Hi 1step,
OK.
Take the fund I use which tracks the FTSE All-Share Index - Fidelity MoneyBuilder UK Index. Its latest 1 year volatility (standard deviation) as published on Trustnet is 11.04. The long-term standard deviation of 1 year returns of the S&P Composite (using Robert Shiller's monthly data) is 18.82, If it's true that the ideal stock for AIM has a beta of 1.4, and the standard SAFE setting is 10, then a SAFE setting of 1/1.4 = approx. 7 is arguably justifiable for a broad market index which has a beta of 1, at times of average volatility. So I argue that my fund, with its CURRENT 1 year volatility of 11.04, could justify a SAFE setting of 7 x 11.04/18.82 = 4 AT THE MOMENT. The volatility figures for the funds are updated monthly, so if they increase SAFE will be increased accordingly. It's important that SAFE does react to volatility, because at such low current settings cash would be exhausted by a deep downturn. I realise anyone could say this is all just a castle built on sand, but it gives me some sort of rationale. I haven't been using this approach for long, so could be caught out!
The FTSE All-Share Index is currently 48% above its 5 year low, so if I were starting a new AIM account for it today, I would keep 48% as cash.
I split SAFE between the buy and sell sides according to the fund's current position between its 5 year high and 5 year low. Like many equity funds at present, the fund is at a 5 year high, so I'm using 0% sell SAFE and 8% buy SAFE. By contrast, my gold miners fund is midway between its 5 year high and low, so SAFE is evenly split between the buy and sell sides. SAFE is also higher for this fund, 8% on each side, because of its higher volatility.
Everything is on a spreadsheet so I just have to input the latest price and update the 5 year high and low figures and volatilities as they change, and it does the calculations and produces the buy/sell recommendations.
Hope this explains my approach more clearly. Please note I'm a fairly recent AIMer and count myself an AIM student not an AIM master!
Daisy42
