We receive questions from members via e-mail on a regular basis. Since some questions may be on the minds of other members as well, here are a few of the recent ones we’ve received along with our answers.

Question: It would seem to me that the “win-by-not-losing” strategy of DAA would make a good substitute for my bond allocation. The back-tested returns of DAA far surpasses that of a bond portfolio, especially in the present climate, but the not-losing characteristic also beats the bond fund I own.

Answer: What you're suggesting is somewhat similar to (although more aggressive than) the approach we describe in this article about combining SMI strategies.

It’s a safe assumption that replacing bonds with DAA would increase your long-term returns, but also your risk. On the risk side, you’d be trading the constant presence of bonds for the “dynamic” presence of DAA, which has the potential to be aggressively positioned in stocks (as well as real estate and/or gold). When a bear market hits, the DAA portion of your proposed portfolio could easily take a bigger hit than a traditional bond portfolio.

Keep in mind that in our back testing of DAA, its worst 12-month loss was -13.7%. And even though DAA would have generated a small gain in 2008 (vs. the market’s decline of -37.2%), in seven of those months, DAA would have lost money, including -7.4% in October 2008. (Read How Short-Term Thinking Can Derail Long-Term Success.) 

All that to say you'd have to be emotionally prepared for a more volatile ride and be willing to stay with your suggested allocation in order to achieve what may be a more favorable long-term return.

Bonds are much more stable than DAA on a short-term basis. So to the extent that you're relying on your bond allocation for ballast in your portfolio, be careful about replacing all of the bonds with DAA. That said, DAA has been great over longer periods of time, so shifting some bond money to DAA may make perfect sense, as described in the first article link. The best approach may be to not completely replace bonds with DAA, but perhaps shift a portion instead.

We'd be more comfortable encouraging you to consider the allocations in our article since we have research on those. Of course, even there, the returns are not guaranteed. But at least we know how they would have performed in the past.

Question: In Upgrading, I have only $1,300 to invest in the 15 suggested areas. Should I just use only the top two investments per category?

Answer: We’re not sure if you meant that you have $1,300 in total to invest or $1,300 for each of the 15 recommended funds. So, we’ll answer both ways.

If you have $1,300 total, you won't be able to use Fund Upgrading appropriately. You would need at least $6,500. However, you could use Just-the-Basics or Dynamic Asset Allocation. (See How to Start Investing With SMI If Your Portfolio is Small.)

However, if you have $1,300 x 15 or even $1,300 for each of the five categories, you could use Fund Upgrading as described in the same article. If that's your situation, you could just choose the top-ranked fund in each category.

Question: When and how should my almost 19-year-old college student son (who will have federal student loan debt, works and pays for part of his college costs, and receives various scholarships) invest for retirement? He’d like to accumulate at least $1,000,000 by retirement.

My son has always been a saver and loves the idea of investing for retirement. He doesn't want to wait to invest until after college because that is a lot of compounding interest years wasted. Is it wise for a college student who is and will be in debt to invest for retirement now?

Even though we help him pay for some things, I don't mind him using some of his earned money to invest.

He listened to "Money Wise" on the Radio with me on the way home from school, which is where we learned about you all! 

Answer: Your son is to be commended for his eagerness to get started with investing!

Before investing, though, it would be wise to build up some savings. He'll need some start-up money after college — maybe new clothes for work, maybe a car, furniture, a deposit for an apartment, etc.

After that, should he invest? Here are two ideas to consider.

1) At this point, it would be arguably more productive to minimize debt. So, he could take at least the lion's share of his earnings that he would otherwise put toward investing and put it toward college costs, thereby reducing his need for loans. Then, if he’s still intent on investing, he might consider opening an account at a broker with no minimum opening balance, such as TD Ameritrade.

2) It may help him to know that he should be able to hit his ultimate retirement target even if he waits until he gets his first job before he starts investing.

Use this calculator to run some scenarios. For example, if he earns $40,000 in his first job, invests 10%, gets an annual 3% raise, and gets a 7% average annual return on his money, he'll far exceed his goal. And that's without a company match. (The assumptions we used were a current age of 21 and a retirement age of 70.) That might help him be patient — build savings, minimize debt, and then get serious about investing.

But again, his enthusiasm for investing is to be commended. At very least, encourage him to read about investing (such as our content).

One last point: Make sure that in helping your son financially you are still able to save adequately for your own retirement. One common mistake we see is parents sacrificing their retirement savings for the sake of their kids' college bills.

Question: I was wondering, is it better to have an IRA account or a broker's (Individual) account? What’s the difference? What are the pros and cons? If I needed to change my account would it be possible?

Answer: Deciding which type of account to use depends on your objectives. If you're investing for retirement, an IRA will help you do so with some important tax advantages. If you're investing for a shorter-term goal, you may be better off with a taxable account.

This article will walk you through the key differences between a traditional IRA and a Roth IRA.

As for making account changes, as long as you have earned income and stay within annual contribution limits, you could take money from a taxable account and transfer it to an IRA. To move in the other direction, with a Roth IRA, you could withdraw contributions and put the money in a taxable account, but you wouldn’t be able to do the same with a traditional IRA without triggering taxes and penalties.

If you have a question, feel free to write to us.