Hi Toofuzzy

AIM early 1980's was pretty much indicating 0% cash and a all stock retiree from there would have been well served by that. AIM 1999 was indicating 70% cash, so 30/70 initial stock/bonds, spending bonds first, transitions to 100/0 stock/bonds and averages 65/35 stock/bonds. Again the retiree was well served PV example of a 4% SWR (i.e. inflation adjusted initial 4% of portfolio value yearly withdrawals.

BUT! Do you continue to AIM and potentially see some/all of bonds being migrated over to stocks, OR once set just stick with the initial stock/bond allocation? Continuing to spend bonds and leaving stocks to accumulate until such times that all bonds have been spent and at which point likely the stock value will be reasonable enough in size to sustain withdrawals/spending.

Seems to me that if you continue to AIM, perhaps exhaust cash, and stocks continued on further down then you're at risk of selling shares at relatively low levels in order to provide income. Maybe set-and-forget might be the safer choice?

Regards.

Clive.

PS the differences are relatively mild if you opt for 'average' exposure rather than two-buckets.

70% initial cash indicated, 30/70 stock/bonds transitions to 100/0 stock/bonds as all bonds are spent, 65/35 average.

30% initial cash, 70/30 transitions to 100/0 = 85/15 average.

I would imagine that using buckets is better if/when started from a relative high, subsequent declines occurring relatively quickly after starting might have just 30% stock exposure compared to 65% if the 'average' based approach had been adopted. In contrast if stocks do well after starting then 'average' based has higher stock exposure than two-buckets. However if AIM cash is low or maybe even zero the differences would be trivial. Accordingly I suspect two-buckets is perhaps the overall better choice.

Recent 60% AIM cash indicated, so a individual retiring today using a two-bucket allocates 60% to bonds, 40% to stock, draws their income from bonds leaving stocks to accumulate. If a bad sequence of stock returns occurs soon after, maybe stocks values halved in real terms they might be more like 60/20 bond/stock. If drawing 4%/year that 60 bonds covers 15 years of income, enough time for stock declines to recoup/recover. In contrast a 'average' based approach starts with 70/30 stock/bonds, where the bonds covers just 7 years, or less if some of bonds are migrated over to stocks, perhaps just 4 years of bond spending and maybe not enough time for stocks to recover.

Since the 1980's we've seen a rising tide. UK Index Linked Gilt (TIPS) since 1983 have provided a 3.5% annualised real gain. Since 1983 the figures are around 6.4% for all-stock, 4.2% for AIM, 3.4% for constant weighted to AIM average cash % which again was near 50/50 average.

Add on 2.5% average dividends to all-stock and that makes its real total returns more like 8.9%. Add on 1.25% in dividends to the AIM's 4.2% real gain along with 1.7% in TIPS ('AIM cash') real gain = 7.2%, with CW being around 0.8% lower than that (6.4%). Portfoliovisualizer indicates actual all stock gains since 1983 were more like 8.7% for all-stock so those approximations look to be reasonably accurate.

Forward time however and inflation bonds are now paying negative real yields, and the rising tide effect from high to low interest rate transition since the 1980's is also most likely gone. Much of since 1980's relatively great gains hay-days have passed and we might be entering or even in a phase where AIM and its volatility zigzag trading might be a primary source of rewards. AIM will likely continue to advise when its appropriate to be light or heavy into stocks. Maybe something like stocks zigzagging to a 0% real price change, plus 2% dividends - being the real reward, compared to maybe 2% AIM real price gain, 1% dividend benefit, -1% cash benefit (cost). Whilst 50/50 constant weighted might be 1% real total.

Pessimistic maybe, but in reflection of that possibility I'm not expecting too much in the way of income provision from investments. A 4%/year drawdown rate rather than historic since 1980's rewards that might have supported 9%, along with the assumption of little remaining at the end compared to the 1980's retiree who might have had a large amount available at the end of 20, 30, 40 years.

Clive

Hi Toofuzzy

Indeed

AIM of real S&P500 price since 1871 used to let AIM settle, and then from 1929 ...

saw cash reserves rise and fall in a appropriate manner in reflection of highs/lows. Such as early 1980's it was appropriate to be stock-heavy, 1999 highs it was better to be stock-light ...etc.

Compared to had you just constant weighted to the same average stock/cash that AIM averaged (near 50/50)

yielded over a 1% difference i.e. AIM's timing/weighting did OK

For end of June figures US inflation is running at near 5% so 1.05^(1/12) = 1.0041 increase in CPI index value, so whilst nominal S&P 500 price is up, in real terms its pretty much unchanged and as such AIM is still indicating around 63% cash as being appropriate.

Clive

In a era of high valuations/low interest rates conceptually time averaging might be better than constant weighted.

Either starting with 50/50 stock/bond and 'spend' bonds so the portfolio transitions to 100/0 stock/bonds (so averages 75/25), or constant weighted 75/25 stock/bond (rebalancing to 75/25 each year) and generally the expected outcomes are much the same. Differences will be apparent, but that's a coin flip situation, unpredictable as to which might be the better.

If stocks dip whilst adding/accumulating then additional savings buy shares at a lower price. If stocks just rise it would be better to have lumped in at the earliest opportunity.

Consider a newly retired, they start with 50/50, draw 2.5 each year from bonds for spending, and another 2.5 from bonds that is used to buy more stock shares. But where in years when stocks have performed well some shares are sold instead to provide the income, and maybe also to top up bonds if bonds are below 50% weighting. In the event of a bad decade, stocks repeatedly lose -5% annualised real then all of bonds are spent or were sold to buy more shares. After such a bad decade typically the next decade tends to compensate and more for that prior bad decade, likely stocks will not only comfortably cover income/spending, but also see good real gains on top.

That's very much like the AIM way, can go to all-stock, no cash remaining, reduces cash to add to bonds during declines, replenishes cash when stocks are performing well. And that is broadly the better way than simple constant weighting, you have more capital available at the lows. And it tends to work best when current valuations are relatively high.

I suspect the 2020's may prove to have been a good decade for AIM. Not necessarily a good decade, but rather better results for AIM'ers compared to constant weighting. And more so for retirees.

So when you next hear others expressing concerns about high/rising inflation, low reward expectations etc., just sit back and smile, and turn your focus elsewhere, towards family/friends, or that pleasant sunset horizon. AIM has you covered.

Fathers day on Sunday over here. I took the family out this (Saturday) evening however as restaurants otherwise feel uncomfortably overcrowded and rushed on the Sunday. Great food, great company, just absent the sunset that was obscured by clouds.

Clive.

Hi Toofuzzy

This amortization based calculator might be of use

https://www.bogleheads.org/wiki/Amortization_based_withdrawal#Basic_calculator

Each year tally up all your asset/wealth and make a prediction of how much longer may have to live etc. and it provides a indicator of how much might be drawn/spent each year.

Guess too long a life expectancy and you leave some, guess too short and that's trouble.

Clive

Hi Toofuzzy

It's the S&P500 price index value adjusted for inflation.

If nominal share price rises 10% over a period when inflation was 10% then in real terms that value/price doesn't buy any more or less than before. If your AIM tracks the real price then it will trade differently to if your AIM tracks the nominal share price. Comparing that historically and it looks to me that AIM of real share price did a better job in real (after inflation) terms than AIM'ing the nominal share price. Compare for instance forward 10 year outcomes after each AIM indicated buy or sell trades and for nominal price based AIM there was little difference in real (after inflation) terms. Whereas AIM of real price yielded a distinct/significant difference. And at the end of the day its the real value that matters (we invest money today that might otherwise have been spent today in order to spend at a later date and gains/loss in 'real' (after adjusting for inflation) purchase power is what matters).

