Picking Good Investments, Not Good Stories


This week’s AAII Weekly Digest highlights these “must-read” AAII articles:


Rebalancing Update: How Frequently Allocations Should Be AdjustedRebalancing Update: How Frequently Allocations Should Be Adjusted

There was a reward for investors who stuck with their long-term portfolio strategies last year: positive returns. Despite the stock market’s dip, the drop and then rise in bond yields, and a panoply of surprising headlines, asset prices rose for 2016. Domestic stocks, international stocks and long-term government bonds all posted gains. By allowing some fluctuation in the allocations, the models tracked have, on average, required rebalancing just once every three years.

Conversations on Picking Good Stocks and Funds

Harold Evensky

Unfortunately, investors all too often buy the best story and not the best investment. To protect yourself, step back and think about your investments with your brain and not your gut. For example, when selecting individual stocks, don’t confuse a good company with a good stock. When selecting funds, simply looking at gross returns and comparing them to the S&P 500 index may be a good strategy for losing money. Here are some commonsense guidelines for buying the best investment and determining the difference between a good story and a good investment.

The Diversification Benefit of Mixing ApproachesThe Diversification Benefit of Mixing Approaches

It is tempting to jump on the next hot stock, sector or approach, but long-term success is best achieved through a diversified portfolio created with a sound investment strategy that is followed with discipline. A stock or fund should be added to your portfolio because it improves the return-to-risk ratio of your entire portfolio more than any other choice, and should not be examined in isolation.

Building a Balanced Portfolio: An Unconventional Allocation

It is easy to make money when the stock market is soaring. However, as experienced investors know, the key to long-term financial success is surviving the troughs. How does your portfolio perform during severe downturns? How vulnerable is it to prolonged periods of economic weakness? Do the losses during the inevitable bear markets offset the gains during the good times? Since most investors are trying to earn stable returns through time, they aim to maintain a balanced portfolio. The problem, however, is that the vast majority of portfolios are very poorly balanced and susceptible to violent swings. Here is a four-asset-class portfolio weighted by volatility that performs as well as a traditional 60/40 portfolio, but with less volatility.

Our Member Question for this week is:

How do you go about rebalancing your investment portfolio?


Last Week’s Results:

Comparing high dividend yield companies with low dividend yield companies, do you believe that high dividend yield companies are:

AAII Model Portfolios

For nearly 40 years, AAII’s major emphasis has been on investment education and information. Our preferred function has been to prepare individual investors to be their own advisers, and to provide the necessary data and systems to help them in that effort. Over the years, however, we became increasingly aware that many of our members wanted more specific help. We responded to this need by creating the AAII Model Portfolio series. They provide an intermediate level of support— they’re not a complete stock advisory letters, but provide some specific guidance for individuals in developing an effective investment program.


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