Saturday, February 24, 2018 10:47:14 PM
That's a archived version of my AIM web pages Allen.
I used to have free web space via my ISP but they pulled that and I archived them to that location (found alternative free web space).
Demonstrates how AIM-HI (80/20) is a good compromise between reduced reward from less stock exposure, some volatility capture.
Simple 80/20 yearly rebalanced can compare in total reward to 100% buy and hold, but do so with less volatility (better risk adjusted reward).
Historically a 4% safe withdrawal rate (SWR) is pretty much utilised as a guideline i.e. take 4% of the portfolio value in the first year, and then adjust that amount upwards by inflation each year as the amount drawn in subsequent years. Historically that survived 30 years, but in the worst case drew down to zero. In the average case rewards were much better i.e. more often left the same or more in inflation adjusted terms than at the start, and in the best cases significantly more. The worst case obviously reflected the worst case peak to trough 30 year period. Even simple averaging in over 3 timepoints, 2 years (dropping in a third at each of day 0, day 365, day 730) would have averaged the worst case to a less bad case. AIM is another form of cost averaging that will help avoid the worst case.
Starting at average or a low is of less concern than starting at a potential peak. And as that started at a peak chart shows AIM reduced the risk
Very broadly, 80/20 yearly rebalanced will tend to compare to 100% stock. Much depends however upon how much the cash earns. Taxed T-Bill type cash interest and the SWR will compare in the worst case, lag 100% stock in the average and best cases. And lag quite significantly in the best cases. But additional gains above good-enough gains are somewhat nice - but unneeded. If cash earns a higher than taxed T-Bill reward then the worst case is uplifted, as it might also be uplifted by AIM-HI being more aggressive than simple 80/20 yearly rebalanced.
Much of investing is not so much the great gain potential, but avoiding the worst. Average is good, especially as many investors lag that average (index), typically due to high costs, taxes and bad behaviour (tendency to add-low/reduce high through fear/greed). Of those AIM best serves avoiding the bad behaviour risk element, to some extent taking the opposite side - providing liquidity to those that do behave badly (sell to the greedy, buy from the scared - a catch phrase that Tom coined back in 1995).
Feed AIM good food that has a tendency not to perish and it will automatically manage that for you, telling you how much to hold and when to trade. Broad indexes are a good choice of AIM feed for their resilience to totally perishing. Currently Buffett is sitting on a little over 80/20 i.e. has $116Bn of cash as part of a $500Bn market cap value (77/23) and you can bet he'll be only too happy to deploy that cash to the scared when opportunities present. Not that his cash reserves are a good guide however as he lives in a totally different world where the scared come knocking at his door looking for liquidity and such great individual bargains aren't always aligned with the broader market also being in bargain territory.
I used to have free web space via my ISP but they pulled that and I archived them to that location (found alternative free web space).
Demonstrates how AIM-HI (80/20) is a good compromise between reduced reward from less stock exposure, some volatility capture.
Simple 80/20 yearly rebalanced can compare in total reward to 100% buy and hold, but do so with less volatility (better risk adjusted reward).
Historically a 4% safe withdrawal rate (SWR) is pretty much utilised as a guideline i.e. take 4% of the portfolio value in the first year, and then adjust that amount upwards by inflation each year as the amount drawn in subsequent years. Historically that survived 30 years, but in the worst case drew down to zero. In the average case rewards were much better i.e. more often left the same or more in inflation adjusted terms than at the start, and in the best cases significantly more. The worst case obviously reflected the worst case peak to trough 30 year period. Even simple averaging in over 3 timepoints, 2 years (dropping in a third at each of day 0, day 365, day 730) would have averaged the worst case to a less bad case. AIM is another form of cost averaging that will help avoid the worst case.
Starting at average or a low is of less concern than starting at a potential peak. And as that started at a peak chart shows AIM reduced the risk
Very broadly, 80/20 yearly rebalanced will tend to compare to 100% stock. Much depends however upon how much the cash earns. Taxed T-Bill type cash interest and the SWR will compare in the worst case, lag 100% stock in the average and best cases. And lag quite significantly in the best cases. But additional gains above good-enough gains are somewhat nice - but unneeded. If cash earns a higher than taxed T-Bill reward then the worst case is uplifted, as it might also be uplifted by AIM-HI being more aggressive than simple 80/20 yearly rebalanced.
Much of investing is not so much the great gain potential, but avoiding the worst. Average is good, especially as many investors lag that average (index), typically due to high costs, taxes and bad behaviour (tendency to add-low/reduce high through fear/greed). Of those AIM best serves avoiding the bad behaviour risk element, to some extent taking the opposite side - providing liquidity to those that do behave badly (sell to the greedy, buy from the scared - a catch phrase that Tom coined back in 1995).
Feed AIM good food that has a tendency not to perish and it will automatically manage that for you, telling you how much to hold and when to trade. Broad indexes are a good choice of AIM feed for their resilience to totally perishing. Currently Buffett is sitting on a little over 80/20 i.e. has $116Bn of cash as part of a $500Bn market cap value (77/23) and you can bet he'll be only too happy to deploy that cash to the scared when opportunities present. Not that his cash reserves are a good guide however as he lives in a totally different world where the scared come knocking at his door looking for liquidity and such great individual bargains aren't always aligned with the broader market also being in bargain territory.
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