Basically you maintain the ongoing nominal index price figure and divide that by the ongoing CPI index figure .. and use that as your AIM real price figure (price that AIM actually uses as its input). A complication is that the actual inflation rate over the last month (assuming monthly AIM reviews) isn't really known until later, so there's a degree of guesswork involved (use forecast/estimated current inflation) - and later go back and correct that according to actual figures. Generally provided the guess was within the same ballpark that wont make much difference to actual AIM indicated trades. But that does also mean its difficult/impossible to pre-calculate next AIM buy/sell values.

If however all of AIM-of-real-price buy trades resulted in a subsequent 10 year real gain of 6% annualised and all AIM sell trades resulted in a subsequent 10 year 3% annualised then that 'timing' obviously looks good. If AIM-of-nominal-price has both buys and sells subsequent 10 years real gains at 4% then the timing looks indifferent. And that's along the lines of what historic outcomes I saw when backtesting the two.

Regards.

Clive

PS as a example recent US inflation is indicated to be running at 5%, which relative to a monthly rate is 1.05^(1/12)= 1.004074

https://tradingeconomics.com/united-states/inflation-cpi

So if the S&P price had increased 2% over the last month I multiply the previous nominal index value by 1.02 = P and multiply the previous CPI index figure by that 1.004074 = I, and then dividing P by I is the AIM input real price value.

With a sale in April, AIM of S&P500 real price is up to 67% cash as of the end of May 2021



I recently ran a backtest of AIM of nominal price compared to AIM of real price and measured annualised real gains to the most recent/latest date for all AIM buy time points and found that to be little different to that of AIM sell time points. In contrast the same but when using AIM of real share price did see a distinct/significant difference (improvement). Simply, AIM of real price worked better.

For the above chart to better preserve cash Buy SAFE is set to 20% whilst sell safe is 0%. Monthly reviews further helps slow cash burn. As does setting minimum trade size to 10% of Portfolio Control (or stock value) and minimum number of shares to 10%. Original cash was set to 75%.

58.8% average cash since 1871. 2.53% 100% stock annualised gain versus 1.94% for AIM. Being based on real values that assumes cash paced inflation. Excludes actual cash interest and dividends.

For 'cash' a equal three way of US stocks/10 year Treasury/Gold is a good choice for UK investors, Pound/Dollar/Global currencies, stocks/bond/commodity assets

If cash is making 5.6% annualised real then you can afford to hold relatively high levels of cash reserves and have AIM target just buying the stock dips.

Clive.

Funding income via debt:

Some opt to never sell and instead fund spending/income via debt/borrowing. Upon passing there's step-up of the capital value, executors can sell holdings at a cost of stock basis of the stock value at the time of the persons passing (tax efficiently) ... and use the proceeds to pay off the debts/borrowings.

Where to borrow from? Well one option might be to use leveraged ETF's and the overnight cost of borrowing rate they pay in order to scale up exposure. Generally half in 2x, half in bonds rebalanced yearly will tend to near mirror 100% in 1x stock. PV example that dates back to 1998. Or you may know of better choices where debt might be perhaps fixed at low rates/cost.

How might this fit in with AIM? Well AIM tends to cash accumulate over time. Start with 50/50 stock/cash AIM and over time it tends to drift to 20/80 (whatever) stock/cash levels.

Consider $1M capital, $1M stock exposure. The first year we might hold $960K of 1x stock, $20K of 2x stock, $20K in bonds. Overall we still have $1M of long stock exposure. The next year we revise that to $920K of 1x stock, $40K of 2x stock, $40K in bonds .. and again have $1M of long stock exposure. And so on, $880K 1x, $60K 2x, $60K in bonds in the third year ... etc. All else being equal after 25 years we'd be holding $0 in 1x, $500K in 2x, $500K in bonds (and still $1M in total long stock exposure).

If we spend the 'bond' value i.e. our income then that's securing debt at the cost leveraged funds pay to borrow, relatively low cost. In the above case the portfolio is generating a $20K/year income from a constant $1M portfolio value. 2%/year. In practice likely stock values would rise and if being AIM'd that would likely see some of stock exposure being reduced to add to 'cash', which in turn might reduce how much might be needed to be held in 2x long stock exposure.

More often, over 25 year periods stocks tend to yield higher rewards than bonds. Even without any reduction in long stock exposure and assuming all else being equal, a constant $1M of stock exposure compared to a progressive rise from $20K initial bonds up to $500K total bonds ('debt') over 25 years would tend to see the $1M constant stock exposure more than compensate in real terms for the progressive cost of $500K final bond (debt) ... average $250K of debt over the 25 years. Quite likely by a relatively wide margin.

The above loses the step-up main objective of such 'income via debt' approach as we're actually selling (transferring) capital around, but in respects of AIM and income provision is quite a novel idea IMO.

Clive

PS Biden has gone down like a brick in water over here (G7). Media are suggesting otherwise but the broad public opinion isn't good. Very much a sense of Biden having been very insulting and rather than 'strengthening special relations' has driven a even bigger wedge in. Bojo with his US family history is being very polite and up-talking so his support is likely to also collapse. But that drifting apart trend has been noticeable in the last few years anyway. We used to be able to buy US ETF's directly for instance, but no more. Just a further death knell for capitalism I guess in blindness of the alternatives.

Hi Toofuzzy

My userid LS7550 originally years back was formed from Alfred Winslow Jones, one of the first 'hedge fund' manager/investor that followed a Long/Short 75/50 approach.

Not being in stock might be considered as a form of short stock, and gold can move counter direction to stocks, so one variation might be
this, 25% 2x stock (ULPIX), 25% 1x stock (SPY), 50% gold, which compared to just 100% SPY alone ...

Jan 2005 to recent (May 2021) 
 CAGR           Stdev	Best Year	Worst Year	Max. Drawdown	Sharpe Ratio 
 11.46% 	14.13%	32.28%	       -23.57%	        -32.12%    	    0.75 
 10.03% 	14.63%	32.31%	       -36.81%	        -50.80%    	    0.64 
  
 

Clive

Looks like 25 Vealies in total Tom. A few of the buys were reduced in size due to insufficient cash and a number of buys were also entirely missed due to absence of any AIM-cash, I can't really count those as they're sequential sets i.e. stuck down in zero cash territory. Primarily the concept is that a little cash induces relatively little drag, but is able to buy some shares after pullbacks and later replenish that cash when prices have rebounded. Whilst the >10% cash vealies ensures that it more closely aligns to being a 90/10 type portfolio asset allocation. I used 10% cash as a hard figure, if for instance 10.1% cash when AIM indicated sell then no action (pull a vealie), if 9.9% cash then the full sell order would be made, to the full amount indicated by AIM - which could lift the AIM account to be holding perhaps 20% cash following that sale.

Some of the buys were lower in $$$ amount due to insufficient cash, AIM with no dividends or cash interest included. Which might have been more partially or even fully filled if there was spare cash and/or interest/dividends available at the time.

Also note that that used a 10% of stock value minimum trade size, so larger bands than if using the more conventional 5% MTS (that tends to also generate a higher number of overall trades).


AIM provided 6.51%, it was constant weighted 90/10 that had a 6.23% (6.92% ROCAR). AIM had 10.7% average cash (12.3% median cash) so on a average cash basis ROCAR = 6.51 / .893 = 7.29% (7.42% relative to median cash).

I quite likes ROMCAR, return on median cash at risk, as average cash can be distorted by extremes. The other way it might be measured is to add in the average dividends/cash. 6.86% annualised for 100% stock + 4% average dividends = 10.86% total. Versus 6.53% from AIM with median cash of 12.3% that earned a average 7.7% and 87.7% average stock x 4% average dividend yield = 6.53% AIM + 3.51% dividends + 0.95% cash interest = 10.99% total.


Monthly reviews would be just as good I suspect, so could be even lower effort. Perhaps even quarterly reviews.

