A.I.M. Users Bulletin Board

[ls7550]

Hi balbrec2

The 50% invested providing 85% of the fully invested return
made me think of this graphic on the Vanguard investors website.
At the bottom of the page it shows relative performance of various stock/bond portfolios. The one showing a 50/50 ratio
provided 83% of being fully invested in stocks. Coincidence?

That 85% is for the real gains from AIM of real share price versus B/H real gain comparison. For nominals I'm seeing 1871 onwards :

89% of fully invested return for AIM of real share price
84% of fully invested return for AIM of nominal share price
80.5% of fully invested return for 50-50 (20% band rebalanced i.e. rebalance at <40% weight or >60% weight)

AIM 50% initial (and average) cash will generally cater for a 50% share price decline below average levels. Which is reasonably aligned to how real share price only values can deviate over time i.e. is reasonably aligned to exhaust AIM's cash reserve near the lows in real share prices. Dynamic weighting i.e. AIM appears to add a modest amount to overall rewards.



Annualised nominal total gains (accumulation) of something like :

50-50 20% band rebalanced 7.18%
Nominal Share Price AIM 7.53%
Real Share Price AIM 7.91%
8.92% Buy/Hold

All (except buy and hold of course) generally averaging around 50-50 stock/cash overall.

And that's for when assuming 1 year interest rate for cash. Play the bond (cash) side of things and average > 1 year interest rate for cash rewards and the gap narrows further. A reasonable way to do that IMO is via a relative short ladder, perhaps 5 year ladder for instance. That has some bonds at/near maturity (cash in hand/liquidity) whilst overall earning the average of 5 year yields (which are generally > 1 year yields). Add in a inflation bond ladder with a conventional bond ladder and the drift between the two (inflation/conventional) combined with periodic rebalancing can further help.