Putting This Week’s Volatility Into Perspective

Posted on October 10, 2014 | Dividend Investing

The relative calm the market has enjoyed over the past couple of years was interrupted this week. Our benchmark, the iShares Dow Jones U.S. Index ETF (IYY), rose or fell by at least 1.5% on three consecutive days. This was the first time the fund has changed in value by 1.5% or more on three consecutive trading days since November 2011.

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Members Closely Watching Monetary Policy, Interest Rates

Posted on October 9, 2014 | AAII Survey

This week’s special question asked AAII members if there are any economic or market-related characteristics they are looking for over the next few months. Monetary policy and interest rates, the November elections, economic growth and geopolitics were listed by the largest number of respondents. Just under 20% of respondents said they are watching how Federal Reserve policy will evolve and what interest rates will do in response. Nearly 18% are awaiting to see the outcome of the November elections. About 16% are monitoring economic growth, with several watching job growth specifically. Geopolitical events were named by 14% of respondents. Ebola was cited by slightly less than 5% of all respondents.



AAII Sentiment Survey: Optimism Rebounds; Pessimism Stays Above Average

Posted on October 9, 2014 | AAII Survey

Optimism rebounded back above its historical average after having fallen by 6.8 percentage points between September 18 and October 1. Though bearish sentiment increased ever so slightly (0.1 percentage points), this is just the fourth time in the past 12 months that pessimism is above its historical average on back-to-back weeks.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 4.5 percentage points to 39.9%. This is the eighth week out of the past nine with optimism above its historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, fell 4.5 percentage points to 29.1%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, edged up by a mere 0.1 percentage points to 31.0%. The historical average is 30.5%.

Both bullish and bearish sentiment are very close to their historical averages. This is occurring as stocks are experiencing both upward and downward volatility. Keeping some individual investors optimistic are the S&P 500’s overall upward momentum, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases. Keeping others cautious are worries about the possibility of a correction, prevailing valuations, geopolitical events, the pace of economic growth and Washington politics.

This week’s AAII Sentiment Survey:

  • Bullish: 39.9%, up 4.5 percentage points
  • Neutral: 29.1%, down 4.5 percentage points
  • Bearish: 31.0%, up 0.1 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: http://www.aaii.com/sentimentsurvey.



Misunderstanding Variable Universal Life Can Lead to Adverse Consequences

Posted on October 8, 2014 | Financial Planning

I have been skeptical of variable universal life insurance policies (VULs) since they became popular enough to show up on my radar screen in the late 1980s.

In the beginning my skepticism was just instinct. Then experience proved that it wasn’t misplaced. Though I have been consistent in my published columns, I continue to refine how we should think about and treat variable universal life. This article is probably my bottom line on this type of insurance policy.

Almost all clients view variable universal life as similar to whole life and universal life, buying these policies for family protection or associated with estate planning. But as we will see, variable universal life policies are very different.

Virtually all variable universal life policies I have reviewed have these characteristics: a.) illustrated (represented based on hypothetical assumptions) to have level death benefits from the day purchased until death; b.) invested in risky sub-accounts [primarily stocks]; and c.) a premium that the client believes is his or her “policy’s premium.” Buyers of variable universal life are very loyal to their premium. The premium is based on an assumed constant investment yield that the selling agent selects during the sales process, which they justify based on some construct of historical data. The constant investment yield is mandated by regulators.

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Sell OF THE WEEK 10/8/2014

Posted on October 8, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Norfolk Southern Corp. (NSC) 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





Real Returns Favor Holding Stocks

Posted on October 7, 2014 | AAII Journal

Charles Rotblut (CR): You have a reputation for being bullish on the stock market, but from reading “Stocks for the Long Run,” it sounds like you’re more focused on the ability of stocks to prevent the loss of purchasing power than making a call on the direction of the market. Is that correct?

Jeremy Siegel (JS): My book emphasizes that the long-run return on stocks is between 6.5% and 7% per year after inflation (Figure 1). This return has been very stable in the long run. Over time stocks are good hedges against inflation, so they keep up with inflation and purchasing power, but even aside from that their returns are excellent compared to fixed-income assets. They dominate fixed-income assets, and particularly in today’s low interest rate environment I think the margin by which stocks will outperform bonds is even greater than it historically has been.

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Figure 1. Total Returns on U.S. Stocks, Bonds,
Bills, Gold and the Dollar, 1802–2013



AAII WEEKLY FEATURES 10/7/2014

Posted on October 7, 2014 | 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 10/7/2014

Posted on October 7, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Raymond James Financial (RJF) 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




The Steady Hand Wins the Day

Posted on October 3, 2014 | Stock Superstars Report

The market, as measured by the Dow Jones industrial average, is down around 100 points for the week, which is just noise in the investment world. Apart from the excitement surrounding the iPhone 6 and the “panic” surrounding a case of ebola in Texas, the week was relatively quiet. While the ebola “panic” generated plenty of headlines…

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DI Portfolio Changes, Plus the October Monthly Report

Posted on October 3, 2014 | Dividend Investing

We are making our first changes to the DI portfolio since June. Details can be found in the October Monthly Report, which is now available on the DI website, but here is a quick summary.

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