Re: Twinvest......................
I was re-examining Twinvest the other day for a friend. I'd used the basic method back when I started saving for my kids' college educations. It worked well and, as Mr. Lichello suggested, it produced a better average cost/share and somewhat better total return than Dollar Cost Averaging.
If there was something I didn't like, it was that we start with a 75/25 split on Equity and Cash but don't end up with anything like that in a long bull market. I only had a couple of occasions with the mutual fund I used when the NAV dipped deeply enough to get Twinvest to buy more than my monthly allocation. That was also a disappointment.
While reminiscing it occurred to me that the Twinvest Code didn't have to be based upon a 75/25 initial split. It could just as easily be 60/40 or 80/20. Twinvest will adjust to the greater or lower aggressiveness just as before and ratio each allocation properly. My thought is that if Twinvest is going to be used for an extended period of time (years or decades) a more aggressively invested ratio such as 80% or 85% could produce superior results in a upward sloping Equities market.
Then I got thinking about "Fixed Income" type investments that don't have a long gentle upward NAV slope. They tend to have zero slope. So, excessive build-up of cash because of Twinvest allocation wouldn't be a serious problem. But, since it's an Income investment, if dividends were accumulated on the Cash side of the ledger excess cash could potentially become an issue. So, maybe a more aggressive starting Equity/Cash ratio and Code would be fine with these investments, too.
I've not attempted to back-test these thoughts but my experience suggests Twinvest's Code can be adjusted to better match one's risk tolerance. The standard was to take the periodic contribution times 0.75 and then times the initial Price/Share to come up with one's Twinvest Code. To be more aggressive, one would use 0.80 or 0.85 (or higher) in that equation.
Further thoughts on this by all will be appreciated.
Buy from the Scared; Sell to the Greedy.....
