A.I.M. Users Bulletin Board

[ls7550]

The other benefit of AIM is that over time it can have gone that little bit more in when prices were low and lightened up a little when prices were high; And it seems to broadly do so with reasonable accuracy. Relatively overweighting when prices were low, underweighting when prices were high can produce better rewards than maintaining a more constant level of risk exposure.

As a example of that, AIM-HI (with 20% vealies, 10% minimum trade size, 10% SAFE) of FT250 (price only) since 1986 annualised 8% with 22% average cash (78% average stock exposure). Subtracting 20% from each period (months) cash % produced a overall 1.5% average difference. The sum of all of those values = 5%, which means that on average AIM had less than the target 80% stock exposure. Within that however there were two periods (dot com and 2008 financial crisis) where AIM moved all-in (zero cash reserves i.e. AIM had a sizeable amount more than the 80% target stock exposure). At other times AIM had 36% cash (64% stock exposure) and was relatively light on stock compared to a 80% target stock exposure.

Assuming one investor opted to buy and hold a initial $100,000 investment in the FT250, and perhaps also held another $100,000 in bonds, and a AIM user opted to allocate $125,000 to AIM-HI of FT250 and a separate $75,000 allocation to bonds, then generally they'd both have held similar overall average stock/bonds in total. AIM however would have produced around a 1.7% overall higher total average yearly reward (i.e. AIM earned around 1.7% more total reward than buy and hold), partially due to having moved all-in (no AIM cash reserves remaining) during the dot com and 2008 declines, partially due to having lightened up on stock exposure when prices were relatively high, and partially due to cash having earned more income than stock dividends.

10% minimum trade size, 10% SAFE (buy and sell), 20% vealies (don't sell stock if cash reserves are already > 20%), resulted in 20 trades over 28 years, so less trading than had a investor simply rebalanced once each year. Lower costs, higher rewards.

Relative to the total portfolio of stocks and bonds, that 1.7% higher 'stock' reward in effect adds 0.85% to total portfolio rewards. But did at times see the portfolio being more a 62% stock, 38% bond combined asset allocation, and at other times that reduced to 40% stock, 60% bonds, in reflection of when stock prices were relatively cheap and expensive (respectively). A constant weighted yearly rebalanced investor in contrast would have reset back to 50/50 stock/bond weightings each year.