Sunday, April 11, 2021 4:14:39 PM
Monthly AIM of 50% initial cash, inflation adjusted S&P500 index price. Extract for indicated cash reserves since 1983 (so easier to compare to the vWave historic data)
Note that cash was assumed to match inflation, which more often with the addition of actual dividends and cash interest it would have excelled inflation. Broadly cash interest alone might have offset cash deflation.
Overall the AIM averaged 51% cash since 1871 and generated a 2.5% annualised gain, which being based on inflation adjusted prices = real (after inflation) gain. With a historic 4.5% dividend yield since 1871 and cash deflation offset by cash interest, then the near 50% average stock exposure and 4.5% dividends would have added 2.25% proportioned gain on top of that 2.5% AIM gain (4.75% combined real gain).
Over the same 150 odd year period S&P500 price only gain generated a 2.2% annualised real reward, and average dividends were 4.5%. 6.7% combined real gain average benefit.
Some would prefer the 6.7% all-stock average rather than the 4.7% average from 50/50 stock/cash. Generally for those in accumulation who are investing for the longer term stock is more often the better choice. For those in drawdown/retirement however 100% stock runs the risk of a bad decade or longer of 0% real or worse total returns (with dividends reinvested) and if you're also drawing income then that can decay the capital base down to critical levels. 50/50 stock/cash is more resilient to such potential erosion. With AIM it only needs raw price (and the inflation rate figure when using inflation adjusted price as the input) in order to advise appropriate times to trade and appropriate amounts to trade. Revises cash reserves up and down in a timely manner.
As a adviser since the 1980's AIM's advice has been reasonable. Pretty much saying in the early 1980's that stocks were relatively cheap and that subsequently saw the 1980/1990's bull run. In the late 1980's AIM slowed exposure after some good gains, opting to stay with 50/50 for a while until the mid 1990's. In the second half of the 1990's AIM decided things were getting toppy and started reducing exposure up to the 1999/2000 peak at which time it was indicating 70% cash. The dot com bubble burst then saw AIM reduce cash down to 55% levels and then down again further to 40% following the 2008/9 financial crisis. Since then the good gains have seen AIM progressively increasing cash reserves again to most recent 64% cash levels.
Note that cash was assumed to match inflation, which more often with the addition of actual dividends and cash interest it would have excelled inflation. Broadly cash interest alone might have offset cash deflation.
Overall the AIM averaged 51% cash since 1871 and generated a 2.5% annualised gain, which being based on inflation adjusted prices = real (after inflation) gain. With a historic 4.5% dividend yield since 1871 and cash deflation offset by cash interest, then the near 50% average stock exposure and 4.5% dividends would have added 2.25% proportioned gain on top of that 2.5% AIM gain (4.75% combined real gain).
Over the same 150 odd year period S&P500 price only gain generated a 2.2% annualised real reward, and average dividends were 4.5%. 6.7% combined real gain average benefit.
Some would prefer the 6.7% all-stock average rather than the 4.7% average from 50/50 stock/cash. Generally for those in accumulation who are investing for the longer term stock is more often the better choice. For those in drawdown/retirement however 100% stock runs the risk of a bad decade or longer of 0% real or worse total returns (with dividends reinvested) and if you're also drawing income then that can decay the capital base down to critical levels. 50/50 stock/cash is more resilient to such potential erosion. With AIM it only needs raw price (and the inflation rate figure when using inflation adjusted price as the input) in order to advise appropriate times to trade and appropriate amounts to trade. Revises cash reserves up and down in a timely manner.
As a adviser since the 1980's AIM's advice has been reasonable. Pretty much saying in the early 1980's that stocks were relatively cheap and that subsequently saw the 1980/1990's bull run. In the late 1980's AIM slowed exposure after some good gains, opting to stay with 50/50 for a while until the mid 1990's. In the second half of the 1990's AIM decided things were getting toppy and started reducing exposure up to the 1999/2000 peak at which time it was indicating 70% cash. The dot com bubble burst then saw AIM reduce cash down to 55% levels and then down again further to 40% following the 2008/9 financial crisis. Since then the good gains have seen AIM progressively increasing cash reserves again to most recent 64% cash levels.
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