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40% initial stock, 60% bonds at the start of 30 years, drawing down bonds...
that ends at 100% stocks, 0% bonds, is a overall average of 70% stocks, 30% bonds.
One of the best inflation hedges are stocks
I should have emphasised that's over the longer term, and when cost averaged rather than lumped all in (out) at just single time points.
My personal investment structure is to hold sufficient bonds to cover (as an example) 30 years of living expenses (drawdown). The rest in stocks for growth (accumulation/dividends reinvested).
Simply, I constructed a 30 year ladder of projected income streams, private pension when that comes online, state pension later. Then I added sufficient bonds to that ladder to provide my required yearly income. Provided pensions and bonds pace inflation and spending remains aligned to projected then income is nigh on guaranteed/safe. I have sufficient stocks for growth to replenish and more the decline (drawdown) of those bonds. So after 30 years I'll still have as much or likely more in inflation adjusted terms as at the start. Historically the worst 30 year real return from stocks has been around 2% real. With cost averaging and diversification that rises to 3%. 3% over 30 years = 2.4 gain factor. So around 40% initial stock, 60% bonds at the start of 30 years, drawing down bonds 2%/year to zero after 30 years, whilst 40 initial stock grows 2.4 times to around 100 (typically worst historic case). Likely quicker/more such that stocks can be profit taken periodically to top up income/spending if required.
I differ from TooFuzzy who doesn't like holding individual stocks. For me individual stocks with not too much invested in any one and holding a diverse range of such stocks is the more cost/tax efficient choice. If you're investing $1M in stocks that grows 2.4 times over 30 years in real terms, averaging $1.7M, and you're paying even just 0.1%/year fees to hold stock exposure = $1700/year x 30 years = $50K. With individual stocks the ongoing cost after purchase can be zero.
For a low cost DIY index tracker, assuming you weren't adverse to tracking error (some years gaining more, other years lagging), then buying the largest stock in each of the 40 sectors http://www1.nyse.com/about/listed/lc_all_industry.html in equal amounts, and then just sitting back and doing nothing other than accumulating the dividends to periodically add another stock to the set (excepting takeovers and other forced returns of capital) is about the cheapest index tracker you can get. 40 odd stocks equally initially weighted = 2.5% risk per individual stock (acceptable risk). Its concentration/adding to decliners that makes single stock risk excessive.
where did you get the S&P back to 1876 and the inflation figures as well?
http://www.econ.yale.edu/~shiller/data/ie_data.xls
from http://www.econ.yale.edu/~shiller/data.htm
If you go back as far as they cover, historical inflation for 1665 - 2014 is only 0.94%/year but if one only goes back 50 years to 1964 the rate is 4.12%/year.
We used to have periods of both inflation and deflation in around equal measure, broadly 0%. This is a UK chart, but the US version looks similar
Then we started to come off the gold standard after WW1 and progressively decoupled up to Nixon decoupling totally to help pay for the Vietnam war. Such that post 1930's there's only been (generally) inflation (more $'s printed and backed by nothing other than a promise).
A English Pound used to be a pound weight of Silver. A gold sovereign coin was (and still has) a face value of one pound (but has a gold metalic value of around $280 - there have been times when copper pennies have been worth more for their copper price than their monetary value).
Henry VIII was known as Copper Nose for devaluing by mixing copper into newly minted 'silver' coins. After some wear, the nose on his protruding facial image on the face of the coin would wear to reveal the copper beneath. In the 1930's it was made illegal to own investment gold in the US and such gold had to be 'sold' to the Fed for around $20/ounce (the monetary price fix at the time). Then the price of gold was ramped up to $35/ounce (price refixed higher).
Other tricks have been via taxation. Inflation bonds sold as the 'safest' bonds, but where the inflationary uplift element is taxed. 20% inflation, inflation bond pays 20%, but is taxed 35% and investor is -7% down in real (inflation adjusted) terms. Countries/States can do all sorts of tricks to help float their economy. One of the best inflation hedges are stocks as they're more global, less tied to any single country/state. Companies just choose a state/country to register their business/pay taxes, often where its deemed to be tax efficient and politically stable to do so.
AIM/Anti-AIM
While I find talking about and knowing about individual companies, I have been burned too many times.
I have a long term paper record for a S&P AIM, monthly reviews, but using inflation adjusted price (price only, excluding dividends).
