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50/50
Old article (2011) but still just as relevant today
http://business.time.com/2011/11/29/how-to-earn-5-no-matter-what-the-economy-looks-like/
Links through to another web page that states
In a world of zero inflation, anything that provides even a marginal positive reward will attract investors. Slow growth/declining earnings combined with even relatively small changes in yield will induce above average volatility.
AIM captures potential benefits from each of price appreciation, dividends/interest and volatility. Of those three my guess is that volatility could provide the biggest degree of rewards under such circumstances.
Diversifying appropriately across a range of volatile assets having low/no correlations and periodically rebalancing will help capture (lock in) such benefits. If you don't trade and just buy and hold (looking for price appreciation and dividends income alone) then you'll miss out on such volatility capture benefits. Combining low and high beta assets (such as cash and stocks) and periodically rebalancing can also capture volatility trading benefits. Having an advisor that tells you when its appropriate to implement such rebalance trades (AIM) is comforting/helpful. Keeps you on the straight and narrow rather than becoming fearful or greedy and making poorer decisions.
Japan post 1990 has seen near zero average inflation whilst a diversified rebalanced 50/50 stock/bond blend yielded 4% real (after inflation). i.e. some domestic stock, some foreign stock, some mid duration bonds, some short duration bonds/bills. If we emulate those prolonged zero inflation conditions whilst achieving similar real gains, then that's little different to the real gains that were achieved across periods of higher inflation/interest rates.
Money stuffed into a mattress that gains in purchase power i.e. http://www.inflation.eu/inflation-rates/europe/inflation-europe.aspx indicates Euro inflation as being -0.1%) is so much easier than having to find bank/savings deposits to have money appreciate with inflation (maintain purchase power) and where the state might be applying a tax to the nominal 'gain'. 10% inflation, 10% interest, 25% tax on nominal 'gain'. (I appreciate your tax system is different).
For the century or two before the mid 20th century there were typically equal amounts of inflation and deflation, neutral overall (but in a volatile manner). Since then however there's been predominately just inflation (more or less since having broken away from the gold standard). Inflation is better for the taxman as they can erode your wealth by both taxation and inflation. For investors deflation isn't so bad as money stuffed into a mattress can retain or even grow purchase power without tax/inflation eroding the value.
Under such conditions is can be beneficial to be a borrower (debt) rather than a lender (buying bonds). Again leveraged ETF's can help there. If a leveraged ETF receives a $100 investment from you and borrows another $100 to buy $200 of stock exposure, and the cost of that debt is very low then you're in effect benefiting from that low cost debt.
As each of the US, UK and Euro are seeing negative inflation (deflation) hard cash/currency can be a appropriate holding (negative yields elsewhere - paying to lend), diversifying that hard cash can be a reasonable safety measure. Hold some bills/currency in each of a range of currencies (US$, Euro's ...etc). That way if any one of those does run into difficulties your exposure/risk is lower than having held all in a single currency and seen that currency being hit.
We're living through a era of where the return of money is considered more important than the return on money. Nothing new. Rather its just been a while since such a era was last with us.
From a very quick/casual glance for UK investors, from http://www.moneysupermarket.com/savings/fixed-rate-bonds/ a current 5 year bond ladder using protected bank bonds could currently be formed with respective 1, 2, 3, 4 and 5 year yields of
1.65%
2%
2.5%
2.65%
3%
Which averages 2.4%
Takes 4 years for such a ladder to become established (all purchases were 5 year maturity at the time of purchase) and are illiquid (typically must be held for the entire term). After that 4 years the average yield tends to be higher than the initial construction (proportionately).
For less liquid bonds using leveraged ETF's can help. If you hold $100,000 of stock and AIM or whatever is suggesting increasing that to $110,000 then sell $10,000 of 1x and buy $10,000 of 2x with the proceeds. When a bond does mature you might swap back to holding just 1x again (sell the $10,000 of 2x and combine the proceeds from that with $10,000 of maturing bonds to buy $20,000 of 1x stock).
And/or for a 5 year corporate bond ladder you can pick out potentially higher yields http://www.fixedincomeinvestor.co.uk/x/bondtable.html?groupid=3653 where the risk of default might be relatively low ... and being tradeable in the secondary market are liquid.
