A.I.M. Users Bulletin Board

[ls7550]

I agree that AIM is a great management tool. But, like all tools, it sometimes needs sharpening as knowledge is gained or other conditions change.

Your looking too deeply into the workings of AIM Allen.

Once you've figured out what/where you want to invest and assuming you want to rebalance back towards target weightings once in a while, then you might manage that in several ways. One way might be to say I want 20% of Asset A, 30% of Asset B, 50% of Asset C and maintain a spreadsheet to monitor that and once the weightings had deviated by a sizable amount opt to rebalance the assets back to 20/30/50 weightings. If you hold a wider range of assets that can become quite mathematical and require loading and maintaining a spreadsheet etc. Another choice therefore is to use AIM - and create three AIM's for each of those three assets (or however many AIM's/assets you opt to hold). Buy the exact same amount of assets that you were going to anyway and set Portfolio Control to the $ amount of assets bought. The AIM 'cash' for each of those assets is then just a figure - one that you perhaps set to restrict adding too much into any one of the assets before calling a halt to buying any more (that you might opt to override if you believe it to be appropriate to do so). AIM is a lot easier to manage than is maintaining spreadsheets - and at the end of the day will likely do just as good a job (achieve similar rewards).

Say for example you were investing $100,000 and had opted to invest $20,000 in small cap value (VISVX), $30,000 in the S&P500 and $50,000 in ...whatever. Three AIM's VISVX with $20,000 of stock value bought and Portfolio Control set to $20,000; $30,000 of SPY bought and Portfolio Control set to $30,000; $50,000 of 'whatever' bought and Portfolio Control set to $50,000. And you're up and running. Review once per month and trade as and when AIM indicates. Sometimes you might not be able to trade due to not having any cash reserves, other times a AIM might sell some (reduce) and provide some cash reserves that might be later (or perhaps even immediately) reinvested as the AIM's indicate to buy some more stock.

Vealies will help avoid building up too much cash reserves.

IMO AIM-HI (80/20) is quite a good choice with Vealies set to 20%. You might even opt to start of with 80% of the amount of stock value you were going to invest anyway and run with that i.e. $16,000 of VISVX, Portfolio Control = $16,000 $4000 cash; $24,000 of SPY, Portfolio Control = $24,000, $6000 of cash ....etc. Generally 80/20 tends to provide similar rewards as 100% stock over time anyway.

You might even just review quarterly. If you do then 5% minimum trade size, 10% for both buy and sell safe settings work OK. If you review more frequently (monthly) then 10% minimum trade size (10% buy and sell safe) are a reasonable choice IMO.

The above asset allocation wasn't any form of recommendation - more commonly you'd want to diversify more widely - perhaps across sectors, or styles (growth, value, momentum, small, large etc.) and/or countries/regions.

If you try to tweak AIM then you'll end up backtesting what worked in the past and tune AIM to that, but that likely wont repeat in the future and different AIM settings would have worked better. The standard settings work well in the broad sense.

Clive.