Basically a Buffett type concept of 90/10 stock/cash and deploy the cash at appropriate times, let cash accumulate up to limits during good times, and where AIM does all of the work, just leaves it to you to do the actual trades. With Toofuzzy's calculator you can even pre-determine AIM price levels and just await those being reached/breached before having to update records and perhaps make a actual trade.

Regards

Clive

AIM cash - a observation.

Looking at a 90/10 stock/cash style, some cash to buy pull-backs, replenish 10% cash after rebounds (a form of time cost averaging down the average cost of stock) and historically whilst 90/10 and all-stock tended to broadly compare in rewards, just looking at the price only values and it was predominately the higher return on cash compared to dividends that helped to close down the difference (somewhat align overall total returns).



7.7% cash interest, 4% dividend yields type differences historically.

In the present era with very low cash interest/rewards, 1.4% S&P500 dividend yield, near zero on 1 year treasury yields (1.6% on 10 year) and that differential/advantage has been lost.

Clive.

Hi Tom.

Another variant might be to use the vWave as the 'constant weight' value - so a variable weight rather than a fixed target weighting. Perhaps using the ongoing 'diversified' vWave figure for that. If formerly the vWave was 40%, so 60/40 AIM/vWave, that saw vWave drop to 20%, then a rebalance would see more injected into AIM (80/20 AIM/vWave). Maybe where that additional capital available to AIM was split equally between AIM stock and AIM cash in the proportions of stock/cash evident at the time.

Later if the vWave returned back to 40%, then capital would move back from AIM-stock/AIM-cash to the the vWave (constant weight) side.

Which would induce additional trades in reflection of vWave motions. The only variable being when to perform such rebalance actions.

Clive

Thanks Tom

Reasonable choices might be to 80/20 constant weight AIM/cash, with AIM within that using 80/20 initial stock/cash (AIM-HI), as that then starts at 64/36 (close to 66.67/33.33).

Or for more like 50/50 overall then 75/25 constant weight AIM/cash, with AIM within that using 67/33 initial stock/cash.

For the more conservative I suspect you might get away with 'cash' being a 10 year Treasury fund/ladder alongside perhaps more volatile stock such as Small Cap Value (VISVX). Perhaps 50/50 AIM/cash constant weighted with AIM using 50/50 initial stock/cash, so 25/75 initial stock/cash overall. Historically even 25/75 SCV/10YrT constant weighted has worked reasonably well 5.1% annualised real since 1972 compared to 6.7% for 100% all-stock, whilst the worst year was just a -5.4% nominal loss (maximum drawdown -13.6%). AIM could potentially enhance those rewards, but likely also scale up the 'risk' (worst year/MaxDD).

Regards.

Clive

Berkshire Hathaway (BRK) cash % management

Warren Buffett was a student of Benjamin Graham - who advocated 50/50 stock/bonds with possible drift to no less than 25/75, no more than 75/25 based on valuations. Here is a indication of how BRK's cash levels have varied over time since 2006 https://www.macrotrends.net/stocks/charts/BRK.B/berkshire-hathaway/cash-on-hand

With AIM you can exhaust cash, but never run out of shares to sell. A comment made by Charlie Munger however, Buffett's right hand man, pricked my ears. Well actually it was one of those 'in one ear, out the other ear' comments that I read and initially didn't hit home and only later did a mental light come on, by which time I'd forgotten where I actually read the comment.

Fundamentally its as simple idea - combine AIM with constant weighted. By constant weight I mean more conventional methods i.e. 60/40 stock/cash constant weight = each year/whatever rebalance holdings back to 60/40.

IIRC Charlie said to the effect that $20Bn cash should always be available in cash i.e. without any cash then there's a risk that having no cash will likely occur at the worst possible time so never let yourself get into that position by always having some cash to-hand. For more general purposes lets convert $20Bn to a percentage amount, say 20%. So we allocate 80% to AIM, 20% to cash. Given that we have a hard cash base we might set AIM to run with 70/30 initial stock/cash.

So $100 total (to keep the figures simple), is divided 80/20 AIM/cash = $80 AIM, $20 cash (constant weighted). If we start AIM with 70/30 AIM-stock/AIM-cash then that $80 is split $56/$24 stock/cash. Overall we're starting with $56 stock/$44 total (combined AIM and constant-weight) cash.

With a 70/30 AIM (AIM-stock/AIM-cash) we might see AIM deploy all of that AIM cash after around a 30% pullback in share prices, AIM moves all-in, has no AIM cash remaining. The $56/$24 stock/cash allocation to AIM might have seen a -25% decline as it moved all-in i.e. The $80 initial allocation might be down to $60 value where all of that was in stock/no AIM cash remained. Alongside that the constant weighted cash pot still holds $20 cash, so combined we're holding $60 AIM value, that's all in stock, 20% cash, $80 combined value, across a time when stocks are 30% down. We rebalance that constant weighted 80/20 and shift $4 out of the $20 cash amount over to AIM, so now we're holding $64 in AIM of which $4 is cash, and a separate cash pot with $16 cash. If share prices continue to further decline so AIM has some cash reserves that can be deployed to buy more shares where just pure AIM alone would have no cash remaining and as such couldn't buy more shares.

You now have a AIM variant that in effect might never run out of cash, but that over time can get to high % levels of stock exposure, typically when share prices had dropped significantly.

In the above I've used 80/20 constant weighted AIM/cash and assumed that AIM was set to use 70/30 stock/cash but equally other choices for those could be used according to how aggressive/conservative you might want to be. AIM is more aggressive than straight 50/50 constant weight and in some cases it might be considered too aggressive, combining it as a AIM/Constant-Weight allocation dials down that aggressiveness.

It's such a simple idea that it seems so obvious, however after decades of being familiar with AIM its a new idea to me. A kick oneself for not having thought about it earlier situation. Neither can I recall seeing any other AIM'er ever having mentioned such a idea?

Clive.

Forgot to post that there were 50 trades (AIM indicated rebalance events) across the 35 years, based on monthly AIM reviews.

AIM of Foreign/Domestic Stock ratio

The likes of the Dow/Gold ratio provides a indicator of the relative value of the Dow, priced in ounces of gold, over time.

The US has had a relatively good last decade, of the order 15% annualised nominal gains, 12.5% annualised real gains. Some fret that may mean a subsequent decade of 0% real gains, to broadly average 6% annualised real gains over two decades, but a 'lost decade'. Perhaps via high/rising inflation.

Other countries have fallen far short of anywhere near those gains, and the common opinion is to diversify across both domestic and foreign stock to smooth things down. For instance if the US does endure a lost decade, international might by comparison do well.

Spinning that around to a UK investors perspective we might measure the relative performance of US versus UK stock total (nominal) returns. For that I've used Berkshire Hathaway as the proxy for US stock, along with a 'domestic' (for UK) FT250 mid cap stock index total return.

Divide BRK / FT250 for the US/UK ratio and during the 1980's BRK performed exceptionally well, which makes defining bands for when to perhaps flip between UK and US stocks that more difficult.

But AIM comes to the rescue. I simply AIM'd the BRK/FT250 ratio to let AIM advise as to when to add/reduce domestic/foreign. Basically AIM is just providing the % cash figure, which in this case represents how much domestic (FT250) exposure, and the rest being in BRK.

Run from 1986 and ...



... that provided a similar total return as 100% BRK, but did so with just 56% average exposure to BRK (44% average exposure to FT250). Individually BRK annualised 15.7% compared to the FT250's 11.5% (from a UK Pound based investors perspective). AIM of the BRK/FT250 ratio provided a 15.8% annualised.