Analysing the AIM trades to be all virtual and only buy stock when AIM indicates a buy, selling that stock when AIM indicates, until zero stock remaining ... and repeating and then collating all such trade activity since 1876 I was able to assess the overall AIM trade activity across those years.
There were 9 distinct sets of AIM having initiated buying and then later having sold all those shares, the 9th is still active/running.
What is apparent when looking at those 9 separate runs, assuming the current run was closed out at current/recent levels, is that AIM trading results has had a degree of correlation with stocks. It performs better when stocks perform well, not so good when stocks perform poorly. Looking at Anti-AIM i.e. being the complete opposite to AIM trades, buying $1000 of stock when AIM indicates to sell $1000 of stock, selling $1000 of stock when AIM indicates to buy $1000 of stock, would have provided a degree of inverse correlation and reduced overall risk - but equally reduce reward during times when stocks/AIM did well.
For the most recent run that started in September 2001 standard AIM would have served considerably better than Anti-AIM. In contrast for the run starting November 1929 Anti-AIM would have been vastly superior to AIM, reducing a -16% annualised real loss over 3.5 years into a 2.27% annualised real gain.
Of the two, AIM provided the overall higher reward, around 7% average real annualised compared to 3.5% for Anti-AIM. But that higher reward came with greater risk (volatility).
Buy and hold is a form of Anti AIM. As prices rise you continue to hold (relatively higher) stock exposure, as prices decline you hold less. A reasonable choice might be to blend both AIM with Anti-AIM which when 50/50 is somewhat like AIM-HI. i.e. allocating some cash reserves, but not too much such that cash is exhausted relatively early into a potential big down-run. Not selling too much stock when prices are rising. Whilst not holding too much cash that its drag factor is more pronounced compared to when smaller amounts of cash reserves are maintained.
I know some suggest that Lichello was swayed to increase stock, reduce cash due to the 1980's/90's boom, but I'm not so sure that was all simply 'greed' motivated over that of better diversification/risk reduction.
For individual stocks, Anti-AIM is often the better choice, cutting losers, running winners. As they tend to have more extremes of both. For broader indexes/funds AIM is often the better choice - anticipating a degree of mean reversion (if one stock index consistently outperformed, then investor would be swayed into investing in that index alone).
Hi Allen. Its also worth reading http://www.moneysense.ca/invest/the-failed-promise-of-market-timing
Newport - building history
http://my.execpc.com/~newport/bildhist.htm
Newports chart only shows around 3.5 years worth of the latest data, you can go back, but that only shows the first 3.5 years of data. i.e. you won't see the full graph/chart range for anything that has > 7 years of historic weekly data (only the first and last 3.5 years). And I think Newport stalls once there's more than ten years of data recorded (or perhaps a bit less as (guessing) 10 years x 52 weeks = 520 and I suspect it might be a 512 (binary) limit).
The standard approach once you get up to those sorts of length of history is to cut out the middle section of stored data so that Newport keeps running OK i.e. has the early/first years, and the more recent years.
Over on the AIM Q&A board http://investorshub.advfn.com/AIM-%22In-Depth%22-Q&A-AIMQ&A-992/?NextStart=38 there are some postings about Newport that might help.
Pooled dividends.
Turning into quite a interesting concept.
Broadly three (market index) funds, large/small/foreign, all initially somewhat equally weighted being held on a buy and hold, dividends reinvested (accumulation) basis. But where the dividends are pooled and deployed into the 'most deserving' and where AIM is the indicator of that most deserving.
0% Buy safe, 20% sell safe - so looking to redeploy dividends early. 7.5% minimum trade size, in reflection of the three broadly providing 2.5% dividends such that if allocated to a single holding = 7.5% of the stock value.
All sell trades result in a Vealie (to realign Portfolio Control without actually selling any shares). Buy trades just left running if there's no cash on hand, until dividends do arrive at which time those dividends are re-invested into whichever AIM is shouting the loudest for cash (largest buy trade being indicated). Otherwise left as cash until one AIM does ask for cash (buy shares).
Over time on a accumulation/dividends reinvested basis, the amount of dividends invested will match/exceed the amount of the cost of the original stock purchase. Deploying dividends as indicated by AIM may have helped to cost average in all of those dividends into the most deserving (better valued) at the time and potentially uplift overall rewards than had dividends simply been reinvested as and when they became available and into the same stock/fund.
