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  • Income Strategies for a Low Yield Environment [View article]
    Kenji,

    I purposely left covered calls out of the article, because most of members (but certainly not all) do not use options. As to your comment about risk, a covered call strategy still leaves you exposed to a big drop in a common stock's price. Though covered-calls do provide some income, the post-transaction and post-tax profit may not be to provide much a cushion. (And yes, I realize this statement depends on several factors.)

    -Charles
    AAII
    Oct 18, 2010. 11:11 AM | 1 Like Like |Link to Comment
  • Income Strategies for a Low Yield Environment [View article]
    Regarding MLPs, my understanding is that does not matter if the IRA is a traditional or an Roth, the UBTI rules apply the same. Here is what the National Association of Publicly Traded Partnerships says on the issue:
    There is a concept in the tax code (I.R.C. §§511-514) called “unrelated business income tax” (UBIT). Under the UBIT rules, tax-exempt institutions and retirement accounts must pay tax on income from a business that is not related to their exempt purpose (a university operating a business that had nothing to do with education would be an example).

    Because of the pass-through nature of an MLP--or any partnership (no tax paid by the partnership, all tax items flow through to the limited partners/shareholders, who pay tax on their share), the shareholders are treated by the tax code as if they are directly earning the MLP’s income. Thus, as a shareholder in the MLP, the IRA, 401(k), or other account is considered to be “earning” its share of the MLP’s business income.

    The tax is owed on the retirement account's share of the MLP’s taxable business income, minus its share of depreciation and other deductions related to the business, as reported on the K-1, (not on the quarterly distributions). There is a deduction that covers the first $1,000 of unrelated business income from all sources; after that, the retirement account will owe tax.

    It is important to remember that you are not the one who will owe any unrelated business income tax on MLP units held in your retirement account. The tax is owed by the IRA, 401(k), or other account itself. It is the responsibility of the custodian of the account to file a tax return (form 990, the return for tax-exempt organizations) and pay any tax owed out of the account’s funds.

    You should also note that the tax applies only to the income allocated to the retirement account each year while it holds the MLP units. It does not affect the treatment of capital gain realized when the units are sold. This would remain exempt from taxation.
    Oct 18, 2010. 11:04 AM | Likes Like |Link to Comment
  • Income Strategies for a Low Yield Environment [View article]
    Regarding MLPs, Robert Carlson of Retirement Watch.com addressed the subject in the March 2010 AAII Journal:

    "Investors are most likely to be trapped by UBTI when an interest in a pass-through business entity (partnership, S corporation, or limited liability company) is held in an IRA. The IRA’s share of a pass-through entity’s income is considered UBTI regardless of the account holder’s ownership percentage of the entity. Pass-through entities generally do not pay federal income taxes. Instead, their income and expenses are passed through to their owners’ income tax returns.

    "This rule most often trips up individuals who invest their IRAs in master limited partnerships (MLPs)—such as pipeline partnerships—or real estate partnerships. Master limited partnerships are traded on major stock exchanges, and many people think of them as being the same as corporate stock. In fact, these are limited partnership units, and the income and expenses of the partnerships pass through to the owners at tax time. When distributions from master limited partnerships to an IRA exceed $1,000, taxes are due on that income.

    "Individuals generally are urged not to purchase master limited partnerships through IRAs. Unlike collectibles, investments in MLPs and other pass-through entities can be held in an IRA. However, the ownership triggers the UBTI tax and the requirement to possibly file a version of Form 990 and pay estimated taxes.

    "When an IRA does own master limited partnerships and earns income of more than $1,000 for the year, some tax advisers recommend taking the easier and cheaper route of reporting any IRA-owned pass-through income on the IRA owner’s individual tax return instead of preparing a separate return for the IRA."

    Geoffrey - Thanks for the clarification on the preferreds.

    -Charles
    AAII
    Oct 16, 2010. 10:50 AM | Likes Like |Link to Comment
  • AAII Sentiment Survey: Bullish Sentiment at 42.5%, Stays Above Historical Average [View article]
    We don't publish the number, but we have yet to find any difference between the number of responses and whether sentiment improves or decline.
    Oct 8, 2010. 02:39 PM | 1 Like Like |Link to Comment
  • AAII Sentiment Survey: Bullish Sentiment Jumps to 49.0% [View article]
    There have been correlations between our weekly sentiment survey and market reversals when bullish or bearish readings reach very levels. Like any indicator, however, it needs to be used with other signals.

    There is no single timing indicator that will tell you when to get in and get out.