If alternatively I'd gone with a total rotation based approach, using 3.5 and 2.5 ratio levels, i.e. rotate fully out of BRK (US) and into FT250 when the BRK/FT250 ratio rose to 3.5 or above, and then rotate fully out of FT250 and into BRK when the BRK/FT250 ratio had dropped to 2.5 or lower, then that yielded a 18.25% annualised. Where those 3.5 and 2.5 band choices fits nicely with the BRK/FT250 ratio chart, but where those bands couldn't have been known in advance. As such, AIM without such foresight of where to set rotation trigger bands did a pretty good job of working with what was available and that could be used in the real world.

More generally, it looks like having been US heavy since 2011 is starting to be indicated as perhaps being a bit toppy, and the above AIM is suggesting foreign (for US investors) should perhaps be increased to more like 40% levels. Or from a UK (foreign) perspective, reduce US exposure from relatively high (85% weighting) levels down to more around 60% weighting levels.

Clive.

'Cash' 1972 to 2020 inclusive, 1% annualised MORE than all-stock!!!

7.5% annualised real (after inflation) compared to 6.5% for all-stock.

Surely not?

Well a thought for the weekend and here are several links that were used as the basis for the observation.

=_1_=

=_2_=

=_3_=

Dow/Gold

The first two are for continuity, show the gains over 1972 to 1980 being rolled into the second period of 1981 to 2020. The third is the full 1972 to 2020 all-stock comparison.

Concept :

I am being pretty loose here as to what-is/definition-of 'cash'. Pre 1971 and money and gold were the same, exchangeable at a fixed rate, so it made more sense to hold money, deposited perhaps into Treasury Bills to earn interest, so that was like the state paying you for it to securely store your gold. Come 1972 however that coupling was broken, primarily as a means to help pay down the cost of the Vietnam war (ability to print/spend money that otherwise when backed by something tangible and finite i.e. gold could not be performed).

Place your mind into a end of 1971 cash investor where that breaking away from gold had occurred. What to do? Continue just holding cash/treasury bills? Or swap fully into gold? Or perhaps opt for 50/50 of both being unsure of what it all meant. For 1. above I assumed 50/50.

Roll on to 1980 and gold has done well, interest rates and inflation have soared, the Dow/Gold ratio has dropped to near 1.0 levels. What to do? Well perhaps lock into such high interest rates for the long term, swap out the cash/gold for long dated treasury bonds (LTT). 2 above assumes that, and where held ever since (to the end of 2020), i.e. rotated the 1. portfolio end of 1980 value into LTT's.

Compare that to 3. where all stock with the same start date amount was used, and at the end of 2020 the 'cash' investor had seen their portfolio value having risen from $100 in 1972 to $22,892, whilst the all stock investor had seen their $100 1972 start date value rise to $14,219, Which over those 49 years amounts to just shy of 1% annualised less than the 'cash' investor (0.977%). All stock real (after inflation) gains from 3. indicate 6.55% annualised, so 'cash' gains were around 1% higher, more like 7.5% annualised.

As my 20's sons would say, "WTF! How did that happen?". Well the answer is that gold had a good up run in the 1970's and then those good gains were locked into 1980's high yields (long dated treasury bonds) that subsequently saw yields decline that pushed prices for those bonds upward. From present day valuations, very low yields/inflation, long dated bonds are relatively expensive. After two trades, one in 1972 and another in 1980 its time to rotate out of long dated treasury, perhaps back into 50/50 cash/gold; And perhaps in less than a decade that might have seen interest rates/inflation spike to levels where we might ponder whether we should once again lock into longer term bonds again when yields/inflation seem relatively high and/or the Dow/Gold ratio had dropped to relatively low levels. And perhaps in another 20, 30, 40 ... whatever years time, 'cash' might have continued to out-run stocks.

Clive.

PS

In a 1950's tour of the New York Stock Exchange Groucho Marx said

(note that since then inflation has seen prices rise 15.6 times, so his suggested loss was around $12.5 million in present day inflation adjusted terms)

As he was walking around the floor, one of the traders asked him, "Groucho, how do you invest your money?" He answered, "I keep my money in Treasury bonds," to which the trader replied, "But Groucho, they don't make you much money." And Groucho responded, "They do, if you have enough of them!".

Hi K.

Compare more like for like. Classic AIM (50% initial cash) with constant 50/50 (yearly rebalanced).

AIM can exhaust cash, 50/50 wont. At times AIM may run out of cash, is more aggressive. IF coinciding with lows then AIM did well, if the priced declined further then straight 50/50 might prevail.

Also, rather than stock and cash, 50/50 constant might opt for assets with opposing correlations, one up as the other is down can be productive. AIM would instead tend to mix both of the assets, perhaps stocks and long dated bonds, each with cash (two separate AIM's) which reduces some of the opposing volatilities.

It's a very close call. AIM however promotes better behaviour. With 50/50 yearly rebalanced in reality some may shy away from rebalancing, bad behaviour, due to greed/fear. With AIM you're more inclined to actually trade in a good behaviour manner. Bad behaviour is broadly recognised as inducing a average -2% lag element and being a average means that for some it was considerably more. Often investors will profit chase, tending to buy high, and then rotate out into the next in-vogue due to relatively poor performance (sell low). AIM'ers are more inclined to be providing the liquidity to such investors.

Hi Tom

The common 4% SWR is just a rule of thumb, a guide. Based on 60/40 stock/bond historic worst case (peak to trough) 30 year period where the value drew down to zero in that worst case. The % is only used at the offset to indicate a $$$ value, thereafter its the only the $$$ value that is used (uplifted by inflation).

I guess that as a guide, if portfolio values are down from prior inflation adjusted highs you might just consider whether 4% relative to that prior high was 'enough' of a inflation adjusted income as part of decision making.

That is the more common situation, I suspect very few actually stick with the hard SWR rule. Just use it as a indicator of whether it might be OK to early retire or not. In the average case a initial 4% value when inflation adjusted over time tends to become a increasingly smaller percentage of actual portfolio value over time. I'm pretty terrible with spending, have no real idea of my actual withdrawal rate, I just draw what/when I need, very variable. As I've not really seen any decline in wealth after withdrawals I've not felt any need to monitor withdrawals/spending closely. I early retired back in 2005 in my mid 40's, back then I was more concerned about whether I had enough and withdrawal rates/amounts ...etc. 25x years spending, 4% SWR was a guide back then, nowadays I'm more at like 100x, 1% SWR and I now also have a occupational pension that recently kicked in (at age 60). And in another 6.5 years a state pension also starts. I guess push come to shove I could survive on just those two pensions alone (around $30K/year net type lifestyle). But with comfortably into 7 digits of wealth also behind that. Far different to back in 2005 when I was pretty fearful that I hadn't accumulated enough (mid 6 digits) and the big life-change from dropping out of the rate race into the unknown was a significant concern. Given family circumstances since however and I'm very glad I took that decision however.

Regards.

Clive

AIM as a retirement data indicator:

A popular option is to use a 4% SWR (safe withdrawal rate) approach for retirement income. You take 4% of the start date portfolio value as income for the first year, and then uplift that amount by inflation as the amount of income drawn in subsequent years, so a nice inflation pacing income over time.

The 4% rule of thumb was determined by inspecting historic 30 year periods to identify the maximum amount that could be drawn and that left precisely $0 remaining. Being the worst case, likely a peak to trough start/end date range, other cases were better than that, in some cases (trough to peak) substantially better. More left for heirs (or longevity).

To better avoid the worst case, bearing in mind this is all back-looking so no guarantees that the same might hold in forward time, we might set up a AIM applied to S&P500 inflation adjusted prices, all on paper/virtual, and just run that until it indicates its first buy trade, at which point that is the date we can retire and start drawing from the portfolio. Guaranteed historically to have uplifted the 4% SWR to a higher figure, better placed to leave more for heirs or have more available for longevity.

Using portfoliovisualizer that has data going back to the early 1970's I looked at a assumption of a newly retired 50 year old who started their retirement in January 1973 when holding a aggressive all-stock portfolio and applying a 4% SWR. By September 1974 their portfolio value in inflation adjusted terms had declined nearly 50%, but did battle on and recovered in later years before finally perhaps seeing both themselves aged mid 90's and their portfolio value having died (2015).

