RE: AIM Characteristics
Generally AIM's ROCAR (or XIRR) tends to be higher than buy and hold, ball-park guide 1.25 to 1.5 times higher. AIM however, in holding some cash reserves, has less stock exposure than buy and hold.
Running through a Monte Carlo simulation of 2000 years worth of monthly price data i.e. generated random price moves based on a 11.4% average yearly gain and around a 15% average yearly standard deviation, and assuming a constant 8% yearly rate for cash (much the same as what 5 year treasuries compounded at over the last 38 years), resulted in :
In 1000 cases of 2 year periods AIM won in 45% of the time (buy and hold better in 55%)
On average B&H made 2% higher average yearly gains than AIM across all 1000 x 2 year random samples (9.5% AIM. 11.4% B&H) but did so with over twice the volatility (6.4% AIM stdev versus 13.8% B&H stdev).
Annualised AIM 9.4% versus B&H 9.9%
Settings :
1000 iterations of 24 monthly values (24000 months)
AIM 10% SAFE.
Buy trades add 0.5 times buy amount to PC.
At the start of each 2 year (24 month) period $20,000 buy and hold initial allocation, $10,000 stock, $10,000 cash initial allocation for AIM.
Monthly Random seed values 0.9% mean, SD 4.5%.
Monthly proportioned yearly 8% rate assumed for cash
Summary :
AIM achieved near the same annualised (0.5% less) reward as buy-and-hold but did so with around half the volatility.
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In practice cash isn't as stable as assumed above, and would have raised the AIM volatility (standard deviation), but would likely still have been considerably less than buy and holds volatility.
The (obvious) indications are that AIM's benefits arise out of reducing volatility in holding some cash (reducing volatility has a tendency to uplift annualised gains), and from adding low/reducing high trading benefits (raises ROCAR/XIRR).
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