Buy and hold with dividends reinvested with a AIM twist so-to-speak. My initial perception is that could indeed be a better overall approach at cost averaging in dividends in a more appropriately timed manner than that of just arbitrarily cost averaging in dividends as and when they became available.
Clive.
I wonder if another factor is that he's conscious of all of the long standing tax litigation that BRK is exposed to - and the pressure for BRK to pay dividends.
I believe BRK files something like 14,000 tax pages each quarter and around half of book value is queued up as deferred taxes - that he counts as a yet another cost-free loan (from the tax-man - along with the zero cost loans provided by BRK's insurance float (premiums paid in lieu of claims later being paid out)).
Maybe his character/status gets away with more than might others, and after his demise that could all change for the worse for his helm replacement.
The S&P500 holds something like 4% or 5% in BRK, so the single stock risk for his heirs would be significantly reduced.
For us mere mortals, 10/90 safe bonds/stocks is just a dream. 10% of his estate will provide more than enough for his heirs such that amount of stock gains is somewhat trivial. 50/50 is a more common level, which hightens the need for more growth (stock rewards).
Hi K
Indeed , implicitly he says Vanguards VOO safer than BRK.
Maybe "Berkshire Beyond Buffett" from Lawrence Cunningham will answer this question.
The other thing is why VOO and not VTI?
My guess would be that he's happier with the S&P index methodology than the total stock market choice. The S&P index looks to cap individual stock weightings and also strives to broadly balance sectors. Whilst VTI could become more prone to being overweight a single sector.
Or that he's just content with the largest Corporate America set and isn't concerned with adding in a element of small tilt.
Or maybe even that the S&P500 has a higher proportion of foreign earnings/revenues and as such alleviates the need to hold a foreign stock fund, whilst perhaps VTI has less foreign earnings/revenues ???
VOO I believe has the lower expense compared to IVV and SPY
Hi Tom: Re Newport Buy & Hold recording
I had it wrong Tom.
Its more appropriate to :
On x-div
Maintenance Window – Increase cash by the dividend amount (even though not yet received)
Shift-F4 and revise Portfolio Control down by the same amount of $$$ as the dividend
(add note to indicate x-dividend adjustment)
Later when dividends received
No change needed
(add note to indicate dividend received)
Later when dividends reinvested
Shift-F4 and increase Portfolio Control by the $$$ amount of dividends reinvested
Maintenance window - reduce the amount of cash by the dividend $$$ amount being reinvested and increase the number of shares by the number of shares that the dividends bought
(add note to indicate reinvested dividends)
That will (I think), correctly track the buy and hold total gains (profit/loss) with dividends reinvested and keep Portfolio Control more correctly centralised even when a big dividend comes along. And keep a reasonable graphical and data record of x-divs, received dates, reinvested dates (providing you use the Notepad). And potentially reinvest dividends at a better overall price over time than just arbitrarily reinvesting as-and-when.
It might be more appropriate to revise the buy safe towards or to 0% and shift that to the sell side so as to get dividends reinvested sooner rather than later (as the alternative is otherwise just to reinvest dividends as soon as the funds become available).
As a UK investor we have to accept MM/DD/YY date format rather than our own DD/MM/YY and currency is shown as $ rather than £. For holding that are US$ based I've suggested simply keeping two AIM's together with a currency AIM record. GBP/USD AIM to record the £/$ rate, another for the stock priced in $'s and another for the stock priced in £'s. That does screw up the Total Portfolio reports grand total figure due to the duplication and additional (£/$ AIM), but the totals for each relevant individual holding are also still shown so not a big issues (the person in question is holding relatively few diverse index funds).
Under Linux/Wine, the print reports are set to be dumped out as PDF's - so further historic references provided they're saved with a dated filename.
Regards.
Clive.
Newport and dividends
The simplest way of handling dividends in Newport as I understand it is to open up the Maintenance option and adjust the amount of cash held. That leaves Portfolio Control unchanged and Newport continues to reflect the profit/loss figures correctly. When those dividends are reinvested to buy more stock, again use the Maintenance option to revise the number of shares held and reduce the amount of cash held.
