A.I.M. Users Bulletin Board

[ls7550]

Hi Tom. RE: Twinvest

Reminds me of some old notes - adapting Twinvest to cost average out. Same arrangement for calculating the CODE, but where you start with 75/25 stock/cash and use the Twininvest figure as the amount to be taken from cash, taking the rest from stock. My testing notes at that time indicate that the figure can exceed the actual desired withdrawal rate, so for instance if drawing (rather than adding as per standard Twinvest) $100/month, and the current figure indicates $107 (and shows -$7 from stock), then just revise that to $100 from cash, $0 from stock. My notes for that also indicate that if that were used as a indicator of a reasonable time to add to stock, so -$7 from stock being indicated relative to $100 withdrawal amount, then increasing stock value by 7% at that time (moving some of cash over to stock) did improve overall results, but only marginally. Hardly worth the bother, so that idea was discounted (on re-reading my notes with a fresh mind however not so sure I should have so lightly dismissed that idea, as it seems to very much align to when AIM would tend to be increasing % stock).

Overall, in mildly zigzagging around break-even share price my records/notes indicate all methods compared similarly (all-cash, all-stock, 50/50 and taking half of income from stock, half from cash and TwinDEvest). Similar for if the SP dived 30% and then recovered, not much difference between the choices. Where TwinDEvest shined was in a stock Bull run, where after a 60% rise, 10, 11, 12, 13, 14, 15, 16 type share prices for instance, TwinDEvest that started with 75/25 stock/cash ended up with over 90% of the gains achieved by all stock (so disproportionately high/good) value, considerably more than both 50/50 and all-cash. After a 30% share price decline series it held more value than all-stock. Overall it mathematically exceeded all-stock over all cycles, and where in holding some cash equates to having done so with less risk. i.e. all stock had 1.58 good case, 0.69 bad case, product 1.09, whilst TwinDEvest had 1.44 good case, 0.77 bad case, product 1.11. Other zigzagging cases tending to generally compare no matter what asset allocation/method.

For the good case, of starting with 75/25 stock/cash and seeing the share price repeatedly rise, then initially you took 75% of the income from cash, 25% from stock, but as the share price rose so more was taken from stock, less from cash. After a 50% rise in share price from the start date level you were down to 50% of income being taken equally from cash and stock.

Revising your http://web.archive.org/web/20120609071154id_/http://www.aim-users.com/twinvest.htm ...

To determine your "TwinDEvest Code" you take the intended periodic withdrawal amount and multiply by 0.75. This value is then multiplied by the share price of the mutual fund or stock in which you are interested. So if you were to choose $100 per month and a stock worth $20/share,

1) $100 X 0.75 = 75
2) 75 X $20 = 1500 which is your TwinDEvest Code.

You won't have to calculate the Code again. Just write it down someplace where you'll remember it.

Load 75% into stock, 25% into cash

Your first withdrawal takes the 1500 Code value and divides it by the share price of $20 giving you $75 taken from cash, leaving $25 being taken from stock value.

Next month the share price is $22. So you take 1500/$22 = $68 from cash and $32 from equity. Etc......

If the amount indicated to be taken from cash is greater than the actual intended withdrawal amount, then just draw the full $100 withdrawal amount from cash, nothing taken from stock.

Cost average-in (Twinvest), cost average ongoing holdings (AIM), cost average out (TwinDEvest) ... and you're more inclined to achieve 'average' rewards and have behaved appropriately. And where most tend to underperform the average in practice. More likely is the bad behaviour risk, not adding when appropriate, not taking some off the table when appropriate, tending to add-high, capitulate low.

Regards. Clive

PS UK lockdown has been relaxed, shops opened etc. So far far less boredom time now! Yipee!