A.I.M. Users Bulletin Board

[ls7550]

As an extra I have included inflation protection, by adding the inflation % to PC

That's a great tip karw

Applying that to my long term S&P500 real price AIM to account for more of US earnings tending to be retained since 1985 due to higher dividend taxation, i.e. 2%/year monthly pro rata PC uplift, and that has more recent %cash down at 56% which is more in keeping with other indicators.

Comparing that AIM indicated % cash to Dow/Gold stochastic and there were less extreme swings in % cash changes, averaged more cash, averaged greater gains, had a better maximum drawdown, i.e. of the two was the better indicator.

Long term averaged around 50% cash type amount, so if you rebalanced to that once yearly then cash could be held in a 1 year deposit account without concern of having to withdraw some to service AIM intra-year purchase signals. And as the lows were around 20% cash that could be held in long dated treasury, so 50/50 short and long dated treasury barbell type 'cash' that combines to a central 10 year bond bullet type holding.

Interestingly if stock were UK/US 50/50 then the worst and average cases were little different to if stock were UK/US/gold. Both the worst and average cases were similar (and better than if either UK or US stock were held alone).

So out jumped a Golden Butterfly asset allocation, near equal amounts of UK stock, US stock, gold, short term treasury, long term treasury, but with AIM directed dynamics. And where those dynamics seem to have broadly increased the SWR by around 1%.

3% was a PWR, perpetual. Even in the worst case ended 30 years with most of the original inflation adjusted start date amount still intact. In the median case 30 years ended with around 3 times as much.

Fundamentally in the worst of cases it didn't matter what asset allocation/weightings you held, things were bad. But such bad cases tended to arise out of great prior up-runs, that AIM in effect detects and has you shift more over to cash that tends to dip by lower magnitudes than other assets in bad times, preserves more, reduces SORR, which helps uplift SWR. That's generally a relatively slow motion activity so AIM'ing/rebalancing weekly, monthly or even yearly didn't make much difference, more of a slow moving tidal effect. On a risk adjusted measure, AIM tended to be superior to arbitrary fixed weightings, similar or better SWR with less risk (more average cash).

I guess application wise you could AIM each of the Golden Butterfly assets individually, reviewing weekly or monthly. Or just clump it all-together and use AIM of real S$P500 price to identify how much 'cash' to start each year with, split that 50/50 STT/LTT and realign the rest to a third each in UK/US/gold (or for US investors the Golden Butterfly holds total stock, small cap stock, gold).

Clive.

PS before this leads to a 'buying/holding long dated treasury in the present climate is mad' side track discussion, LTT yield reflect expected 20 year inflation/interest rates and as such are less inclined to see large shifts in their yields. 2% recent yields could rise to 3% for instance in expectation of 20 year forward time inflation averaging 3% instead of 2%. As such the price volatility is inclined to be less than perhaps what many expect. If anything they've been better than short dated in more recent years that have seen negative real yield type pricing. If you dump-'em then you have to be right twice i.e. when do you re-purchase them. Sometimes its better to continue to hold and rebalance into (out of) assets as they fall/rise than it is to try and time exit and re-entry.