Another who had been running a virtual/paper AIM might have deferred their retirement, until June 1974, after AIM indicated a buy trade in May 1974. With the same 4% SWR applied from that AIM indicated retirement date their retirement was far more comfortable portfolio value volatility wise and at the same 2015 end date the value was 6.5 times more than the inflation adjusted start date portfolio value. Very nice for their heirs, or perhaps they might have used discretion to draw additional spending from the portfolio along the way.

I've used a aggressive assumption here, all stock only holdings. The 4% SWR rule of thumb was based on a 60/40 stock/bond allocation. Using 60/40 instead and the Jan 1973 retirees 2015 portfolio value was at 23% of the inflation adjusted start date value, compared to the AIM timed June 1974 retirement start dates 3.8 times more.

I guess one way that a aggressive investor that wanted to maximise wealth and leave a large inheritance might live could be to all in stock during accumulation years, averaging in over time and letting it compound, until levels where they felt they had enough such that a 4% SWR amount could sustain them, and then go defensive, and await a time when a virtual/paper AIM indicated to 'buy' and use that to rotate back into all stock and start their retirement/SWR drawdown. Based on history they might have saved less/spent more during their accumulation years, or hit their retirement date sooner rather than later, and then in retirement been more financially comfortable and/or left more for heirs.

Being the AIM board I've of course spun this from a AIM perspective. Another option might be to simply look for 20% pullbacks from prior highs (again using inflation adjusted S&P500 price) and use that as the retirement date. Such events occur reasonably regularly enough, and in many cases might even be evident at the time when you considered you had accumulated/inherited/won enough to retire



A main factor is what assets might you hold once having reached a target wealth level but where stock prices were above a 20% pullback level? Fundamentally a defensive asset allocation that loses less (or little) as/when stocks do pull down to a -20% lower level. Being based on real (after inflation) figures even cash might drop in the event of interest rates being substantially lower than inflation - such as the state printing money to buy their own bonds and keep prices high/interest rates low whilst inflation at times spikes. Perhaps a third each in stocks/gold/TIPS asset allocation? Or maybe a long/short combo. Or maybe

10% in each of stocks and gold, 80% T-Bills (click the inflation adjusted tickbox in the chart to see how that held up better in real terms than just T-Bills (cash) alone).

Clive

AIM as a money manager is pretty mediocre. Classic AIM versus 50/50 and broad long term S&P index outcomes tend to broadly be little different - whilst AIM can have you all-in at times.

Where AIM shines is in its buy indicators/timing. Since 1871 a S&P real (inflation adjusted) price AIM and measure the forward 10 years outcome from having bought at those times resulted in a significantly higher average reward outcome compared to the broad average. Excluding dividends and based on real price changes since 1871 AIM buy time point 10 year holding periods averaged 6% (real) compared to a 3.4% average. Dividends would have further uplifted those gains (and potentially also been above average in having bought at a relative low).

Much of overall longer term rewards are a simple function of start and end dates. Buy at a peak, end at a trough and rewards can be dismal, in some cases you'd have been better off in cash deposits. Buy at a trough and sell at a peak and the rewards can be outstanding. For many a end date may never occur within their lifetime so the best they might do is look to buy in at a relative low and AIM can be a reasonable indicator of appropriate times to lump in.

A negative element however is waiting for such signals, that may be a number of years apart. Being out in cash = missed/lower gains compared to had you gone all into stocks from day 1. The likes of Buffett however are a indicator of how sitting on cash for years before making a appropriate purchase at around the right time can yield great overall outcomes. Broadly I'd approximate that AIM purchase timings in addition to 6% real gains from price appreciation, might have provided a 1% or 2% above average dividend yield on top. 3.4% average + 4.3% historic average dividends in the average case, 7.7% real type rewards, perhaps 10% nominal after 2.3% inflation, versus AIM's 6% average + 5% to 6% dividends, 11% or 12% real, 14% or 15% nomimal type rewards.

Conceptually AIM taking profits at the right times to accumulate cash reserves to deploy later at the right times would produce great overall results, but that simply doesn't seem to be the case. As such I opine that AIM sell timings aren't that good. Mediocre. Tom uses Vealies for instance that would seem to add to rather than detract from overall rewards.

All of course just my own personal opinion artful picture painting.

Clive.

Hi K.

Consider the longer term cycles. During one phase valuations are relatively low, you can for instance buy into inflation bonds (TIPS/Index Linked Gilts) paying perhaps +3% real (above inflation rates). You can buy a inflation adjusted income in x years time for less money today. At other times it swings the other way around, as of present where it costs more money today than what is paid back in inflation adjusted terms in x years time.

Historically at times yields are kept low, states print money to buy bonds such that demand and prices rise, yields fall. Sustained and sooner or later inflation exceeds what 'cash' pays. Repeated over a handful of years and some serious losses can be endured, half or more lost in real terms. We're sort of entering that phase now, just the absence of inflation so far. Each of cash/bonds/stocks can all lose, at the same time, but typically to different magnitudes. Diversifying across all three better ensures that you're not heavily concentrated into the one that loses the most. Gold can do well when 'more meaningful' inflation does hit. When investors lose whether they're in stocks, bonds or cash then gold is a favoured asset and its popularity/demand can soar to levels where losses in the other assets are offset by the gains in gold. But at other times it swings the other way around - where gains in stocks/bonds can offset losses in gold.

Inflation bonds can also serve well. Endure losses but not as harsh. For instance recent 10 year inflation bonds (Index Linked Gilts in UK) are priced to around a -2.5% real yield, so it costs $12,500 now to buy $10,000 of income/return in 10 years time (inflation adjusted). Repeat that for all years 1 to 10 and £112K of present day money buys £10K/year inflation adjusted return. In effect a -11% loss, but where cash/bonds/stocks in contrast could all lose -50% or more relatively quickly (over a few years).

Stocks have a element of inbuilt defence, the average stock is around 1.5x leveraged, corporate bond debts tally to around half of stock book-value. Debts when interest rates are lower than inflation is a form of asset, where the debtor in effect sees the debt eroded by inflation. Home values can also do well, as a chunk of the housing market is backed by debt (mortgages) that similarly may be eroded by inflation - and when debt is a 'asset' demand rises.

Own a home, hold some stocks, some inflation bonds, some gold and you're downside loss prevention when real yields are negative is somewhat insured. During periods of positive real yields, house, stock, bonds and even cash deposits tend to do well, and inflation bonds are available at a 'discount'. Even defensive assets can do well across a broad period of positive real yields, whilst being more protective across a period of negative real yields.

Clive.

Hi Tom.

Some opt to never rebalance, or do so via directed additions (if accumulating) or withdrawals (retired).

A UK variant similar to that is to own a home so you don't have to find/pay rent (liability matched), and split the rest initially equally between US stock (for a British investor that's foreign), cash deposits and gold - after setting a 2.4% SWR i.e. a 2.4% capital amount of the collective value that is initially drawn for first year spending, and where that $$$ amount is uplifted by inflation as the amount drawn from the portfolio at the start of subsequent years. Just take that from whichever asset(s) are the highest value at the time.

Historically imputed rent averaged 4.2% in the UK over the last century or so, so also factoring that in when 25% of the portfolio and its like a 3.5% type withdrawal rate. In the worst case that was pretty much a perpetual withdrawal rate, for instance since 1896 always saw more than the inflation adjusted start date value still intact at the end of 50 year periods.

Some might prefer to draw monthly, and set a initial 0.2% monthly value to draw, and being inflation uplifted its a nice regular inflation adjusted 'wage'.

