A.I.M. Users Bulletin Board

[ls7550]

Opting for Classic AIM (50-50) or AIM-HI (80-20) is more a mental accounting thing.

If you had $100,000 and liked an asset allocation of a third each in stocks, gold and cash, you could AIM that as a stock AIM of initial $26,667 stock with $6666 cash (AIM HI stock), another $26,667 gold and $6666 cash (AIM HI gold) and have the remainder in cash deposit accounts.

If the gold AIM subsequently exhausted its cash reserve then in effect AIM is saying - whoa! I've perhaps invested enough into gold already and I'm not going to buy any more unless you indicate to me that its appropriate to do so (i.e. add some more cash into that AIM, perhaps by having taken some profits out of the stock AIM).

It had scaled up to $33,333 invested in gold, the same as what buy and hold would have loaded into gold at the offset, and had flagged a warning to suggest that it needed a manual inspection.

You could have opted to AIM other variations/choices of AIM settings, but as an overall general choice 80-20 (AIM HI) is a good one (near optimal I believe Lichello suggested).

50-50 AIM, perhaps with $25,000 stock, $25,000 cash in a Stock AIM, $25,000 gold, $25,000 cash in a Gold AIM, might achieve similar overall portfolio results, but runs a greater risk of having added a total of $50,000 into gold before it raised a warning flag (exhausted cash reserves).

With pooled/shared cash reserves across all AIM's, a single AIM deeply diving could drag down the whole portfolio to unacceptably low levels - with no warnings being flagged.

Ideally when one AIM HI is flagging a warning (exhausted its cash reserve and indicating further buy signals), you want another AIM that has moved counter to that and is relatively rich (inversely correlated), as that way you can opt to profit take out of the winning AIM to add to the losing AIM if you opine that to be appropriate.

Unlike Lichello who suggested that when you add or remove funds from an AIM you should do so in equal amounts from both stock and cash (withdraw $1000 total by taking $500 out of stock, $500 out of cash) I'd suggest it would be more appropriate to take (add) proportional amounts from (to) stock and cash. If for instance stock value was at $8000 and cash at $2000 and you were withdrawing $1000, then take $800 from stock and $200 from cash (and revise Portfolio Control down by the $800 amount of stock value removed).