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Re: ls7550 post# 38798

Saturday, 12/13/2014 5:22:18 AM

Saturday, December 13, 2014 5:22:18 AM

Post# of 47140
As a alternative to ocroft's delay buys approach, IME moving to quarterly AIM reviews is a reasonable choice IMO. 10% SAFE, 5% Minimum Trade Size settings. Or if you must monthly review then increase Minimum Trade Size to 10%.

Instead of LD-AIM, decide how much leverage you are prepared to take and revise the AIM allocation accordingly. For instance if you don't mind being scaled up to 125% leveraged at times then instead of $10,000 of stock value buy and hold, opt perhaps to allocate $12,500 to that position and AIM-HI (20% ($2500) initial VIRTUAL cash reserve, $10,000 initial stock value).

Ideally the choice being AIM'd will have a 2x leveraged fund available, such that you can ignore 'cash' as that doesn't have to exist. i.e. if you initially held $10,000 of S&P500 and then AIM indicated you needed to buy $1000 more, then sell $1000 of 1x and buy $1000 of 2x with the proceeds. You do however have to keep a record of 'cash' so that you don't over-extend leverage above what your initial policy defined.

If later AIM indicated to sell $1000 of stock value and you held $1000 in 2x, then sell $1000 of 2x and buy $1000 of 1x. If there was no 2x being held then you sell 1x and keep some actual cash available in that account. Using Vealies helps ensure that you don't build up too much cash (too little stock exposure).

When you AIM in such a manner that means that the cash you might otherwise have put aside for the AIM can be invested in longer term bonds (usually more rewarding). Excepting of course any cash that the AIM might have generated - which needs to be on-hand in liquid/shorter term holdings just in case AIM indicates that that needs to be deployed. Quarterly reiews also helps in that sense as you can tie the money up for the 3 months between reviews (90 day accounts rather than instant access).

A more extreme level of leverage might be to use 50/50 AIM (50% initial virtual cash) and allocate $5000 initial actual stock value, holding the $5000 of stock value in 1x but potentially expanding up to 100% in 2x at times. Like LD-AIM your risk is lower as if that AIM blows up you lost $5000 instead of perhaps $10,000.

A potential benefit of leveraged ETF's is that they can drop/rise less/more than the leverage level that they indicate over trends. Whilst on a daily basis leveraged ETF's tend to produce twice the daily move of the stock they track, over a upward trend the fund might provide three times the change or more due to having in effect increased exposure progressively as the price rose. They also can slow declines over downward trends and a 2x fund across a 50% decline over a period of time might be down -75% instead of being down -100% due to having scaled down exposure daily across that trend.

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