Some like having 10 years of spending in cash deposits as a comfort for when house/stock/gold prices may be down. 25% in foreign stock (US$ for a British investor) and 25% gold (global currency and a commodity) and if/when the British Pound is in decline those foreign 'currency' holdings are a comfort.

If you don't bother with intentional monitoring/rebalancing it doesn't really matter. Just taking from whatever is the highest valued is a form of partial rebalance that suffices. As a home isn't liquid you just count that as already having paid its contribution in the way of imputed rent.

1M of wealth, 250K home value, 250K in each of stock, gold and cash, 24K/year inflation adjusted income drawn for spending, and perhaps the 250K of home value avoiding otherwise having to find/pay perhaps 10K/year rent. 34K/year combined effective 'wage', perhaps tax efficient also. For another to compare perhaps they might have to earn a 50K/year gross wage, see that reduced to 34K after taxes (net/take-home wage), reduced further down to 24K/year after paying 10K/year rent.

If house prices crash, or soar, no need to rebalance, just carry on as before. If gold, or stocks soar, no need to rebalance - you'll just tend to be taking income more often from gold (or stocks). If stocks (or gold) crashes, well you'll again just be taking income from gold (or stocks). If both have crashed - well you have 10 years+ of income in cash deposits. Cash is perhaps the exception i.e. if depleted due to a number of years of being drawn during bad times you'll likely want to top that up again during good times. Ongoing stock dividends and cash interest also help to top up cash. Cash earning little/no interest, Meh! the other assets tend to compensate, and if so inclined perhaps sell some of the years best performing asset to add your own 'cash interest' payment.

Yes that leaves a lump sum that might otherwise have been spent assuming no desire to leave to or absence of heirs, but it's also a insurance policy such as potentially helping with late life care costs.

For those who don't own their own home and have relatively little wealth saved up, I guess in my mid 70's and in that position I'd be looking to spend what I did have down over perhaps a 15 year life expectancy horizon and count myself lucky if I outlived that, or perhaps unlucky depending upon the degree of quality of life. Many coming up to retirement seem transfixed on worries about the likes of a 4% SWR only having a 95% success rate probability or whatever the figure is, and overlook that they have a 85% probability of never seeing another 30 years (upon which the SWR 4% rule is based).

Regards.

Clive.

AIM S&P500 real price trades/indicated cash levels ...



Berkshire Hathaway

$145Bn Cash
$627Bn Market Cap
1.424 Price to Book-Value
$441Bn Book Value

= 33% Cash

Feels like another mid 1960's onward repeat, which by the 1970's had Robert Lichello opting to devise AIM after all of the devastation. Berkshire looks set to expand cash further up to $175Bn levels over the next year or so, 40% cash all else being equal. Unusually high given Buffett's broad preference for just 10% cash.

Clive.

Hi Tom.

Can't post to that board, so I'll just drop it here instead

Precious metal do buy
When the Dow/Gold is high
I tell no lie.

On a per decade rotation, starting from 1972 in the absence of earlier years data, buying either stock or gold according to the decade start Dow/gold ratio you might have opted to hold gold 1972 to 1979
Stocks 1980 to 1989 and again 1990 to 1999
Gold 2000 to 2009
Stocks 2010 2019

For a US investor so doing, nominal total returns 18.4% annualised
(14.1% real (after inflation))
versus 10.6% for all stock (6.6% real).

UK/British Pound adjusted 20% annualised (13.9% real).

Start of 2020's Dow/Gold indicates ... gold.

Clive.

Hi Toofuzzy

With the time-value of money so low I would have thought that in a low interest rate world that was hardly worth it nowadays. Better when time-value (interest rates) is 4% or higher.

Instead I use 2x stock, half weighted, half in 'bonds' i.e. what price/cost the 2x fund pays to scale up to twice the amount of stock exposure is offset by the bonds. Beat bonds and you add alpha/benefit and when debt costs are so very low it doesn't take much to do that.

A 'bond' of a third each stock/cash/gold for instance

Clive

Hi K.

Today's ceiling can become tomorrows floor. Gold IMO will end the 2020's having done better than stocks. A factor is however that stocks may yet still up-run quite a lot before a crunch does occur. A recent near 20 Dow/Gold ratio for instance could extend up to 40 or more. And when a turn/fall does occur it tends to be harsh and somewhat rapid (in that timescale, perhaps over a few years).

A factor with pushing so hard for inflation and seeing little effect is that tends to get over-cooked and once inflation does start rolling its difficult to brake. Many Central Banks have printed trillions and seen very little movement on inflation, then bam! Suddenly there's too much inflation - yields rise, stock/bond/cash falls, and that can see the Dow/Gold ratio drop to low single digit levels.

Clive

Hi K

Just to say that the official PP holds domestic stocks. The intent is that the correlations/interactions between its assets, the cogs/wheels, are mangled if you throw in different alternatives. When for instance the US$ might be relatively rising so also might domestic US stocks be rising, whilst gold priced in US$ might be falling. And vice-versa. Replace domestic stocks with foreign stocks and the cogs/wheels are different. The four stroke engine might have two cylinders firing/exhausting at the same time - a stuttering lower efficiency engine.

Individually the volatile asset holdings might be down -25% one period, up +33% the next, that compounds to 0% (arithmetic average of +4%), but when multiple similar volatile assets are also held that move counter cycle to each other, then rebalancing between those tends to capture more of the arithmetic average instead of the singular compound average.

You've corrected for that by opting for a world bond fund, making that choice of PP a form of global PP. Gold after all is also a global currency and a commodity. Domestic cash in that situation is fine, as cash is fungible.

Regards.

Clive.

PS with many Central Banks starting to slow up on printing money to buy bonds, longer dated bonds look set to see demand weaken/prices lowering/interest rates rising. Personally my insurance is more along the lines of a third each in domestic small cap more equal weighted stocks (index), US large cap weighted (S&P500) and gold. For me, Pound, Dollar and global currency (gold) diversification. I feel much less inclined to lend at the present time (buy Treasuries) to someone who can revise interest rates, print more money, change the taxation or rules ...etc. in their favour.

Years ago, pre 1970's and gold/money were exchangeable at a fixed rate, it made more sense to hold money deposited earning interest (Treasuries) as that was like the the state paying you for it to securely store your gold. Nowadays the state in effect wants you to pay it for it to store your cash securely (negative real yields), in which case many consider it better to hold gold. When real yields turn more positive again then that is more the time to consider 'lending'. If anything when real yields are negative you want to be in debt. I like to use 2x leveraged funds for that, for instance opting to hold half in a 2x stock position, than I would hold in 1x stock. The 2x fund in effect borrows the same amount as invested into the fund to double up on stock exposure i.e. integrally contains exposure to debt.

We're into a currencies war type era, where many print/spend money to try and deflate their currency relative to others, but where others counter such attacks by printing/spending more of their own. That can lead to situations such as export controls, restrictions on currency movements etc. ... deglobalisation and focus directed more towards "Buy American/Buy British ..." etc ... whatever the domestic. Maybe even with limits on how much spending money you can take out with you on holidays abroad. One or more currencies may even see very high inflation. As ever diversifying reduces concentration risk (which is a major risk factor) across such battlefields ... see losses in one battle, wins in others, not having gone all in into a single battlefield alone.

Hi Tom

The nice thing about equal weightings is that by definition the worst will have the 'others' having done better, and where the worst is diluted (such as your 10% weightings).

Whilst cap weighting can at times do well, such as over the last year or so with the techs having become dominant of the S&P500 and pulled the entire index value up, at other times it works the other way around. Japan 1980's/1990's for instance had many of the massive cap stocks seeing valuations halved or more, but that remained 'big' and dominant of the index. And it took decades for that distortion to be corrected.

