A.I.M. "In Depth" Q&A

[extelecom]

Safe For Mutual Funds-Aug 11, 2001
Q.....

Adjusting safe for mutual funds
I have SAFE at +/-10 for my Stocks and I get trades flowing, and am pretty happy there. In my mutual funds, they all act so tame (6 month picture) that I get no trades. Is there any rule of thumb on how to adjust SAFE (+/-4, 5, 6, 7, 8) for mutual funds to ride the ripples ? Is calibrating it to the Screen-o-Matic (SOM) volatility value ever been tried ?

Should I exit each mutual and replace it with, say, the top 5 stocks (start 5 AIM programs) instead ?

I'm trying to make money here !

Thanks

-----

A.....
Hi N, The more diversified the Mutual Fund, the less volatility you'll see. On my funds that pretty much follow the S&P 500 or other broad indexes, I've been using a total SAFE (buy plus sell) of about 10% overall. Then, depending upon your own decisions, you can split it up or bias it towards selling or accumulation. Once you've settled on a SAFE and Minimums range that's satisfactory, then just sit back and relax.

The nice thing about mutual funds is that we rarely lose money. They take three steps forward and only one back most of the time. Not many diversified funds to hits this last year of 50% or more. Therefore, although not as exciting as individual stocks, there's a much lower risk profile also. After about a decade of my IRA being in a mutual fund and my personal account being mostly in stocks, at the moment they're both up about the same amount. Last March, 2000, my personal account was higher, and at the April 2001 my personal account was lower (in percent return). So, although my personal account has more volatility, it's not had that much different a return.

http://www.aim-users.com/vhstbr.gif (personal account)
http://www.aim-users.com/virabr.gif (IRA account)

These two graphs show the differences. One is smooth and steady the other is bumpier. Since the results are similar, the mutual fund route is probably the easier. It still trades, but only when there's good reason.

As an alternative to individual stocks, you might want to consider using Sector Funds. Pick the sector funds that you feel have great 5 to 10 year growth potential and AIM them. This is a low key way of getting AIM more active and also structuring your portfolio the way you feel the world economy will travel long term. With Sector funds you'll want to use total SAFE values of 20% (again buy SAFE plus sell SAFE). I've set mine up defensively with the total SAFE being on the Buy side and am letting "vealies" handle excessive build-up of cash on the Sell side.

At http://www.aim-users.com/sp_rprt.htm I give some ideas on how to set up SAFE for various mutual funds. Look for the SAFE (Resistance) suggestions based upon Bull and Bear performance. Hope this all helps.

Best regards, Tom