AIM can be managed without even knowing a cash reserve figure. The cash reserve record is primarily to prevent injection of too much additional amounts into a deep dive. Once cash is exhausted AIM takes on no further risk with that AIM.
For someone with perhaps $300K who opts to run 33 AIM's of $10K each, the maximum risk per AIM is 3% of their total portfolio value (assuming all equally weighted).
If you AIM funds, often they will correlate (all up or down together). For single stocks the correlations are a lot less consistent.
Arbitrary example (UK stocks data)
Whilst one might crash and burn and lose 3% of total portfolio value, another might reach for the sky and double, treble, quadruple or maybe even be a ten-bagger+ and more than compensate for the loser(s).
The bigger risk with stocks is that they might all correlate to the downside at the same time. Such as during 2008/9 when nearly all stocks dived, with few exceptions (MCD IIRC about broke even).
Individual stocks can provide higher volatility and potentially more rewards (look at Steve's AIM's for example). In turn the exposure to that risk might be reduced and more cash held (outside of AIM's) to lower the portfolio volatility/risk, but in so doing lower the potential reward. As the vWave indicates, for single stocks you should perhaps look to hold more in cash than for AIM'ing funds.
While the value of an individual stock can potentially go to ZERO it is very unlikely for a fund to do so
But the counter to that is that individual stocks can potentially double, quadruple or more, and its less likely for a fund to do so.
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.
AI