In practice however there may be some time before a stock goes x-dividend (and the share price generally drops by the amount of the dividend) and when dividends are received (as cash) and when that cash might be reinvested in stocks. In the UK for whatever reason we're generally not as efficient as in the US at the timing between x-dividend and pay dates and for some stocks the interval can be months.
If a dividend is relatively large, the result of the first paragraph method of handling dividends/reinvestment in Newport is somewhat wrong as Portfolio Control remains unchanged when the share price drops - inducing a greater likelihood of AIM indicating a buy trade, especially if the dividend is large.
Is then a more appropriate approach to :
On x-dividend use Newports
Trade window – Decrease cash (note that negative cash values is permissable in Newport)
Shift-F4 and revise PC down by the same amount of cash (dividend)
(Add note to indicate x-dividend adjustment)
Then later when dividend actually received
Trade window – Add cash (dividend amount)
(Add note to indicate dividend received)
Later still when dividend is actually reinvested
Shift-F4 and change PC by the additional amount (total cost) of shares the dividend bought
Maintenance window - reduce the amount of dividend cash deployed to buy those additional shares
(Add note to indicate reinvested dividends)
I have someone who is considering using Newport simply to monitor their buy and hold total gains profit/loss for a number of stocks without having to resort to using a spreadsheet or some other more unwieldy software and who might benefit from deferring dividend reinvestments until such times that AIM indicates a buy trade (rather than just reinvesting as soon as dividends become available - which may be months after the x-dividend date and as such at a relatively higher price than would be the case if reinvested close to the x-dividend date - assuming all of dividends were used to add more shares at the first AIM indicated buy trade following the dividends being received - which potentially might be the combined sum from multiple dividends assuming AIM buys are relatively infrequent).
i.e. Newport will generally just be used to initially register all of stock value, zero cash, but to include dividends received and dividends reinvested - and show profit/loss total gains for each individual stock (AIM).
I toy around with Newport myself periodically, but don't use it regularly enough to be more sure about whether the above approach is the correct choice or not.
TIA.
Clive.
RE: Newport multiple accounts
Hi Allen
The AIM QA board has some Newport guidance postings that may be of help
http://investorshub.advfn.com/AIM-%22In-Depth%22-Q&A-AIMQ&A-992/?NextStart=40
Being a relatively small program in modern day terms, just copying all of the executables etc. to separate directories provides the account separation. c:\investing/bob\... c:\investing\tom\... etc.
Regards.
Clive.
RE: Newport - Have a look at the sticky postings i.e. those at the top of the main postings page (they're coloured with a yellow background on this PC)
Newport appears to work well under WINE (using Puppy Linux operating system).
As Puppy Linux can boot from a CD/DVD (excepting if you have a late Windows system that locks out booting from CD/DVD), conceptually you could have a bootable Newport CD of sorts - and just store the Newport data files on a USB or HD.
Puppy Linux can also be set to create save-files, so in concept at least the Newport data files could even be saved back to the CD/DVD. IIRC Puppy Linux achieves that somewhat unique feature as it only writes/burns part of the CD/DVD. http://puppylinux.org/main/How%20NOT%20to%20install%20Puppy.htm note in using CD/DVD: you can also save to the same CD/DVD that you booted from (Here, DVD works better, but the DVD containing Puppy must be burned initially as "not final", i.e., that more files can be added to it
There's also a standard AIM spreadsheet
Web page http://web.archive.org/web/20120623150522id_/http://www.aim-users.com/aimware.htm
Direct link to Excel http://web.archive.org/web/20120623150522id_/http://www.aim-users.com/AimBareS.xls
30% range between yearly market low and high are quite common http://online.barrons.com/public/page/sp-hilows.html which fits with 10% SAFE, 5% minimum trade size (30% hold zone).
If you're running AIM-HI and trade 5% of stock value = 4% of portfolio value (average), and a 30% hold zone x 4% amount traded = 1.2% benefit.
Typically 'cash' has historically been 1% more than dividends - around 5.5% and 4.5% respectively, and stock prices have averaged 6.5% capital gain.
80% average stock exposure x 6.5% = 5.2%
80% x 4.5% dividend = 3.6%
20% x 5.5% cash interest = 1.1%
1.2% 'trading' gain from add near year low, reduce near year high (average)
Collectively = 5.2+3.6+1.1+1.2 = 11.1, Compared to 100% stock 6.5+4.5 = 11.0.