UK gilts (equivalent) are liquid - can be sold in the secondary market. For less liquid, such as from high street banks we can buy 5 year bonds that are 'protected' (€100,000 EU wide standard protection per provider (bank group)). Spread a ladder across multiple providers increases the overall protection. Typically such bonds are fixed term, must be held for the full 5 years with no early redemption - and typically pay a higher yield accordingly.YYYY-MM 5YrYield 5YrLadder
1970-01 7.37 n/a
1971-01 7.54 n/a
1972-01 7.12 n/a
1973-01 7.84 n/a
1974-01 8.54 7.68
1975-01 9.60 8.13
1976-01 8.67 8.36
1977-01 10.16 8.96
1978-01 8.71 9.14
1979-01 9.12 9.25
1980-01 10.43 9.42
1981-01 11.84 10.05
1982-01 14.20 10.86
1983-01 11.75 11.47
1984-01 11.59 11.96
1985-01 9.94 11.86
1986-01 9.44 11.39
1987-01 7.91 10.13
1988-01 8.21 9.42
1989-01 8.81 8.87
1990-01 10.59 8.99
1991-01 10.98 9.30
1992-01 9.75 9.67
1993-01 9.14 9.85
1994-01 5.94 9.28
1995-01 8.60 8.88
1996-01 6.09 7.90
1997-01 4.96 6.95
1998-01 4.61 6.04
1999-01 3.30 5.51
2000-01 5.14 4.82
2001-01 4.67 4.54
2002-01 4.48 4.44
2003-01 3.40 4.20
2004-01 3.37 4.21
2005-01 2.92 3.77
2006-01 3.10 3.46
2007-01 4.02 3.36
2008-01 3.86 3.45
2009-01 3.15 3.41
2010-01 2.72 3.37
2011-01 3.64 3.48
2012-01 5.68 3.81
2013-01 1.79 3.40
2014-01 1.64 3.09
2015-01 0.48 2.65
Hi K
Swapping out TIPS for Small Cap Value in effect turns the 'bonds' (AIM cash) into a form of Permanent Portfolio (Harry Brown). As a 'bond' holding that is quite reasonable IMO.
Conventional wisdom suggests that its better to hold some stock in an otherwise all bond portfolio, some bonds in an otherwise all stock portfolio. Middle road 50/50 stock/bonds is also a reasonable choice. Blend the Permanent Portfolio (considered as 'bonds') with 33% stocks = 50% stock, 17% in each of short term treasury, long dated treasury and gold.
Split those stocks equally between small cap value, total stock (US), international stocks ... and ...
http://tinyurl.com/k844qjt
You can end up being frozen by over-analysis and/or swayed towards a particular choice due to backtesting. Best to pick a reasonably diverse target asset allocation taking costs/taxes into consideration and use a behavioural tool such as AIM so that you're more inclined to add-low/reduce-high than doing the counter.
Of the three in the above tinyurl link at present levels I'm more inclined to favour the third, 50/50 AIM with mostly shorter dated bonds (5 year ladder) but enough gold and long dated treasury bonds to potentially provide good partners to go with any AIM buy trades (share prices down, perhaps gold or long dated treasuries being up). After relatively strong gains in long dated treasury bonds last year and relatively low treasury yields the mid/longer term outlook for such bonds is potentially more negative than positive. The shorter term volatility and potential inverse correlation to stocks however makes holding some still an appropriate choice IMO.
Foreign currency can be as good as gold, whilst if invested in stock is better than just holding hard cash foreign currency i.e. mix some of both domestic stocks and foreign stocks and get FX exposure in effect thrown in for free (stock gain/loss +/- FX gain/loss). During Icelands 2008 crisis holding foreign currency was as equally as good as holding gold for a Icelandic investor.
When it comes to costs/taxes - as a example as a UK investor if I hold some Berkshire Hathaway shares then there's no yearly management fee and as it pays no dividends there's no US withholding taxes, whilst BRK holds a diverse range of other stocks. A bit like a cost/tax efficient index fund of sorts. If averages dividends are 3% and 15% withholding tax = 0.45% and average fund management fees are 0.1% then BRK offers a 0.55% more cost/tax efficient saving.
For bonds is more cost/tax efficient for me to hold bonds directly rather than paying a fund manager a fee for doing something that I'm quite capable of doing myself.
