A.I.M. Users Bulletin Board

[ls7550]

If one had the desire, when AIM was fully invested, one could start buying additional shares on Margin and hope that the recovery wasn't too far into the future. A modest margin position in March of 2009 would have been paid down by year's end at a reasonable expense relative to AIM's profits. If there were ever a prudent way to use Margin, AIM would be it.

I find that leveraged ETF's work quite well. Instead of 100% in SPY for instance 50% SSO (2x S&P500), 50% bonds periodically rebalanced back to 50/50 (once/year) will track 100% SPY well IME.

A variation of that is to allocate 50% to a AIM of SSO with perhaps 25% AIM cash - such that you don't extend leverage too much. The other 25% can then be invested in longer or fixed term bonds for potentially higher yields. IME work the bonds well and you'll end up with better than 100% SPY rewards. Whilst leveraged ETF's tend to have higher expense ratios, when you only invest half as much in such ETF's the costs relative to the whole are acceptable. Often they'll pay relatively lower dividends (or maybe none at all) which can make the half in 2x, half in bonds choice more tax efficient (as a UK investor the US withholds 15% of all dividends from US ETF's).

With leveraged ETF's you don't want to be trading too often - so quarterly reviews are a reasonable choice - or even less frequent.

Generally with leveraged ETF's used in that manner its a play off between what the ETF pays to borrow and the amount that you earn on the bonds you hold. Typically the fund will be paying overnight LIBOR rates to borrow whilst some of your bond holdings may be invested for longer durations that earn more - and any positive spread between those rates is value-add. Its also some comfort to know that in the unlikely event that the ETF crashed and burned, you only had half exposure to that loss and still have half in bonds (or thereabouts).