Hi Allen, Re: Confusion..................
There used to be something discussed by investment advisors called "the investment pyramid" which was something like the portfolio version of the food pyramid! The idea was to give some structure as how to construct one's portfolio.
So, here's some things to consider......
If you had never heard of AIM, how would you construct your portfolio? To build an Investment Pyramid that will stand the test of time, one has to start with a solid foundation. Without this your pyramid will eventually fail because the foundation will fail.
By volume, the bottom 1/3 of the pyramid's height will have a far greater mass than the height would suggest. This can be considered the core of your portfolio.
The next 1/3 of the height has considerably less total mass and doesn't need the extreme structural considerations that the foundation needs. Here, far more interesting (and potentially risky) components can be used.
Finally, there is the top 1/3 of the height; by far the least volume and mass of the structure. I have a friend that considers this section his "sand box" - his place to 'play' with some stocks.
So, the foundation core should be built of solid bond and value based stock fund selections. These can be traditional mutual funds and ETFs. The next layer can be more interesting selections possibly working with specific sectors, industries, etc. Finally the top 1/3 could potentially be seasoned with individual company stocks, fancy and expensive leveraged ETFs or mutual funds, etc.
The idea is that if the top gets blown off your pyramid, there's still pretty solid underpinnings on which to rebuild.
Now, with all this in mind, should the general structure of the pyramid be changed if we learn of AIM and then manage the Pyramid's various components with it? My answer is 'No!', the portfolio pyramid is still a valid concept, only the "building maintenance" has changed. AIM provides superior management of the building over just building and forgetting the pyramid.
We have a lot of very helpful people involved here on the AIM BB. We have a lot of readers, too. The experience levels are all over the map, too. So, if somebody asks about leveraged funds, they will probably get a reasonable reply. However, that doesn't mean that one should run right out and buy some, bull doze their old pyramid and start a new one based on leveraged funds. Same is true of individual company stocks. The folks here will try to help as much as possible when asked a reasonable question.
So, it is up to us to take this wealth of information and decide where in our investment pyramid that advice should be used. Is it sound information for the foundation, midsection or top of the pyramid? Should AIM be used to manage that section, too? Yes, even if not specifically designed for the best AIM performance.
Like the dating service I mentioned, it's good to pick the most compatible components to frolic with AIM, but we don't want to compromise the overall structure here. I mentioned also that whether one constructs a value or a growth portfolio, AIM will do its best to manage that portfolio over time.
Exchange traded funds are available in lots of flavors and colors. The best methods of analyzing them are Annual Expense Ratio, Daily Trading Volume, Assets Under Management, Track Record of Provider and such basic things. If it is more complicated than a basic index ETF, can the complications be understood or are we just trusting Fate? Much of what we attempt to learn about company stock selection doesn't apply to ETFs. Some aspects will give us clues as to how to set up an AIM machine using them. But they're different asset classes.
It might be useful to create a spreadsheet of construction materials for your investment pyramid. Look at what is available and where it fits in your design. Then pick the best materials and manage them with AIM. This might help to get not only the right components but could also help with how much of each should be used.
Again, think of the pyramid you're attempting to build. Maybe Small, Mid and Large Cap Value ETFs along with various maturity Income Funds are what should be in the base of the pyramid. Do they have a lot of volatility? No. Will AIM still follow their trends and act appropriately? Yes. Then move on to the next layer. Not particularly exciting, but also not the latest movie in the Halloween series, either. Then move on to the next layer.
Right now it appears that market risk vs potential reward is not at an extreme in either direction. It's not the ultimate market bottom of 1974 or even of 2009. Nor is it the bubble mania of the Tech Times in 2000 or the more recent laughable real estate bubble. So, it is neither the best time to start or the worst. If the portfolio you design is paying out dividends as designed, then the total value of the pyramid at any given moment is less important. The markets determine the value, AIM manages the Equity/Cash makeup of the pyramid and with enough cycles a well designed portfolio will do fine.
It's my opinion that 1x ETFs have plenty of driving force for AIM. I've been using them for over 14 years successfully. Sector ETFs will have a bit more AIM activity than do Style ETFs. Don't expect to be interviewed as a "Day Trader" though. You'll have more AIM activity the more ways you can divide your nest egg. If a big diversified balanced mutual fund has X AIM transactions per year, then a portfolio of individual ETFs that approximates the same diversification and balance as that fund will have somewhere between 2X and 10X AIM transactions for the same period. So, that's many more times the AIM program can act productively for you.
I hope this helps more than it confuses. Design your pyramid for the needs it will be providing. Like I mentioned about the three things investors look for, AIM's profitable volatility capture will work with both price and dividend capture. AIM will help keep your pyramid from decaying over time.
