Thursday, May 08, 2014 11:03:08 AM
Hi JDM, Re: AIMing bond funds......................
I'm not sure how others handle these, but I treat them to the settings that are similar to Lichello's AIM-Hi. Generally I don't want these to trade too often as they are for income, not growth. So, what I really want to do is clip off the surplus nearer extremes and add more shares to lower the average cost/share and increase the average yield near market lows.
AIM-Hi looks at 10% SAFE on both the buy and sell sides AND wants the minimum trade to be 10% as well. That creates a Hold Zone of nearly 40%. That's a bit extreme for even the Long Bond funds. So, I use 20% SAFE on the buy side and zero on the sell side and reduce the minimum trade to 5% of shares for selling and 6% of shares for buying. This brings the Hold Zone back to about 30% which is usually just about right. This gets rid of trivial trades and concentrates the $$$ when the best signals are reached.
Further, generally I put a cap on the maximum allowable buildup of cash. For the long maturity treasuries I use a max cash of 20%. For more speculative corporate bond funds I generally use 30% maximum cash.
Here's TLT, the long maturity treasury bond fund from I-Shares:
As you see, it's a pretty big hold zone ($99 to $132) but as the history shows, this is a workable range. While it isn't exactly taxing to keep up with such a nominal amount of trading, the trimming and backfilling does slowly enhance total return without upsetting monthly cash flow very much.
Hope this helps,
I'm not sure how others handle these, but I treat them to the settings that are similar to Lichello's AIM-Hi. Generally I don't want these to trade too often as they are for income, not growth. So, what I really want to do is clip off the surplus nearer extremes and add more shares to lower the average cost/share and increase the average yield near market lows.
AIM-Hi looks at 10% SAFE on both the buy and sell sides AND wants the minimum trade to be 10% as well. That creates a Hold Zone of nearly 40%. That's a bit extreme for even the Long Bond funds. So, I use 20% SAFE on the buy side and zero on the sell side and reduce the minimum trade to 5% of shares for selling and 6% of shares for buying. This brings the Hold Zone back to about 30% which is usually just about right. This gets rid of trivial trades and concentrates the $$$ when the best signals are reached.
Further, generally I put a cap on the maximum allowable buildup of cash. For the long maturity treasuries I use a max cash of 20%. For more speculative corporate bond funds I generally use 30% maximum cash.
Here's TLT, the long maturity treasury bond fund from I-Shares:
As you see, it's a pretty big hold zone ($99 to $132) but as the history shows, this is a workable range. While it isn't exactly taxing to keep up with such a nominal amount of trading, the trimming and backfilling does slowly enhance total return without upsetting monthly cash flow very much.
Hope this helps,
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