A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi AI, Re: Rebalancing as an alternative to AIM.......

Some here refer to Rebalancing as "Slow AIM" which is a very good description of it. In fact it is a very low effort method of accomplishing some of what AIM does. Much depends upon how much 'drift' you allow as to whether to rebalance less or more frequently. If you established a drift amount that was relatively small and monitored that drift frequently, you might get a bit closer to AIM's activity level and close any gap in performance.

Many here do use index funds in the form of Exchange Traded Funds (ETFs) with a few using traditional mutual funds.

The only downside with rebalance models, in my opinion, is that it doesn't necessarily guaranty you'll be buying something that is "down" when you rebalance from something that is "up." It is possible that you could have your stock index fund up 25% and your bond fund up just 10% and this would allow for a "rebalance." However, you're not necessarily buying the bond index fund at an optimal time.

If you AIM each the Stock Index and the Bond Index sides each will be doing what it should relative to itself, and not relative to the other piece. AIM takes maybe 5 minutes a month per holding to keep current. Generally those 5 minutes are well compensated, given enough time and market cycles.

There's a great article called "The Ultimate Buy and Hold Strategy" (UBH) which is actually several rebalance portfolio models. Starting with a simple Stock Index and Bond Index type of portfolio it then goes through 6 iterations showing the potential benefits of sub-dividing the portfolio into greater and greater numbers of segments. I liked the portfolio design so well, I used it but changed it to the "Ultimate Buy and AIM Strategy" (UBA) I had enough $$$ to divide my IRA into essentially all the segments that the most complex UBH portfolio shows and then applied AIM to each component. So far, so good. The "down" years haven't been too bad and the "up" years have been good enough to satisfy me.

Here's a link to the article.
http://paulmerriman.com/the-ultimate-buy-hold-strategy-2014/
It's nicely detailed and should give you 6 options on portfolio design whether you decide to use a Rebalance or AIM to do the management.

From the article:
"Your choice of asset classes has far more impact on your results than any other investment decision you make. We know this flies in the face of a lot of conventional wisdom and almost all the marketing hype on Wall Street. Many investors think success lies in buying and selling at exactly the right times, in finding the right gurus or managers, the right stocks or mutual funds. But being in the right place at the right time depends on luck, and luck can work against you just as much as for you. Your choice of the right assets is far more important than when you buy or sell those assets. And it’s much more important than finding the very “best” stocks, bonds or mutual funds".