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January 2014 AAII Model Portfolios Updated – Model Portfolios Finish a Strong Year

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The year 2013 was one of the strongest for both of the model portfolios. The economy has been generally trending in the right direction. Unemployment is dropping while companies seem to be growing again. Since the “Great Recession,” the economy has been boosted by unprecedented stimulus measures put in place by the Federal Reserve. In early 2014, the Federal Reserve will begin its “tapering” program, meaning that it will slow down its monthly bond buying. The rate of the tapering will be slow and, judging by recent stock market activity, investors seem to believe that the economy is strong enough to withstand the pullback from easy money.

For December, the Model Shadow Stock Portfolio finished the year on a high, gaining 3.5% and outperforming the Vanguard Small Cap Index fund (NAESX), which gained 2.6%, and the DFA US Micro Cap Index fund (DFSCX), which was up 1.9%. The Model Shadow Stock Portfolio finished the year up an incredible 61.0%, well ahead of the Vanguard Small Cap Index fund, which has gained 37.6%, and the DFA US Micro Cap Index fund, which is up 45.1%. The Model Shadow Stock Portfolio has a compound annual return of 18.3% from its inception in 1993, while the Vanguard Total Stock Market Index fund (VTSMX) has gained 9.3% annually over the same period.

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