A.I.M. Users Bulletin Board

[ls7550]

Yearly AIM

Assume that for AIM 'cash' a choice of a third each stock/gold/cash is preferred. AIM can deploy all of cash at times, but never sells totally out of stock, so a more conservative investor might opt to never hold less than 10% of each of cash and gold.

Run AIM monthly, on paper, and at year end look at the % cash that AIM is indicating. As no less than 20% of total portfolio value is the desired minimum amount of cash and gold we reduce the actual AIM weighting down to 80%. So for instance recent AIM of S&P500 real price with cash assumed to be uplifted by inflation is indicating 65% cash. Which infers 35% stock. Multiply that by 0.8 = 28% stock. The rest (72%) might be split 50/50 cash (deposit account earning interest) and gold.

That's pretty near a top i.e. AIM rarely gets to indicating 70% cash being indicated (so 30% stock that x 0.8 = 24% stock). At the other extreme when AIM was indicating 0% cash = 100% stock x 0.8 = 80% stock (leaving 10% in each of cash and gold).

Which overall is a reasonably close fit with Ben Graham's advice of no less than 25% stock, no more than 75% stock .. according to valuations.

Once you've aligned your actual portfolio holdings to the indicated levels at year end/start, just leave it as-is for the rest of the year. Whilst you could update the AIM record each month, without actually making trades, its only a little more time to update the full years AIM records at year end in readiness for the new years actual 'rebalance' (trades). Running monthly updates however does additionally provide optionality, you could for instance on seeing 'big moves' having occurred opt to actually make real trades to align the portfolio weightings at that time. Discretionary.

Some further discretion might also be applied, for instance at current 65% cash AIM indicated levels, 35% stock x 0.8 = 28% stock, leaving 72% actual cash for possibly 50/50 cash deposit and gold, you might opine it appropriate to not hold so much gold and instead of 36% in each of cash and gold maybe opt to hold 28% gold to compare to the stock weighting amount, along with 44% in cash deposit accounts. You could use the likes of the current Dow/Gold ratio, where a high value is indicative of high stock valuations/low gold valuations, and a low value is suggestive of low stock valuations/high gold valuations. At recent 19 Dow/Gold levels for instance you might perhaps consider it as being OK to split the 72% AIM 'cash' equally between cash deposits and gold.

A year ago, end of March 2020 and AIM was indicating 60% cash, so 40% stock x 0.8 = 32% actual stock. For the remainder 68% splitting equally between cash and gold 34% each seemed fine. The Dow/Gold back then was around 14, so reasonable. A year on, to end of March 2021 and a near 20% gain occurred ... according to portfoliovisualizer. Nowhere near as great as the 62% gain that all stock (S&P500) achieved, but still pretty decent. And at other times it swings the other way around, its the broader mid/longer term outcome that matters the most.

A form of Toofuzzy's "slow-AIM". Using AIM as a guide somewhat similar to the vWave. Without the intensity of regular monitoring and trading and that broadly might be expected to do OK.

Clive.