Some brokers will maintain a account in a single currency and charge FX conversion fees when dividends are received in foreign currencies, others don't and cater for holding multiple currencies in the same account (you get to choose when to FX exchange).
Multiple little savings here and there and as a old British saying goes - watch the pennies and the pounds will take care of themselves.
<HTML>
<HEAD>
<TITLE>Quick AIM Calculator for AIM</TITLE>
<META http-equiv=Content-Type content="text/html; charset=windows-1252">
<META content="MSHTML 5.50.4522.1800" name=GENERATOR>
<META NAME="AUTHOR" CONTENT="Jan TooFuzzy">
<META NAME="KEYWORDS" CONTENT="investment newsletter, Lichello, AIM Users Group, A.I.M., Investment Risk Management, investment software, market timing, stocks, funds, Robert Lichello, Automatic Investment Management, Asset Allocation, Newport Programs, Idiot Wave, Risk Management">
<META NAME="DESCRIPTION" CONTENT="Quick Calculator for Mr. Lichello's AIM. Welcome!">
<!-- Last modified on Mon May 23 13:48:09 2011 -->
<SCRIPT language=javascript>
function openit( ) {
window.open("instruct.html","jan", "height=400,width= 400,resizable")
}
function figure() {
/* calculate market order */
pc= document.f1.PC.value*1;
ns= document.f1.NS.value*1;
sv= document.f1.SV.value*1;
p= document.f1.P.value*1;
bs= document.f1.BS.value/100.0;
mp= document.f1.MP.value/100.0;
ss= document.f1.SS.value/100.0;
if ( p > 0 ) {
sv = p * ns;
alert("stock value is "+sv);
shareflag = "yes";
}
else
{
shareflag = "no";
}
if (sv >= pc ) {
Y= (sv - pc)-(sv*ss);
if (Y >= (sv * mp)) {
if (shareflag == "yes") {
shares= Math.round(Y*100/p)/100;
sharetext = "Shares to sell " + shares;
}
else
{
sharetext = "";
}
Y=Math.round(Y);
alert("SELL $"+Y+"\n"+sharetext);
}
else
{
alert("no SELL market order");
return;
}
}
else
{
if (pc > sv) {
alert( "Buy -- Stock Value is " + sv);
X = ( pc - sv ) - ( sv * bs );
if (X >= (sv * mp)) {
if (shareflag == "yes") {
shares= Math.round(X*100/p)/100;
sharetext = "Shares to buy " + shares;
}
else
{
sharetext = "";
}
X=Math.round(X);
alert("BUY $"+X+"\n"+sharetext);
}
else
{
alert("no BUY market order");
}
}
}
}
function figure1() {
// calculate hold range
pc= document.f1.PC.value*1;
ns= document.f1.NS.value*1;
ss= document.f1.SS.value/100;
bs= document.f1.BS.value/100;
mp= document.f1.MP.value/100;
i = pc/(1-(mp+ss));
i = Math.round(i);
j = pc/(1+(mp+bs));
j = Math.round(j);
k = i*mp;
k = Math.round(k);
l = j*mp;
l = Math.round(l);
m = i/ns;
m = Math.round(m*100)/100;
n = j/ns;
n = Math.round(n*100)/100;
o = (i*mp)/(i/ns);
o = Math.round(o*100)/100;
q = (j*mp)/(j/ns);
q = Math.round(q*100)/100;
alert("@ Stock Value Above $"+i+"\nMin Sell Order Size $"+k+"\nMin Sell Price $"+m+"\nMin # Shares Sell "+o+"\n\n@ Stock Value Below $"+j+"\nMin Buy Order Size $"+l+"\nMax Buy Price $"+n+"\nMin # Shares Buy "+q );
}
</SCRIPT>
</HEAD>
<BODY BACKGROUND="aimbg.gif" BGPROPERTIES="FIXED">
<H1 align=center><FONT COLOR=#FF0000><U>AIM ADVICE
CALCULATORS</U></FONT></H1><BR>
<CENTER>(Page additions provided by "TooFuzzy" for use by interested AIM Users)</CENTER><BR>
<CENTER><B><I>Page Updated 05/23/2011 to allow for share advice to show decimals</I></B></CENTER><P>
<center><img src="line.gif"></center>
<A HREF="#TFDirect">See Instructions</A>
<FORM name=f1>
<P>
<H2 align=center><U><FONT COLOR=#0080C0>AIM account HOLD ZONE Calculator</FONT></U></H2>
<TABLE cellSpacing=0 cellPadding=0 width="50%" align=center border=2>
<TBODY>
<TR vAlign=center