With mid caps, stocks feed and in and out of both the top and bottom of the index, so its less inclined to see individual stocks becoming excessively weighted and dominant. A similar situation applies to equal weighted sectors. Broadly more equal weighting, less concentration risk, is a good thing IMO, even though at times concentrated exposure can work out well. Generally the whole tends to have the average individual holding lag the broad average, most stocks for instance lag the index/average as its the scale of the gains in the best case(s)/stocks that raises the broad average. A 7 foot giant entering a room full of 9 others that are each 6 foot tall and 90% of the room are below the average height. In the absence of being able to reliably predict which might be the giant its best to spread your bets equally, $1 on each, rather than 50c on 9, $5.50 on 1 and more often/likely having been wrong.

Regards.

Clive.

Swapping out Total Stock Market for 'stock' to hold small cap value instead (perhaps VISVX) and setting weightings to the broad AIM indicated average since 1972 ... resulted in a 11.2% annualised (7.1% annualised real) compared to 10.3% for all-stock. Worst (calendar) year -6.5% (compared to -37% for all-stock).

End of March 2021 S&P real price AIM indicates 65% cash, so 35% stock x 0.8 = align to 28% stock, leaving 72% to split equally between 10 year Treasury and gold (36% each). Done for the year (review/rebalance again at the end of March 2022).

Data

What AIM of S&P500 real price index indicates as the March end of year % cash used to identify the % stock weighting, which we multiply by 0.8 so as to leave at least 20% not in stock .. and having identified the % stock to align to at the start of year, the rest is split 50/50 between cash (10 year Treasury) and gold.

The last three columns show the total nominal and real gains made from having set/held that for the year, along with the nominal gain achieved by all-stock (Total Stock Market) as a comparison.

 
 End	 AIM    Implied	x 0.8	10yrT	Gold	AIM     AIM	TSM 
 of      Cash   Stock             %       %     Nominal Real    Nominal 
 March   %       % 
 1972	52.0%	48.0%	38.4%	30.8%	30.8%	25.4	19.9	1.6 
 1973	52.0%	48.0%	38.4%	30.8%	30.8%	20.8	9.4	-13.1 
 1974	58.0%	42.0%	33.6%	33.2%	33.2%	1.2	-8.2	-8.3 
 1975	27.0%	73.0%	58.4%	20.8%	20.8%	12.2	5.8	28.8 
 1976	24.0%	76.0%	60.8%	19.6%	19.6%	6.1	-0.3	2.0 
 1977	25.0%	75.0%	60.0%	20.0%	20.0%	4.5	-1.9	-0.4 
 1978	29.0%	71.0%	56.8%	21.6%	21.6%	19.9	8.9	22.0 
 1979	29.0%	71.0%	56.8%	21.6%	21.6%	23.8	7.9	7.3 
 1980	31.0%	69.0%	55.2%	22.4%	22.4%	26.7	14.6	44.5 
 1981	28.0%	72.0%	57.6%	21.2%	21.2%	-14.9	-20.3	-14.0 
 1982	25.0%	75.0%	60.0%	20.0%	20.0%	41.5	36.6	46.2 
 1983	13.0%	87.0%	69.6%	15.2%	15.2%	3.4	-1.4	5.9 
 1984	24.0%	76.0%	60.8%	19.6%	19.6%	11.7	7.7	18.0 
 1985	22.0%	78.0%	62.4%	18.8%	18.8%	31.0	28.1	35.6 
 1986	36.0%	64.0%	51.2%	24.4%	24.4%	18.3	14.8	21.3 
 1987	31.0%	69.0%	55.2%	22.4%	22.4%	-1.6	-5.3	-8.1 
 1988	48.0%	52.0%	41.6%	29.2%	29.2%	2.8	-2.1	15.8 
 1989	47.0%	53.0%	42.4%	28.8%	28.8%	9.3	3.9	16.1 
 1990	44.0%	56.0%	44.8%	27.6%	27.6%	8.5	3.4	12.0 
 1991	43.0%	57.0%	45.6%	27.2%	27.2%	8.2	4.9	13.4 
 1992	49.0%	51.0%	40.8%	29.6%	29.6%	11.3	7.9	14.8 
 1993	47.0%	53.0%	42.4%	28.8%	28.8%	5.5	2.9	2.5 
 1994	47.0%	53.0%	42.4%	28.8%	28.8%	6.9	4.0	13.2 
 1995	46.0%	54.0%	43.2%	28.4%	28.4%	17.4	14.2	31.3 
 1996	54.0%	46.0%	36.8%	31.6%	31.6%	2.4	-0.4	15.4 
 1997	58.0%	42.0%	33.6%	33.2%	33.2%	16.4	14.9	47.4 
 1998	59.0%	41.0%	32.8%	33.6%	33.6%	4.6	2.9	12.9 
 1999	65.0%	35.0%	28.0%	36.0%	36.0%	6.4	2.5	24.0 
 2000	63.0%	37.0%	29.6%	35.2%	35.2%	-5.1	-7.8	-24.5 
 2001	68.0%	32.0%	25.6%	37.2%	37.2%	7.2	5.6	2.5 
 2002	69.0%	31.0%	24.8%	37.6%	37.6%	4.8	1.8	-24.2 
 2003	69.0%	31.0%	24.8%	37.6%	37.6%	21.2	19.2	39.1 
 2004	63.0%	37.0%	29.6%	35.2%	35.2%	2.0	-1.1	7.1 
 2005	62.0%	38.0%	30.4%	34.8%	34.8%	16.9	13.1	14.4 
 2006	61.0%	39.0%	31.2%	34.4%	34.4%	10.3	7.3	11.1 
 2007	60.0%	40.0%	32.0%	34.0%	34.0%	15.5	11.0	-5.8 
 2008	62.0%	38.0%	30.4%	34.8%	34.8%	-8.5	-8.2	-37.9 
 2009	60.0%	40.0%	32.0%	34.0%	34.0%	21.5	18.7	52.8 
 2010	50.0%	50.0%	40.0%	30.0%	30.0%	17.4	14.4	17.5 
 2011	56.0%	44.0%	35.2%	32.4%	32.4%	12.8	9.9	7.2 
 2012	55.0%	45.0%	36.0%	32.0%	32.0%	5.2	3.7	14.3 
 2013	53.0%	47.0%	37.6%	31.2%	31.2%	1.1	-0.4	22.5 
 2014	58.0%	42.0%	33.6%	33.2%	33.2%	4.6	4.7	12.2 
 2015	55.0%	45.0%	36.0%	32.0%	32.0%	2.3	1.4	-0.6 
 2016	56.0%	44.0%	35.2%	32.4%	32.4%	5.7	3.3	18.0 
 2017	63.0%	37.0%	29.6%	35.2%	35.2%	6.0	3.5	13.7 
 2018	60.0%	40.0%	32.0%	34.0%	34.0%	3.8	1.9	8.7 
 2019	60.0%	40.0%	32.0%	34.0%	34.0%	10.1	8.4	-9.3 
 2021	61.0%	39.0%	31.2%	34.4%	34.4%	18.9	16.7	62.6 
  
 

Yearly (April to March) AIM, from 1972

Yearly AIM character

As a insight into that style of AIM actual progression I summarised the yearly (April to March UK financial years) results since April 2008 and up to end of March 2021, and observed (from a US investors perspective i.e. US$ gains/US inflation etc.) ...

A reasonable 6% annualised real (after inflation) total return (including interest/dividends) gain since April 2008.

April 2008 was a relatively bad time to start (financial crisis) where the first year saw -8% nominal loss compared to -38% for all-stock (financial crisis).

AIM achieved a similar real annualised compared to 50/50 stock/bond but with just 34% average stock exposure.

Considerably lower Risk/Reward factor (annualised real gain / standard deviation in yearly total gains) than all stock. On a risk parity basis all stock provided a 5% annualised gain (when de-scaled to AIM's risk); Or AIM provided 11.3% versus 9.5% for all stock if AIM was scaled up to all-stock risk.