With stocks you have gains from price appreciation and income (dividends), with AIM you also have priced appreciation and income as well as some volatility capture gains.
Here's a backtest that may be of some interest.
AIM-HI SPY (S&P500) price only, ignoring dividends and cash interest
Allocate $125,000 to that AIM, starting June 1996 and running to March 2013 (chose that end date as it ended with 20% cash reserve i.e. the same as at the start).
10% SAFE, 10% MTS, 20% Vealie, monthly reviews
$100K initial stock value ($25,000 initial cash)
1490 initial #shares
6 sell, 5 buy trades
Started with 20% cash, ended with 20% cash, 18% average case across all periods.
Cash reserve fluctuation :
Ended with 1507 shares
Ended with $58,820 cash
Compared to $100,000 initial buy and hold stock purchase at the end AIM had :
17 more shares than buy and hold
$33,820 more cash than buy and hold
i.e. a AIM centred around a $100K initial stock value amount. Whilst AIM at times had to borrow to buy more shares, at other times it had more cash reserves than buy and hold. i.e. around the 20% cash reserve level in the above chart there were times when AIM had surplus cash (above 20% line level) and other times when it had to borrow cash to buy more shares (below 20% line level). By eye around equal amounts of both such that cash interest when above the 20% line level might have offset the cost of borrowing when below the 20% line level. i.e. at times AIM had surplus cash that might have earned some interest, at other times would have had to pay (interest) in order to 'borrow'.
Broadly started and ended with a similar number of shares as buy and hold, and on average held a similar amount of exposure as buy and hold, but generated £34K more cash than buy and hold by the end date. Relative to $100K initial stock value that's 34% additional benefit over 16.8 years = a 1.76% higher annualised benefit than buy and hold.
A casual glance at AIM however might instil a "tut - same overall reward" type response i.e. "both AIM and Buy and Hold excluding dividends and cash interest ended with a similar number of shares being held". Less apparent from a more casual glance however is that AIM trading had similar numbers of buy and sell trades and those trades collectively generated $34K of profits (cash).
I also hold some riskier 'bonds' that yield in excess of 8% that if cash reserves did get down that low I'd rather not sell, so the easier option is simply to switch from using 2x to using a 3x version of the LETF.
I don't understand the logic of switching to a 3x LETF. It would seem to me to accelerate buying in a down cycle because of the increased volatility (or selling in an up cycle) thereby requiring more, not less, cash. What am I missing?
If initially you hold $5000 in 2x, $5000 in bonds you've in effect $10,000 of 1X stock value
If stocks drop and you end up holding $3500 in 2x, $5000 in bonds $8500 total (i.e. 1x stock exposure down around 15%), then that's like holding $7000 in 1X stock and $1500 in bonds - whereas you'd want to be holding around $8500 of stock exposure (1x stock value down 15% from $10,000 to $8500). If you rebalance to a third in 3x, two thirds in bonds ($2833 3X, $5667 bonds) you're in effect holding 3 x 2833 = $8500 1X stock exposure whilst your bonds have increased from $5000 to $5667 i.e. you've increased stock exposure without having to sell bonds - that might be tied into a higher return. Had you rebalanced 2x holdings, then you'd be holding $4250 2x and $4250 bonds to provide the same $8500 of 1x stock exposure equivalent - which would have entailed reducing bond holdings down from $5000 to $4250 (sell $750 worth of bonds, perhaps incurring a early withdrawal penalty for doing so).
Later if the $5000 that was perhaps in a 1 year term bond matures, and assuming stock price/values remained the exact same then I might switch back to using half in 2x, half in bonds ($4250 2x, $4250 bonds) and only roll that $4250 amount into a replacement 1 year bond.
You can leverage with Futures (and/or Options), however with those you can have to front up margin at any time or risk having the position closed out, possibly at a deep discount (worst possible time). With LETF's that risk is mitigated and you wont be closed out unfavourably. The cost however is that LETF's cost more - the carry (borrowing) cost is higher than for Futures. With one (Futures) you need cash readily (immediately) to hand - and that cash typically will earn less than if you can tie it up for longer - which you can if you're using LETF's. Overall that somewhat washes - with both comparing overall. Of the two the LETF however is the safer choice as that's more likely to avoid you coming home one day to see that the price of stock had dived briefly during the day, a margin call wasn't filed and your position was closed out at that low share price (and perhaps had subsequently recovered).
