Saturday, May 13, 2023 10:17:20 AM
AIM Dow/Gold Ratio
For once yearly realignment (rebalancing) at each calendar year end, a AIM of the Dow/Gold ratio, with 0% SAFE (infrequent reviews so we don't need any 'slowing' of cash-burn/stock-purchase rate) and for data since 1968 (relative to a AIM original start date of 1896) ...
... and AIM has done a pretty decent job of aligning indicated %cash (gold) weightings to the Dow/Gold ratio
Robert Lichello mentioned Harry Browne in his book. Basically Harry was what some describe as a gold-bug back in the 1960's/1970's and was heavily into gold (and made considerable gains) during the those years. Harry subsequently devised the Permanent Portfolio as a means to diversify that heavy gold concentration after the large 1970's gains in gold. It was sensible to have been gold-heavy during those years, less so after the large gains, such that he subsequently diluted down that high gold concentration into other assets (stocks, bonds, cash ...etc.) as a means to better preserve that accumulated wealth.
Similarly in the late 1990's stocks were 'expensive', it made sense to water down your exposure to stocks. The Dow/Gold ratio (Dow index value / price of gold) has historically provided a reasonable indicator of stock and gold highs and lows, and AIM did a good job of mapping the Dow/Gold ratio to a actual indicated appropriate %gold level. Late 1920's prior to the Wall Street Crash for instance AIM of Dow/Gold was indicating similar levels of %gold as in 1999 (high gold weighting, lowish stock weighting).
Rebalancing a stock and gold blend portfolio once/year in reflection of the AIM of Dow/Gold indicated %gold weighting resulted in a better outcome than either 50/50 yearly rebalanced stock/gold, or 100% stock. Overall it directed to around 25% average gold but at times held 0% gold, at other times around 70% gold. For those in a withdrawal phase (retired) a 3.33% 30 year SWR was supported for all 30 year periods since 1896, you both had your money returned via 30 yearly inflation adjusted instalments, and also ended with the same or more as the inflation adjusted start date portfolio value still available at the end of 30 years. Or in the worst case supported a 4.5% SWR, leaving nothing left after 30 years in that worst case outcome, but on average left 2.5 times more in inflation adjusted terms at the end of the average 30 year case outcome.
More recently, start of 2023 and AIM was indicating 16% gold weighting at year start, down from 22% at the start of 2022. In effect is sayings its neither a particularly great time for stocks (don't bother holding any gold), nor a bad time for stocks (hold a relatively high chunk of gold), is simply suggesting mediocre stock times, in reflection of the Dow/Gold ratio level being somewhat average.
Clive
For once yearly realignment (rebalancing) at each calendar year end, a AIM of the Dow/Gold ratio, with 0% SAFE (infrequent reviews so we don't need any 'slowing' of cash-burn/stock-purchase rate) and for data since 1968 (relative to a AIM original start date of 1896) ...
... and AIM has done a pretty decent job of aligning indicated %cash (gold) weightings to the Dow/Gold ratio
Robert Lichello mentioned Harry Browne in his book. Basically Harry was what some describe as a gold-bug back in the 1960's/1970's and was heavily into gold (and made considerable gains) during the those years. Harry subsequently devised the Permanent Portfolio as a means to diversify that heavy gold concentration after the large 1970's gains in gold. It was sensible to have been gold-heavy during those years, less so after the large gains, such that he subsequently diluted down that high gold concentration into other assets (stocks, bonds, cash ...etc.) as a means to better preserve that accumulated wealth.
Similarly in the late 1990's stocks were 'expensive', it made sense to water down your exposure to stocks. The Dow/Gold ratio (Dow index value / price of gold) has historically provided a reasonable indicator of stock and gold highs and lows, and AIM did a good job of mapping the Dow/Gold ratio to a actual indicated appropriate %gold level. Late 1920's prior to the Wall Street Crash for instance AIM of Dow/Gold was indicating similar levels of %gold as in 1999 (high gold weighting, lowish stock weighting).
Rebalancing a stock and gold blend portfolio once/year in reflection of the AIM of Dow/Gold indicated %gold weighting resulted in a better outcome than either 50/50 yearly rebalanced stock/gold, or 100% stock. Overall it directed to around 25% average gold but at times held 0% gold, at other times around 70% gold. For those in a withdrawal phase (retired) a 3.33% 30 year SWR was supported for all 30 year periods since 1896, you both had your money returned via 30 yearly inflation adjusted instalments, and also ended with the same or more as the inflation adjusted start date portfolio value still available at the end of 30 years. Or in the worst case supported a 4.5% SWR, leaving nothing left after 30 years in that worst case outcome, but on average left 2.5 times more in inflation adjusted terms at the end of the average 30 year case outcome.
More recently, start of 2023 and AIM was indicating 16% gold weighting at year start, down from 22% at the start of 2022. In effect is sayings its neither a particularly great time for stocks (don't bother holding any gold), nor a bad time for stocks (hold a relatively high chunk of gold), is simply suggesting mediocre stock times, in reflection of the Dow/Gold ratio level being somewhat average.
Clive
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