align=left>
<TH>Name</TH>
<TH>Value</TH>
<TR vAlign=center align=left>
<TD>Portfolio Control </TD>
<TD><INPUT name=PC> </TD>
<TR vAlign=center align=left>
<TD>Number of Shares </TD>
<TD><INPUT name=NS></TD>
<TR vAlign=center align=left>
<TD>Sell SAFE </TD>
<TD><INPUT name=SS> </TD>
<TR vAlign=center align=left>
<TD>Buy SAFE</TD>
<TD><INPUT name=BS> </TD>
<TR vAlign=center align=left>
<TD>Minimum Purchase % Of Stock Shares </TD>
<TD><INPUT name=MP> </TD></TR></TBODY></TABLE>
<DIV align=center><INPUT onclick=figure1() type=button value="Calculate HOLD ZONE">
</DIV>
<H4 align=center>. </H4>
<H2 align=center><U><FONT COLOR=#0080C0>AIM MARKET ORDER CALCULATOR</FONT></U></H2>
<H4 align=center>Enter Current PRICE, or STOCK VALUE</H4>
<TABLE cellSpacing=0 cellPadding=0 width="50%" align=center border=2>
<TBODY>
<TR vAlign=center align=left>
<TH>Name</TH>
<TH>Value</TH>
<TR vAlign=center align=left>
<TD>Price
</TD>
<TD><INPUT name=P> </TD>
<TR vAlign=center align=left>
<TD>Stock Value </TD>
<TD><INPUT
name=SV></TD></TR></TBODY></TABLE>
<DIV align=center><INPUT onclick=figure() type=button value="Calculate MARKET ORDER">
</DIV>
</FORM>
<center><img src="line.gif"></center><P>
<A NAME ="TFDirect"><B><U>AIM CALCULATOR DIRECTIONS:</U></B></A>
<P>Disclaimer:<BR> This is a tool and
like all tools it can be misused. I take no responsibility for its use. You
should have a complete farmiliarity with AIM, how it works, and be able
to do
all calculations on paper before using this software. Please have an idea what a
REASONABLE answer to you queary is so that you will know if you put in the wrong
input or if the software can not
handle the input you are putting in.<BR>
I had a friend make this program for me. If
you are familiar with programing, and have some sugestions for changes, let me
know. The code is not protected. If you can not find it (the code) or have some
ideas for changes e-mail me at:<BR>laterdaythoreau@(nospamplease)yahoo.com
(nospamplease)
<P>OK Now for the directions:<BR>The top of the form will figure out your "HOLD
ZONE" <BR>The bottom of the form will figure out a "MARKET ORDER" but needs you
to fill out all the info in the upper form first.
<P>FOR "HOLD ZONE" ENTER:<BR>1) PORTFOLIO CONTROL (PC + 1/2 of last BUY) <BR>2)
# SHARES (if a single stock portfolio) <BR>3) SELL SAFE (% of stock value)
<BR>4) BUY
SAFE (% of stock value) <BR>5) MIN ORDER SIZE (% of stock value)
<BR>PRESS: "CALCULATE HOLD ZONE".
<P>To calculate "MARKET ORDER" ENTER: <BR>1) ALL info in upper form FIRST. (it
needs these numbers for the calculations) <BR>2) SHARE PRICE (if one stock) or
PORTFOLIO VALUE. <BR>Then PRESS: "CALCULATE MARKET ORDER". </P>
</BODY>
</HTML>
I thought it was just Et tu Brute
The other Latin in my earlier post was just my rusty attempt of a reply suggesting that Et tu Brute is more commonly considered as representing betrayal rather than shooting oneself in the foot.
My Latin teacher was blind and as a young lad my attention was low during his class (and most others come to that). I used to sit at the back of the class more often with other things on my mind. He however had a highly accurate shot with the blackboard wiper that regularly refocussed mine and many other classmates attention. Really really stung when you got unexpectedly hit by that block of wood. Headmaster used a cane, deputy head a chair leg, maths teacher used books, physical education guys kicked and punched. Back in the days when respect was commanded rather than earned.