    -Charles Rotblut
    AAII
    Oct 8, 2010. 11:22 AM | Likes Like |Link to Comment
  • Investor Sentiment and Subsequent Returns [View article]
    Thanks for the running the numbers. The analysis is similar to what we've seen in other studies, which show a correlation between extreme bullish and bearish readings and market turning points.

    As you mentioned, our survey should be used in conjunction with other indicators.

    -Charles Rotblut
    AAII
    Sep 30, 2010. 02:54 PM | Likes Like |Link to Comment
  • AAII Investor Update: Dividends and Buybacks- A Good Use of Corporate Cash? [View article]
    tweedn - Thanks for the kind words. I personally prefer dividends over buybacks as well, though buybacks are preferable to bad business ventures and they do provide greater flexibility for a company undergoing strong growth.
    Sep 17, 2010. 09:52 AM | 2 Likes Like |Link to Comment
  • AAII Weekly Sentiment Survey: Bullish Sentiment Crosses 50% Threshold [View article]
    AAII members can download a spreadsheet with the all of the survey's historical data and a chart plotting the data against the S&P 500. (Membership is just $29 per year.)

    Since the survey is conducted weekly, there are a lot of data points and therefore the Excel chart gets messy. What we have found is that over time, extremes in the sentiment readings are correlated with market reversals. There is no single magic indicator, however, and the sentiment numbers should be considered within the broad context of other factors.

    Steve - just call or email me anytime you need investment data, quality fantasy football advice or someone to boost viewership of the Zacks’ videos and TV show. :)

    Stone Fox Capital - Our sentiment survey is conducted weekly and I believe the mutual fund data is tabulated monthly, so it would not be an exact overlay of data. I've never seen a study trying to combine the two, but I know some researchers have done long-term studies using our survey data.

    -Charles Rotblut, AAII
    Sep 17, 2010. 09:50 AM | Likes Like |Link to Comment
  • Preparing for the Likely Scenario of Deflation [View article]
    Larry,

    The scenario of low inflation and slow growth, but not deflation is based on what many economists are currently projecting. As to whether they are being too optimistic or too pessimistic is for each investor to determine.

    I'm not making a forecast, just presenting the data and giving investors factors to consider should the U.S. continue experiencing such an environment.

    -Charles
    Aug 13, 2010. 11:15 AM | 2 Likes Like |Link to Comment
  • Preparing for the Likely Scenario of Deflation [View article]
    Thanks for the feedback.

    As I said in the article, this is not a call for history to repeat itself - I acknowledged that the conditions are different now, but rather simply evidence that Japan is not the only scenario we could be looking at in terms of slow growth and low inflation.
    Aug 13, 2010. 09:55 AM | 8 Likes Like |Link to Comment
  • AAII Sentiment Survey: Bearish Sentiment Jumps [View article]
    The survey is conducted online at AAII.com. Without checking IP addresses, we have no way of knowing if it is the same members taking the survey week and week out. What we have found over time, however, is that the responses provide a pretty good overview of how our members feel about the market.

    I would caution against using any indicator as the sole reason to be bullish or bearish. Rather, you want to look at a variety of indicators before forming your opinion.
    Jul 26, 2010. 10:30 AM | Likes Like |Link to Comment
  • AAII Sentiment Survey: Bearish Sentiment Stays Above 40% [View article]
    Steve,

    I would caution against using any single indicator, whether its our sentiment survey numbers or something else, as your basis for trading. Always make sure you are getting similar signals from a variety of indicators.

    You may well be doing this already and if so, just consider this a friendly reminder.

    -Charles
    Jun 10, 2010. 07:16 PM | Likes Like |Link to Comment
  • AAII Sentiment Survey: Bearish Sentiment Falls, But Still High [View article]
    Bearish readings above 50%, which roughly equate to two standard deviations from the mean, do not occur very often and thus draw attention. Like any indicator, however, it needs to be placed in the broader context. Specifically, do many indicators suggest that the potential rewards outweigh the potential risks?

    Obviously, the great debate comes in determining which indicators. I lean heavily on fundamental indicators, though I do look at the chart before making a final decision. Others flip this priority. The key is to know what you are buying and what could cause your analysis to be wrong before you place the actual order.
    Jun 4, 2010. 09:48 AM | Likes Like |Link to Comment
  • AAII Sentiment Survey: Neutral Sentiment at 7-Week High [View article]
    Hi Jeff,

    Only AAII Members are allowed to participate in the survey. We have approximately 125,000 members.

    -Charles
    May 21, 2010. 11:32 AM | 1 Like Like |Link to Comment
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