Hi Allen,
I kind of hate to bring this up in this particular forum, but I have found one way to deal with a very low volatility ETF. About 30 years ago I was studying to earn a professional financial designation. Part of the study was money management. One method of money management we studied was called "Constant Dollar" financial management. I have seen this method also called "Constant Value" and "Core Position Trading". I used this money management method for many years before I came across Mr. Lichello's book in 2004.
This money management method will have someone buy and sell around a Constant Dollar amount or a Core Position amount.
Assume that one decides the minimum transaction amount they want to trade is $1,000. Assume that they decide they will trade whenever the value of the Core Position or Constant Dollar moves 10% (their trade "Trigger") in either direction. Assume that they want to buy $10,000 of an ETF and the share price is $50 at the time of purchase; so they purchase 200 shares.
Next assume that the value of their ETF increases 10% to $11,000. They would then sell $1,000 worth or roughly 18 shares.....no "SAFE" amount is used in the calculation. This transaction would move their Core Position back down to the $10,000 range, which was their original purchase.
On the other hand, assume that their Core Position declined in value by 10%, down to $9,000. They would then buy $1,000 worth of shares to bring the value of the Core Position back up to their original purchase value of $10,000. In this case the share price declined in value 10%, down to $45. They would buy approximately 22 shares to get their Core Position back to the original value of $10,000.
No "SAFEs" are used in this money management method, which is why I kind of hesitate to mention it on this forum.
It is a very simplistic method of investing. Using AIM methods with SAFEs one will usually have a holding zone of approximately 30%. Constant Dollar investing can have any amount of holding zone someone chooses. Assume that an ETF has had a 15% high - low range each year for many years. Personally if I saw something like this I would probably choose a 5% to 7% change in Core Position value to "Trigger" a transaction of $1,000. Others can choose any "Trigger" percentage they want. There are no set rules for this type of investing.
I still use this money management method with one very large position in a monthly income producing closed-end fund which has very low volatility. I have had this position for many years. A couple of years I have gotten only one or two trade transactions the entire year. If I lowered the percentage change amount to "Trigger" a trade I could get more transactions, but I am happy with the 10% Trigger I have been using. I learned to use 10% Triggers over 30 years ago and it is hard for me to change this mindset. Besides I am happy with my results.
Personally I would use this method of money management with a very low volatility fund or stock which I intended to hold for many years.
To all the forum members I apologize for bringing this method up since this forum is dedicated to AIM, however I thought I would pass this along to Allen since he is struggling with how to set up a low volatility money management program.
Best regards,
Ray