Et tu Brute!
Tom ego sum confusa, Et tu Brute implicata proditione
Last words of the Roman dictator Julius Caesar to his friend Marcus Brutus
In my daily life when I talk to novices I tell them to just buy LARGE, SMALL, FOREIGN, REIT, and fixed income. And to rebalance once per year
Could this be a valid description of the 6-blend?
Hi K
Domestic stocks, foreign stocks, long dated treasury bonds, long dated inflation bonds, gold and a 5 year treasury bond ladder. Stocks should comprise both large and small. i.e. as a UK investor - something like our FT250 index (small cap), combined with BRK (large cap US (foreign)). As a Japanese investor perhaps US small cap and TOPIX100 ...etc.
Collectively as a form of 'cash'. Whenever you need hard cash then reduce whichever asset is relatively up at the time (profit take).
TIPS provide the term benefit (time value) whilst eliminating inflation risk. They also do well when real yields decline (lose out when real yields increase). Historically there have been instances of nominal yields being kept low whilst inflation spiked - in such cases inflation bond prices would tend to spike. Conventional bonds see prices rise as nominal yields decline (lose when nominal yields increase). Sometimes both nominal yields and inflation both decline and real yields might remain relatively the same (so little price volatility in inflation bonds/TIPS as nominal bond prices spike. i.e. broadly long dated treasury, long dated inflation bonds, gold and short term treasury offer more opportunities for individual assets having high volatility, but collectively as a set having low volatility. That also spreads the risk around more (rather than being in perhaps just inflation bonds/TIPS alone).
For a Japanese investor since 1972 = 4.4% annualised real benefit. For US it looks like around a 5.4% real. For UK with FT250 and BRK and the stock holdings the figure was more like 7% annualised real. All doing so relatively consistently across those years as well. If that's considered as 'cash' then there's less need to overweight 'stocks'.
For the Japanese version assuming US small cap value stocks and domestic stocks, more recently there's been a up spike above longer term trend (following chart is real gain progression since 1972 to end of 2014).
i.e. their recent Central Banking choices have somewhat kicked things around. Not sure whether that might 'mean revert' of whether its a new paradigm. Time will tell.
Here's another version that shows the inflation adjusted values (real gains (losses)).
That six way yearly rebalanced equal weighted blend is somewhat similar to a Larry (Fat Tail Minimisation) Portfolio - which holds 15% Small Cap Value, 15% Emerging Markets and 70% TIPS - but where in the six-way set TIPS are replaced with a combination of short term treasury bonds, long term treasury bonds, inflation bonds and gold (and Emerging Markets in this case has been replaced with Europe/Asia/Far East).
5.4% annualised real is quite respectable given the somewhat low portfolio volatility.
Generally years in which real losses were apparent where adjoined by better years that compensated for such losses i.e. losses were relatively short-lived events. There was also reasonable regularity of the best asset gain potentially being top-sliced (profit-taken) to provide a income.
If I use Classic AIM (50/50, 10% safe, 5% min purchase), no vealies and 8% interest on cash, I'm seeing an end value of $69,177.
yet in the greater part of the inhabited world government spending and taxation policies seem to such that we should expect a far higher equilibrium real rate
What is the real core inflation rate? I have only nominal faith in the Consumer Price Index that is generated by the U.S. Bureau of Labor Statistics.
It is the time-value of the AIM Cash Reserve that has to pay its own way these days. This is because of the very low real and inflation adjusted interest rates available.
For monthly reviews I'm seeing a $40,595 recent (end) value. Assuming SPY with dividends reinvested (yahoo adjusted close prices) and VFISX for 'cash'. With No Vealies (averaged 69.65% cash, ended with 77.24% cash). Compared to $70,783 end value for buy and hold.
With Vealie at 50% cash reserve that increased to $50,748 (49.2% average cash)
AIM HI (that uses 10% minimum trade size) and 20% Vealie = $74,782 (19.24% average cash).
I heard a speech from a fellow with a doctorate in Economics
do you think foreign currency stocks reinforce or reduce volatility?
Speaking of multiple single item AIMs, Lichello strongly suggests, in answering a question on page 183, "A single AIM manages all your stocks. If you will look at any chart in my book, there is a column headed STOCK VALUE. The word "stock" is used in the plural sense. It means the total value of all the shares in of all the stocks in your AIM program."
