Friday, July 03, 2020 11:07:48 AM
Hi Praveen
Applying a variant of STR that instead revises the Constant Value upwards by inflation, so that the stock value is biased towards having offset inflation, with no dividends or cash interest included, did a reasonable job overall. All Constant Value methods tend to throw off copious amounts of cash over time, which is nice for those in drawdown/retirement when supplemented with dividends and cash interest.
I started that - what I'm calling Constant Inflation Adjusted Value (CIAV) with 50/50 stock/cash (applied to the UK's midcap FT250 index) as earlier years sequence of returns risk is the most dangerous time to endure a big drop.
Instead of yearly reviews/rebalancing I opted to use the same months that AIM traded, more just for comparison purposes. In practice rebalancing as and when bonds (cash) mature is more ideal (liquidity).
Fundamentally some/many investors invest in stocks in anticipation of a share price that offsets inflation, along with providing dividends on top. And if the share price does rise broadly with inflation so the dividend value also increases broadly with inflation. Invest just in cash, and perhaps the interest might offset inflation, but leave no surplus income (broadly/generally).
With 50/50 CIAV the trading saw cash-throw-off expand at a rate greater/faster than inflation, whilst having the constant value set to rise with inflation would also tend to ensure that the stock value rose with inflation over time. Leaving dividends and cash interest earned free to be spent.
The following image outlines the results, along with the results from a standard AIM (again just price only, no interest or dividends included).
Overall I like your STR as it better caters for matching bonds maturing with trade/rebalance time points. It's also easier to manage IMO, teaching others AIM and that has more quirks/stumbling points whereas STR is a much easier concept that seems to generate comparable rewards.
With age, I've become more indolent, a greater tendency towards keeping actual holdings/investments as simple as possible, as such I'm more in the simple once/year rebalancing a portfolio back to target weightings and with a asset allocation that has capital preservation more utmost in mind over that of maximising potential rewards. So I'm largely indifferent as to which may or may not be the better overall portfolio management choice and looking at the above results the differences are negligible. AIM tends to accumulate more cash which the likes of Vealies can negate; Standard STR will also have a tendency to accumulate cash if just being applied to a single holding - that multiple holdings and deploying spare cash (>30%) negates; So also however does yearly rebalancing to target weightings; So more a question of whichever portfolio management method/tools one feels most comfortable using. So this posting is intended more as a general observation, isn't intended as any form of critique of any of the individual choices/methods.
I do hope you are keeping well. I lost my father 12 years ago and still miss him dearly every day. As a only child I can't even begin to imagine the loss of both a father and brother at near the same time.
Kind regards.
Clive.
Applying a variant of STR that instead revises the Constant Value upwards by inflation, so that the stock value is biased towards having offset inflation, with no dividends or cash interest included, did a reasonable job overall. All Constant Value methods tend to throw off copious amounts of cash over time, which is nice for those in drawdown/retirement when supplemented with dividends and cash interest.
I started that - what I'm calling Constant Inflation Adjusted Value (CIAV) with 50/50 stock/cash (applied to the UK's midcap FT250 index) as earlier years sequence of returns risk is the most dangerous time to endure a big drop.
Instead of yearly reviews/rebalancing I opted to use the same months that AIM traded, more just for comparison purposes. In practice rebalancing as and when bonds (cash) mature is more ideal (liquidity).
Fundamentally some/many investors invest in stocks in anticipation of a share price that offsets inflation, along with providing dividends on top. And if the share price does rise broadly with inflation so the dividend value also increases broadly with inflation. Invest just in cash, and perhaps the interest might offset inflation, but leave no surplus income (broadly/generally).
With 50/50 CIAV the trading saw cash-throw-off expand at a rate greater/faster than inflation, whilst having the constant value set to rise with inflation would also tend to ensure that the stock value rose with inflation over time. Leaving dividends and cash interest earned free to be spent.
The following image outlines the results, along with the results from a standard AIM (again just price only, no interest or dividends included).
Overall I like your STR as it better caters for matching bonds maturing with trade/rebalance time points. It's also easier to manage IMO, teaching others AIM and that has more quirks/stumbling points whereas STR is a much easier concept that seems to generate comparable rewards.
With age, I've become more indolent, a greater tendency towards keeping actual holdings/investments as simple as possible, as such I'm more in the simple once/year rebalancing a portfolio back to target weightings and with a asset allocation that has capital preservation more utmost in mind over that of maximising potential rewards. So I'm largely indifferent as to which may or may not be the better overall portfolio management choice and looking at the above results the differences are negligible. AIM tends to accumulate more cash which the likes of Vealies can negate; Standard STR will also have a tendency to accumulate cash if just being applied to a single holding - that multiple holdings and deploying spare cash (>30%) negates; So also however does yearly rebalancing to target weightings; So more a question of whichever portfolio management method/tools one feels most comfortable using. So this posting is intended more as a general observation, isn't intended as any form of critique of any of the individual choices/methods.
I do hope you are keeping well. I lost my father 12 years ago and still miss him dearly every day. As a only child I can't even begin to imagine the loss of both a father and brother at near the same time.
Kind regards.
Clive.
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