Are you actually applying this method Clive? If so, to what portion of your portfolio?
Quite extensively for stock index holdings. I do however also hold a wide range of individual stock holdings, so not exclusively. I am however looking to migrate more into LETF's/reduce individual stock holdings.
I find it a lot easier to add value against cash/bonds than I do from stocks. Its one area where the individual investor has a edge. As a individual you can deposit some funds in a state backed cash deposit that pay above treasury bond yields - for in effect no additional risk. Last February for instance 5 year gilt yields were around 1.75% whereas a First Save bank 5 year deposit yield was 3.25% and anything up to $140,000 in that deposit is covered by the state in the event of the bank failing. That cover is just for the one group/bank, so replicate that protection multiple times across different banks/providers.
I also hold some riskier 'bonds' that yield in excess of 8% that if cash reserves did get down that low I'd rather not sell, so the easier option is simply to switch from using 2x to using a 3x version of the LETF.
The less expensive choice would be to use Futures as the carry cost is close to LIBOR (low). The problem/risk there however is glitch spikes and/or margin calls/exits. Potentially having a position closed out on you after a glitch spike down leaving you out at a heavily discounted price that may have only been evident for a brief period of time. Having to meet end of day margin calls means that 'cash' has to be readily and quickly to hand, which reduces the potential to earn that much on that cash. So whilst LETF's are more expensive, not being stopped out and being able to tie up cash for longer/higher rewards IMO is the better choice. Other benefits include lower dividends, so less withholding taxes.
In earlier years I spent most of time looking at stocks and little at 'cash' - that's completely reversed now for me and I'm now much more focused upon managing bonds and FX. Bond funds are OK but don't utilise the tax efficiencies nor timing (maturities) that match your own individual circumstances.
Hi Toofuzzy RE 50/50
It is hard to believe but he was wrong! He came up with Aim Hi just before the 2000 stock market crash. Just the wrong time to reduce the cash level. He was making an emotional decision based on the long stock rise prior to 2000
Many investors advocate holding the world weighted portfolio, 50% US stocks ... etc. Many of those same investors however fail to respect that the bond market is much bigger than the stock market, something like $82T versus $55T - close to 60% bonds, 40% stock weightings.
Hi Jaiml RE LETF's
How would one go AIM'ing such a portfolio?
Just paper AIM S&P500 (SPY) as your would normally, but adjust the 50/50 2x/bonds to whatever AIM stock value was being indicated. $8000 SPY stock value, $2000 cash, initially held as $4000 SSO, $6000 bonds.
Later if AIM was suggesting selling down from $10,000 SPY value to $9000 then adjust SSO to $4500 value. That has the effect of realigning back to 50/50 weightings in SSO such that its more likely to track the 1x more closely. You should consider periodically rebalancing SSO back to half the AIM SPY stock value (half as much in SSO as AIM SPY stock value amount) - perhaps once a year if AIM hadn't indicated any trades at all that year.
Regards.
Clive.
RE: LETF another (more extreme) example
33% SPXL Direxion 3x S&P500, 22% TYD Direxion 3x 7-10 year Treasury, 45% BIV 6-7 year Government Bond mixed, compared to SPY
Apr-Dec 2009 33.6 30.9
2010 22.4 15.1
2011 11.4 1.9
2012 19.8 16
2013 33.4 32.3
YTD 12.1 6.7
RE : LETF/Bonds 50/50
Comparing yearly rebalanced 50/50 SSO and BIV (intermediate bond fund), with SPY - total % gains
YTD 8.8 6.7
2013 33.4 32.3
2012 18.9 16
2011 4.9 1.9
2010 18 15.1
2009 25.6 26.4
2008 -30.1 -36.8
Apr-Dec 2007 2.4 2.6
World Index.
The US represents around 50% of the world total stock market.
The UK market has around 30% of its earnings from Emerging Markets, 19% from US, 17% from Europe (excluding UK), 5% from Japan, 4% from the rest of developed Asia and 2% from Canada (23% from UK).
Blending 30% VTI (US total stock market) and 70% EWU (UK) lifts US to around 50% weighting, together with a bunch of 'others'. Collectively that 30/70 has tracked the World Index quite closely.