Reading the first few lines seems to read as a version of AIM
I followed the link in this http://www.bogleheads.org/forum/viewtopic.php?p=1912664#p1912664 that points to
https://drive.google.com/open?id=0B6rEnGbxebTBOWRfMUpDOC1jbWc&authuser=0
which opened a GoogleDoc spreadsheet and after the web page loaded I clicked the download icon at the top/middle of the page.
According to the Data Sources worksheet inside the spreadsheet the more recent choices are
SCV is small cap value i.e. VISVX
LTT is long term treasury i.e. VUSTX (although others prefer TLT)
STT is short term treasury i.e VFISX (or could alternatively be SHY - or a self managed 5 year ladder of treasury bonds ....etc)
TIPS is VIPSX
Gold is GLD
Europa/Asia/Far East as of 2014 = VTMGX but for 2001 to 2013 was VDMIX
long term treasury once rates PEAK
Year SCV EAFE TIPS LTT STT Gold Infl't Best Rest Average
1972 6.75 35.93 -2.59 5.43 3.63 48.66 3.41 48.7 9.8 16.3
1973 -26.17 -15.13 -3.99 -1.36 5.82 71.24 8.71 71.2 -8.2 5.1
1974 -18.39 -23.41 4.99 4.13 8.82 72.02 12.34 72.0 -4.8 8.0
1975 54.15 35.04 16.17 8.92 7.62 -27.62 6.94 54.1 8.0 15.7
1976 53.25 2.22 -0.30 16.50 8.62 -4.48 4.86 53.2 4.5 12.6
1977 21.52 17.78 7.78 -0.96 3.43 22.15 6.70 22.2 9.9 12.0
1978 21.52 32.24 9.68 -1.46 5.23 36.47 9.02 36.5 13.4 17.3
1979 35.09 4.52 9.78 -1.46 10.11 125.65 13.29 125.6 11.6 30.6
1980 25.11 22.27 15.17 -4.25 13.80 14.73 12.52 25.1 12.3 14.5
1981 14.64 -1.27 5.79 1.64 18.59 -32.87 8.92 18.6 -2.4 1.1
1982 28.21 -1.17 -7.78 40.04 19.19 14.49 3.83 40.0 10.6 15.5
1983 38.28 24.26 16.87 0.44 8.32 -16.64 3.79 38.3 6.6 11.9
1984 2.07 7.61 15.57 15.20 12.51 -19.52 3.95 15.6 3.6 5.6
1985 30.70 56.28 8.68 30.66 12.91 5.26 3.80 56.3 17.6 24.1
1986 7.15 69.44 21.96 24.18 11.61 20.82 1.10 69.4 17.1 25.9
1987 -7.31 24.56 8.18 -3.18 5.73 21.72 4.43 24.6 5.0 8.3
1988 29.20 28.25 18.66 9.15 5.63 -15.59 4.42 29.2 9.2 12.6
1989 12.14 10.50 5.89 17.93 8.42 -3.23 4.65 17.9 6.7 8.6
1990 -21.98 -23.41 5.99 5.78 8.62 -1.86 6.11 8.6 -7.1 -4.5
1991 41.37 12.20 15.67 17.43 10.41 -10.43 3.06 41.4 9.1 14.4
1992 28.80 -12.04 7.29 7.40 6.47 -6.12 2.90 28.8 0.6 5.3
1993 23.52 32.54 15.47 16.79 6.41 17.21 2.75 32.5 15.9 18.7
1994 -1.73 7.81 2.99 -7.03 -0.58 -2.56 2.67 7.8 -1.8 -0.2
1995 25.51 11.30 0.60 30.11 12.11 0.58 2.54 30.1 10.0 13.4
1996 21.12 6.11 3.89 -1.25 4.39 -4.97 3.32 21.1 1.6 4.9
1997 31.50 1.83 7.78 13.90 6.39 -21.72 1.70 31.5 1.6 6.6
1998 -6.71 19.98 2.59 13.05 7.36 -1.22 1.61 20.0 3.0 5.8
1999 3.11 26.96 7.68 -8.66 1.85 0.45 2.68 27.0 0.9 5.2
2000 21.88 -14.23 4.59 19.72 8.83 -5.82 3.39 21.9 2.6 5.8
2001 13.70 -22.25 7.40 4.31 7.80 0.44 1.55 13.7 -0.5 1.9
2002 -14.20 -15.70 16.61 16.67 8.02 24.96 2.38 25.0 2.3 6.1
2003 37.19 38.61 8.00 2.68 2.38 19.12 1.88 38.6 13.9 18.0
2004 23.55 20.25 8.27 7.12 1.03 4.48 3.26 23.6 8.2 10.8
2005 6.07 13.34 2.59 6.61 1.77 17.76 3.42 17.8 6.1 8.0
2006 19.24 26.18 0.43 1.74 3.77 21.95 2.54 26.2 9.4 12.2
2007 -7.07 10.99 11.59 9.24 7.89 30.57 4.08 30.6 6.5 10.5
2008 -32.05 -41.62 -2.85 22.52 6.68 4.96 0.09 22.5 -13.0 -7.1
2009 30.34 28.17 10.80 -12.05 1.44 23.99 2.72 30.3 10.5 13.8
2010 24.82 8.54 6.17 8.93 2.64 29.27 1.50 29.3 10.2 13.4
