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


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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Is Your Diversified Portfolio Truly Diversified?

Posted on October 2, 2014 | Computerized Investing

Mutual funds—and more recently, exchange-traded funds (ETFs)—have offered safety and diversification by allowing individual investors to buy shares in many companies in order to spread risk. It is important for investors to understand what role they play and what role the fund managers’ play in ensuring proper diversification of their portfolio. Additionally, investors need to understand when fund companies fail on proper diversification, how that results in improper diversification and what impact that could have on their portfolios. We highlight what diversification is and why it is important, then discuss why an appearance of being diversified may not mean that your portfolio is truly diversified. Finally, we identify ways that fund managers and investors can damage their portfolio diversification.

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The Investment Industry’s Response to Dementia

Posted on October 2, 2014 | Investor Update


I had the opportunity to attend SIFMA’s Senior Investment Forum this week. It was an industry seminar focused on cognitive impairment (dementia, Alzheimer’s disease and related ailments). The timing was somewhat ironic given that on the same day of the conference, the family of Malcom Young—the founding member of Australian rock band AC/DC—confirmed the reason for the guitarist’s retirement: dementia. (I’m listening to some of his work as I write this.)

A positive takeaway from the conference is the investment industry’s awareness of the problem. Some firms have set up protocols, implemented training programs, or are otherwise are educating employees about identifying and working with clients showing signs of cognitive impairment. Wells Fargo Advisors distributes a pamphlet entitled “A Quick Reference Guide for Elder Financial Abuse.” Ameriprise Financial gives its financial advisers a “compliance snapshot,” which has guidance for working with clients believed to be “experiencing diminished mental capacity.” Bank of America Merrill Lynch has a director of financial gerontology. Cynthia Hutchins, who holds this role, believes this is the first such position of its kind.

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Investor Attitudes Mixed Over Small-Cap Stock Performance

Posted on October 2, 2014 | AAII Survey

This week’s special question asked AAII members how the performance of small-cap stocks is affecting their six-month outlook for the overall stock market. Responses were mixed. The largest group, 40% of all respondents, said the weakness in small-cap stocks was not having any impact. Some of these respondents said they don’t invest in small-cap stocks or don’t view them as being a leading indicator of market direction. Slightly more than 16% of respondents viewed this year’s returns for small caps as a bearish sign for the broader market. An additional 7% of respondents said the decline in small-cap stocks has made them more cautious. On the other hand, about 10% of respondents thought small-cap stocks will rebound.

Here is a sampling of the responses:

  • “I don’t feel you can gain insights into the market as a whole by looking at market segments in isolation.”
  • “I hold very few small-cap stocks and only as speculative plays.”
  • “I expect small-cap stocks to get better as the economy improves.”
  • “It’s giving me reason for caution, so I’m cautiously optimistic as to the six-month outlook.”
  • “I do not consider small caps as part of my analysis.”

AAII Sentiment Survey: Pessimism Rises to a Three-Month High

Posted on October 2, 2014 | AAII Survey

Pessimism among individual investors about the short-term direction of stock prices rose to a three-month high in the latest AAII Sentiment Survey. Neutral sentiment also rose, while optimism fell to its lowest level since early August.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 6.4 percentage points to 35.4%. The drop puts optimism at its lowest level since August 7, 2014 (30.9%). It also ends a seven-week streak of bullish sentiment readings above the historical average of 39.0%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, rebounded by 3.7 percentage points to 33.7%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, rose 2.7 percentage points to 30.9%. This is the highest level of pessimism registered by our survey since August 7, 2014 (38.2%). The historical average is 30.5%.

Pessimism has risen by a cumulative 7.9 percentage points over the past two weeks as the S&P 500 has retreated from its recent highs. Though individual investors felt more cautious this week, it should be pointed out that this is just the eighth time in the past 12 months that pessimism is above its historic average.

In addition to the recent weakness in stock prices, prevailing valuations, events in the Middle East and Ukraine, the pace of economic growth and Washington politics are weighing on investors’ moods. Keeping other individual investors optimistic about the short-term direction of stock prices is the S&P 500’s overall upward momentum, earnings growth, sustained economic expansion and the Federal Reserve’s tapering of bond purchases.

This week’s AAII Sentiment Survey results:

  • Bullish: 35.4%, down 6.4 percentage points
  • Neutral: 33.7%, up 3.7 percentage points
  • Bearish: 30.9%, up 2.7 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:

Sell OF THE WEEK 10/1/2014

Posted on October 1, 2014 | Podcast

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why Owens-Illinois, Inc. (OI) 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

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