Drop those weightings into etfreplay.com ETF backtest for instance and :
Personally I've been striving towards a world equal weighted choice however and have gone to some lengths to secure such a portfolio - but that's rather complex. Its looking however that perhaps I should just hold the UK market alone as a form of somewhat globally equally weighted set (ball park 20% UK, 20% US, 20% Euro, 30% EM, 10% others).
A equal weighted world has the better prospect of being a 30 year more right tail placement IMO. i.e. since 1900 equal weighted 20 countries was one of the best (right) outcomes, despite some of those holdings having endured pretty horrible results at times (some losing 90% or more over one or more 30 year periods).
One thing I have noticed however is that 100% weighting is better than 50/50 or 80/20 when considering 30 year worst case outcomes. 100% stock provided higher (better/least bad) worst case outcomes historically. As such I'm somewhat tempted by the limited leveraged AIM that Tom mentioned earlier. Allow leverage to expand up to perhaps no more than 30% (130% exposure) after sizeable declines, or drop to perhaps 80% minimum exposure when prices appear to be relatively high. Average 100% overall (ideally).
Home for REIT, bonds for income/drawdown, a single AIM UK FT100 for growth with 80% - 130% lower/upper stock exposure levels and ideally 100% average, perhaps reviewed once/quarter. The UK FT100 (large cap) has somewhat lagged the midcap and US (S&P500) over recent years - likely because of the 2009 financial crisis and being relatively heavily weighted in the financial sector at that time. Having lagged for a while perhaps its overdue to close down that gap (value).
Quarterly reviews I suspect is somewhat similar to applying a deferred AIM trading to a monthly AIM. Fewer larger trades less frequently. With Quarterly reviews however IMO 5% minimum trade size is the better choice (rather than 10%) as 10% makes AIM a bit to blocky (too big of steps between levels).
AIM-Hi versus LD-AIM
AIM-HI 80/20 and classic AIM 50/50 are similar to just using 80/20 or 50/50. Decide which you prefer and go for the corresponding AIM.
AIM serves as a reminder of what you should be doing. Without AIM you might defer rebalancing to target weightings due to fear or greed. AIM will flag up what you should be doing and after several times of perhaps ignoring its advice you'll appreciate how you were wrong to do so and will gain faith in its recommendations.
AIM scales up more however. Rather than 50/50 periodic rebalancing it may sometimes be at 60/40 or at 40/60, usually timed in an appropriate manner - which over longer term cycles tends to push AIM ahead compared to its respective 80/20 or 50/50 manual rebalanced counterpart.
LD-AIM enables you to invest less in a single AIM. You start with some virtual shares instead of real shares and the value of the virtual shares can be invested in another AIM/elsewhere. Otherwise its more or less the same.
Vealies help avoid building up too much cash reserves. Otherwise a 80/20 could decline to being a 50/50 or less over a prolonged bull phase. Keeps you more aligned to what your original target allocation/weightings were.
Hi Tom
Hi Jaiml
Yes %SV - gives the exact same result as TooFuzzy's online calculator http://web.archive.org/web/20120609073103id_/http://www.aim-users.com/calculator.htm
If you use the same safe and minimum trade size values consistently, then the 1 + safe + minimum trade size ; And 1 - safe - minimum trade size value figure remains the same
i.e. 1 + 10% + 5% = 1.15
and 1 = 10% - 5% = 0.85
The next trade prices are then simply the Portfolio Control (PC) divided by the number of shares figure and then divide that result by the above two figures (or whatever figures you have for your own choice of SAFE and minimum trade size).
I have a hot tip for you! Are you listening? The best time to invest is ...... yesterday.
Maybe someone else can model it but in my experience it has felt like an AIM account has done better when started at the top of the market than at the bottom. The cash gets more fully invested and on the next rebound, returns are higher.
Perhaps we should be using a AIM market model to determine the level of cash reserve to use at any one point in time. More cash when near highs, less cash when near lows
... oh hang on ... we already do something similar ... via the vWave.
Dont lose your shirt!
Already have - took your advice and went all in yesterday and the markets down today :)
VWave for the Week of October 3rd
Individual stocks: 60.67
Whooaa!
Thanks JDerb. Are you sure that's correct and not 62.67? as we seem to have been stuck in groundhog day for so long with a 62 point something vWave level for ages!!!
Thanks again.
Clive.