2011 -4.16 -12.53 13.24 29.28 2.26 9.57 2.96 29.3 1.7 6.3
2012 18.56 18.83 6.78 3.47 0.69 6.60 1.74 18.8 7.2 9.2
2013 36.41 21.84 -8.92 -13.03 -0.10 -28.33 1.50 36.4 -5.7 1.3
2014 10.39 -5.66 3.83 25.27 0.71 -2.19 0.80 25.3 1.4 5.4
Avg 15.3 11.3 7.2 8.9 6.7 10.7 4.2 33.9 5.2 10.0
Stdev 20.4 22.1 6.9 12.1 4.6 29.1 3.1 21.1 6.9 7.4
CAGR 13.5 9.1 7.0 8.2 6.6 6.8 4.1 32.2 5.0 9.8
"buy low volatility and sell high volatility"
Rolling ladder of treasury bonds. Personally prefer a 5 year ladder.
My home UK's yields differ to US's. Looking up US data :
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
Looks like year to date 1.634%, forward year 1.43% for such a 5 year ladder
Month Day Year 5 year yield %
3 23 15 1.41
3 25 14 1.76
3 22 13 0.8
3 23 12 1.1
3 23 11 2.07
3 23 10 2.44
To all the forum members I apologize for bringing this method up since this forum is dedicated to AIM
By the way standard settings are not 10, 10, 10% but 10% buy and sell safe and 10% min trade size
Hi Sven
AIM-HI was Robert Lichello's last incarnation, which starts with 20% cash reserve
With AIM-HI you :
Start with a 80-20 split of stock value and cash
Initially set Portfolio Control (PC) = stock value (SV)
Each month (or quarter) you check AIM's current SV (share price x number of shares)
If your PC is larger than SV, then AIM is considering buying T = PC - SV - 0.1 x SV
If your SV is larger than PC, then AIM is considering selling T = SV - PC - 0.1 x SV
Only actually trade that T amount if T exceeds 10% of SV
Each time you BUY additional shares, increase PC by 0.5 x T
(PC remains the same after each sell).
Don't trade too often, review or trade at most once each month or even quarterly
Boundary Price of Next Sell = PC / ( Number of Shares x 0.8 )
Boundary Price of Next Buy = PC / ( Number of Shares x 1.2 )
A significant factor of investment reward can be attributed to the price paid for stock. Lump in at a relative high and likely longer term rewards will be relatively low.
AIM provides a means to cost-average down the average cost of stock over time (market cycles). In effect buying during dips, replenishing cash reserves during peaks. Replacing older higher cost stock with better valued stock.
If as a simple example you hold three main assets with no/low correlations then at different times likely one will be up, another down ... and other times that might be completely reversed. 20% cash, 80% split equally three ways (26.6% each), might at one time see one having dropped a third $26.66 dropping to $17.56 value. If at that time all of cash reserves are added to that stock then you have enough to double up on the stock (i.e. deploy $20 cash reserve into that stock). Later when a recovery occurs you can in effect sell the original shares to replenish cash reserves leaving just the shares bought at a relative discount ... and you've cost-averaged down the average cost of that stock. AIM steers you automatically towards such trading over time. It won't hit the exact tops and bottoms, but it does tend to average in (out) relatively close to the peak/trough levels. More often you can look back at AIM's trading history and see that it did a reasonable job - all by itself.
