share the Chapter experience with your family and friends by inviting them to attend Chapter Meetings with you!