A.I.M. Users Bulletin Board

[ls7550]

Thanks Tom.

Converting to 'diversified' (dividing by 1.5), and comparing each rebalanced to the i/v wave indicated cash weightings at the start of each year, I'm seeing yearly (and accumulated) total returns comparisons of



S&P500 for stock, gold for cash, yearly total returns for those taken from Simba's backtest spreadsheet (Large Cap Blend stock value). The Dow real price AIM in that chart includes a 2% yearly uplift in PC from 1985, i.e. higher taxation directed towards more of earnings tending to be retained, prior 4% dividends declined more to 2%.

Whilst the S&P500 total return was clearly the better case since 1982, it should be considered that the 1970's were pretty harsh on all-stock, in effect the 1980/1990's were a run-up 'compensation' for the 1970's losses. The pains endured during the 1970's were a large part of the reason why the likes of Robert Lichello (AIM) and Harry Brown (Permanent Portfolio) devised 'safer' methods, 1968/1969 and early 1970's were very hard on some stock-heavy investors, some lost substantial wealth built up over many decades to levels where they thought they were comfortable only to see that wiped out across a few year, especially if they were in drawdown/retirement.

More broadly and AIM tends to plod along in a more linear upward slope, better rides such longer term cycles, and that lower volatility aids in uplifting SWR from 3.5% levels to 4.5% or even 5% levels. But that is multi-generational, a individual generation who started in the late mid/late 1970's lows in stock heavy were fortunate, a factor that helped Warren Buffett rise to being considered one of the best investors ever i.e. in part a consequence of coinciding with fortunate timing.

Fundamentally and the Aims/Waves seem to wash, the primary being that if you add-low/reduce-high in a manner that reduces being heavily in at a bubble peak, that often occur after relatively fast up-runs, then your drawdowns are lower, which reduces (improves) the worst case SWR start dates, where otherwise if you start one day with a 4% SWR and the next day stocks had halved that's little different to starting with a 8% SWR - that runs into potential bad earlier years sequence of returns risk that may extend into being critical/financially fatal (esp. if in retirement).

You might say that those that lost large fortunes in the late 1960's/1970's in effect gave them to the investors of the 1980's/1990's. A risk is that the 2020's/2030's could be more like the 1960's/1970's than being like the 1980's/1990's. Which in turn might result in those who do lose out heavily wishing they'd been invested in alternatives such as AIM, Permanent Portfolio and suchlike.

Thanks again.

Clive