Cost averaging down the cost of stock combined with price appreciation (broader general rise in share prices), and reinvestment of dividends will likely provide acceptable overall rewards over the mid to longer term.
Ideally you want to be holding assets that aren't perfectly correlated (the ideal is where as one declines another rises), that individually provide similar overall positive rewards, and that are likely to recover rather than fade away totally. Funds are more likely to survive longer term than are individual stocks.
Some trade AIM frequently - small amounts relatively often, but you can achieve similar rewards by trading AIM less frequently, capturing larger moves/amounts. Monthly or quarterly reviews is a reasonable choice. Yearly revies is too long for the way that AIM works. With more frequent than monthly you're not providing sufficient breathing space for AIM to work well at cost-averaging.
Over time I've come to reduce my number of AIM's down to managing three main assets. Land (properties), domestic small cap, foreign large cap ... holding index type versions of the small and large cap stocks. Foreign provides FX (currency) change (gain/losses) on top of stock gains/losses, which helps reduce stock correlations. Others invest smaller amounts in a more diverse range of individual assets/funds - each to their own.
Welcome aboard.
Clive.
In 2007 the UK debt (Gilts (Treasury bonds) issued) amounted to around £500B. More recently that's risen to £1.3T, however the Bank of England (Central Bank) printed money to buy around £400B of Gilts. The Bank of England collects the interest payments on those gilts ... and returns those sums back to the Treasury.
In effect the state (Bank of England) since 2008 bought nearly all of pre 2008 crisis debt and the Treasury issued new debt ... typically at lower rates (yields).
Which is akin to a debt restructure, replacing previous higher cost (yield) debt with lower yield/longer term.
In 2007 typically 5 year treasury's were priced to 5% yields, more recently yields are around 2%. So instead of 500B of previous 5% debt, excluding what the Bank of England holds leaves around 800B of debt at perhaps a 2% cost to the treasury.
In theory the Bank of England could just tear up the 400B of gilts it holds rather than collecting the interest that the treasury pay on the gilts the Bank of England holds ... which is then returned back to the Treasury by the Bank of England - and the booked debt would fall by that 400B. But in keeping hold of those gilts its another tool in addition to setting interest rates that the central bank can use to tweak the economy (they might resume QE to maintain lower interest rates, or sell some gilts back into the open market such that interest rates rose ... as it deems to be appropriate).
In buying gilts that reduced the availability and pushed prices up (yields down). Demand by the likes of pension funds exceeded supply.
In the US a somewhat similar pattern is evident - but obviously to a larger scale and more spaghettified. Around a third of the total $18T US Federal debt is held by around 200+ other Federal agencies. A significantly larger proportion than back in 2007 when the US debt was around $9T. Assuming similar 5% 2007 yields and 9T of debt, 2% more recent yields and 12T of debt excluding the third that other Federal agencies hold, then the debt is overall lower cost to service. Larger amounts and likely longer average term before maturity means that inflation will erode the debt relatively more as much of issued debt is fixed term fixed yield and the cost to the treasury doesn't change once issued/sold.
With QE halting the expectation is that supply/availability would increase - prices decline, yields rise, attracting more foreign interest to invest in those higher yields - pushing the Dollar higher. Double whammy benefit of potential rising yields and a better FX rate for foreign investors in US treasury bonds. For the US imported commodities/goods become relatively cheaper as the dollar strengthens. But anything it creates with those commodities become more expensive for foreigners to buy due to the stronger dollar.
The Euro has just recently started its own QE, such that the Euro currency is in decline and Euro bond yields might be expected to stay low/decline. And they've booked in to maintain such QE'ing into 2016 and perhaps beyond (something like 1T of new Euro's being created/printed). The Swiss have had to peg to the Euro in order to avoid their currency gaining too much against the Euro impacting their economy. All of which is indicative that the US$ will continue to strengthen relative to the Euro - at least until the Fed decides that the US$ is becoming too strong.
Hi Toofuzzy
Re: ERX. IIRC the small print has a exit/protection strategy if the price drops more than x% in a single day.
Happy New Year to you and yours.
Hi Allen. RE: 50% cash reserve covers 50% price decline.
That is only a very broad guide/approximation rather than a rule.