2019 when stock was down -9% AIM was up +10%, in other years the gains have compared, such as 2010/11 17.5% gains for both. Overall the Pearson correlation was 78% when compared to all-stock.

Clive

Yearly AIM

Assume that for AIM 'cash' a choice of a third each stock/gold/cash is preferred. AIM can deploy all of cash at times, but never sells totally out of stock, so a more conservative investor might opt to never hold less than 10% of each of cash and gold.

Run AIM monthly, on paper, and at year end look at the % cash that AIM is indicating. As no less than 20% of total portfolio value is the desired minimum amount of cash and gold we reduce the actual AIM weighting down to 80%. So for instance recent AIM of S&P500 real price with cash assumed to be uplifted by inflation is indicating 65% cash. Which infers 35% stock. Multiply that by 0.8 = 28% stock. The rest (72%) might be split 50/50 cash (deposit account earning interest) and gold.

That's pretty near a top i.e. AIM rarely gets to indicating 70% cash being indicated (so 30% stock that x 0.8 = 24% stock). At the other extreme when AIM was indicating 0% cash = 100% stock x 0.8 = 80% stock (leaving 10% in each of cash and gold).

Which overall is a reasonably close fit with Ben Graham's advice of no less than 25% stock, no more than 75% stock .. according to valuations.

Once you've aligned your actual portfolio holdings to the indicated levels at year end/start, just leave it as-is for the rest of the year. Whilst you could update the AIM record each month, without actually making trades, its only a little more time to update the full years AIM records at year end in readiness for the new years actual 'rebalance' (trades). Running monthly updates however does additionally provide optionality, you could for instance on seeing 'big moves' having occurred opt to actually make real trades to align the portfolio weightings at that time. Discretionary.

Some further discretion might also be applied, for instance at current 65% cash AIM indicated levels, 35% stock x 0.8 = 28% stock, leaving 72% actual cash for possibly 50/50 cash deposit and gold, you might opine it appropriate to not hold so much gold and instead of 36% in each of cash and gold maybe opt to hold 28% gold to compare to the stock weighting amount, along with 44% in cash deposit accounts. You could use the likes of the current Dow/Gold ratio, where a high value is indicative of high stock valuations/low gold valuations, and a low value is suggestive of low stock valuations/high gold valuations. At recent 19 Dow/Gold levels for instance you might perhaps consider it as being OK to split the 72% AIM 'cash' equally between cash deposits and gold.

A year ago, end of March 2020 and AIM was indicating 60% cash, so 40% stock x 0.8 = 32% actual stock. For the remainder 68% splitting equally between cash and gold 34% each seemed fine. The Dow/Gold back then was around 14, so reasonable. A year on, to end of March 2021 and a near 20% gain occurred ... according to portfoliovisualizer. Nowhere near as great as the 62% gain that all stock (S&P500) achieved, but still pretty decent. And at other times it swings the other way around, its the broader mid/longer term outcome that matters the most.

A form of Toofuzzy's "slow-AIM". Using AIM as a guide somewhat similar to the vWave. Without the intensity of regular monitoring and trading and that broadly might be expected to do OK.

Clive.

Some examples of possible candidates for AIM 'cash' here .. ranging through 3% to 5% real rewards since 1987.

AIM of S&P500 since 1871 where cash wasn't permitted to go negative (no leveraging allowed)


That uses real S&P500 price (after inflation gain/loss) and assumes cash paced inflation. When so, with a average of near 50% stock you also had half of total stock dividends on top of the 2.1% annualised after inflation historic price appreciation benefits. Historically US dividends were higher, more like 4.5% compared to more recent 2% type amounts - which promotes more capital gains (faster price appreciation).

If you could secure cash rewards > inflation, then more the better. At times it has for instance been possible to lock into 3% real inflation bonds/TIPS. Or something like the Permanent Portfolio for instance, that since 1972 has provided a 5% annualised real.

Hi Toofuzzy

This link compares 50/50 Stock/total bond with 50 stock/25 10 year Treasury/25 gold. Broadly much the same reward. A factor during times of stress however is that taxes can rise, more often at the worst time (not coincidental as the state is likely also seeing economic stresses). Interest/dividends are a softer touch for such taxation policies and gold in producing no income helps reduce such risk.

Stocks are in part broadly leveraged, typically 1.5x i.e. corporate bond debts of half of stock book value. Leverage doesn't add to gains (overall) just scales up volatility. Accordingly many investors opt to de-leverage stocks via a 67/33 stock/bond allocation. Stocks/bonds/cash all tend to do well during times of positive real yields, gold tends to do well during negative real yields - when inflation is greater than interest rates. Debt is also good during negative real yield periods. All stock or stock and bonds are all positive yield tilted. Including some gold and factoring in stock debt and 50 stock with 17 integral debt, combined with 25 gold = 42% combined on the negative real yields side i.e. is more neutral on the positive/negative real yields front. Gold is both a global currency and a commodity so additional diversification elements there also. If the $ relatively sank 50% for instance then gold might double or more. 75 of portfolio assets losing half due to currency decline, 25 (gold) doubling - and you're more into mild losses rather than extreme losses (using a extreme example). A element of portfolio insurance that might cost little if anything to include.

Clive.

Tom. RE Newport

The initial post in the information box first message are dead links. You have to follow the replies to get to message #41127 https://investorshub.advfn.com/boards/replies.aspx?msg=95374737 where the current active links/files are. Formerly that was stored in free ISP provided web space but some time back they opted to drop that so I moved them over to some free google-drive space.

Regards. Clive.

PS password is null, i.e. just press Enter when prompted for the password.

Message #45219 might also be of use https://investorshub.advfn.com/boards/read_msg.aspx?message_id=162965804

Monthly AIM of 50% initial cash, inflation adjusted S&P500 index price. Extract for indicated cash reserves since 1983 (so easier to compare to the vWave historic data)



Note that cash was assumed to match inflation, which more often with the addition of actual dividends and cash interest it would have excelled inflation. Broadly cash interest alone might have offset cash deflation.

Overall the AIM averaged 51% cash since 1871 and generated a 2.5% annualised gain, which being based on inflation adjusted prices = real (after inflation) gain. With a historic 4.5% dividend yield since 1871 and cash deflation offset by cash interest, then the near 50% average stock exposure and 4.5% dividends would have added 2.25% proportioned gain on top of that 2.5% AIM gain (4.75% combined real gain).

Over the same 150 odd year period S&P500 price only gain generated a 2.2% annualised real reward, and average dividends were 4.5%. 6.7% combined real gain average benefit.

Some would prefer the 6.7% all-stock average rather than the 4.7% average from 50/50 stock/cash. Generally for those in accumulation who are investing for the longer term stock is more often the better choice. For those in drawdown/retirement however 100% stock runs the risk of a bad decade or longer of 0% real or worse total returns (with dividends reinvested) and if you're also drawing income then that can decay the capital base down to critical levels. 50/50 stock/cash is more resilient to such potential erosion. With AIM it only needs raw price (and the inflation rate figure when using inflation adjusted price as the input) in order to advise appropriate times to trade and appropriate amounts to trade. Revises cash reserves up and down in a timely manner.

As a adviser since the 1980's AIM's advice has been reasonable. Pretty much saying in the early 1980's that stocks were relatively cheap and that subsequently saw the 1980/1990's bull run. In the late 1980's AIM slowed exposure after some good gains, opting to stay with 50/50 for a while until the mid 1990's. In the second half of the 1990's AIM decided things were getting toppy and started reducing exposure up to the 1999/2000 peak at which time it was indicating 70% cash. The dot com bubble burst then saw AIM reduce cash down to 55% levels and then down again further to 40% following the 2008/9 financial crisis. Since then the good gains have seen AIM progressively increasing cash reserves again to most recent 64% cash levels.