Replies to post #24867 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

RE: Parking Cash

Being UK based I have little knowledge of US tax issues - so I can't help there Hook.

You've correctly identified that AIM's cash reserve acts as a drag on the overall AIM performance and it is important to address the issue to get the most from your AIM account(s).

I personally apply AIM's cash reserves to a bespoke equity/cash based strategy that foremost focuses on downside loss limitation. In effect constructing and maintaining a virtual CALL Option but at lower cost via judicious management of staggered positions and multiple stops.

As I see it stock price distributions generally follow a normal form Bell Curve inter-spaced with periodic revaluations to new price plateau levels that install the 'fat-tailed' or 'power-law' effect. Those sizable large changes in prices are more common than standard normal form distributions would have us believe and are the reason why stocks pay such a relatively high risk-premium.

In owning stocks you're insuring someone else's downside risk. By being selective as to when and how much of that insurance risk I take on in a reactive rather than predictive manner I strive to achieve above cash rate benefits whilst maintaining relatively low risk. Historically this has provided returns better than midway between cash and stocks - such that when combined with AIM's above average XIRR collectively produces comparable total rewards to that of buy-and-hold but with lower risk. Add on some alpha benefit (stock selections/rotations etc.) ;>)

Regards, Clive.

[OldAIMGuy]

Hi Hook, Re: Incorporating vs private investing............

Only if you anticipate all your income coming from short term capital gains is incorporation a tax logical idea. Remember that long term cap. gains are only taxed at 15% currently. Any income you take from a corporation will be taxed as regular income. So you might generate long term gains but draw salary at much higher income tax rates.

Generally AIM will generate essentially all Long Term Cap. Gains after the first 12 months. This is about the most tax efficient method of generating income around.

I'll wait for some of our tax consultants to chime in on this. I believe I'm right, but that doesn't make it so!!

Re: your Cash Reserve...............

Money market rates work fine here. They pay far more than most stocks' dividends. You can "ladder" your cash with money market funds, short term bond funds and slightly longer term bond funds, but the overall effect may not be worth the lower "liquidity" of the reserves.

Best regards, Tom
PS: for the last 21 years I've made my entire living expenses from the stock and bond markets. There have been some rough spots along the way (think 1987, 1990, 1993, 1998, 2000 thru 2002) but AIM and reasonable equity selection and proper Equity/Bond balance have kept the income adequate.

[Toofuzzy]

Hi Hookslide5

>>> One of them was that if a person took his trading "hobby" and incorporated to make his hobby a "business" he would enjoy all of the tax benefits of operating a business. There were MANY. <<<

I am a tax preparer so I have some incite here....... JUST SAY NO!

FIRST OFF ..... forget the daytrading / profesional trader to claim expenses

THE LESS YOU TRADE THE BETTER OFF YOU WILL BE and cheaper also!

SECOND It is better to trade and own as much as you can in a ROTH ira FIRST, secondly in a TRADITIONAL ira SO CONTRIBUTE AS MUCH AS YOU CAN AS YOU ARE ALLOWED. When you retire ROLL OVER YOUR RETIREMENT ACCOUNT TO A TRADITIONAL IRA so you have more control and options.

THIRD: If you incoporate and own YOUR NON tax sheltered assets within a coporation you will have another return to prepare and pay to be prepared. Any income you leave in the corporation is taxed at a fairly high rate. If you take some money out to spend you will have to pay tax on it again. In other words you buy stock in a company and they make $1000 that they pay $500 in tax on. They then pay your company a $500 dividend. YOUR company then pays $250 tax. YOUR company then pays you $250 on which you will then need to pay tax. Does any of this make any sense to you?

I would be interested to know all the substantial tax benifits to investing thru a corporation and you can e-mail me privately. Most of the expenses are probably for things you don't need any way.

So your corporation rents a room of your house..... are you going to claim that income on your individual return ......what good does that do other than make your recordkeeping more complicated and when you sell your house you need to recapture some of the depreciation......Ya just don't want to know about it!

How about all the investment magazines and books, software yada yada yada...They are expenses you shouldn't have anyway, it's all financial porn, and it is taking time from doing something you enjoy as opposed to turning investing into a job!

I should take my own advise and go out hiking
Toofuzzy

[jersey al]

Hi Hook,

I've been using the Lichello AIM system for forever. Best thing since sliced bread.

My suggestion is to start small and simple and once you get familiar with it, THEN start "complicating" it with your own customized bells and whistles.

In concept, think of it as a model railroad set. Start off with a simple loop. Then gradually add switches and extra track and accessories and more engines until it's so complicated that your friends are dazzled. But to you it's obvious because it has built up slowly and gradually.

OR, consider a camera. A complex camera with variable shutter speeds and lense openings is really daunting. BUT, if you start off by operating that complex camera at 125th of a second and at f=8, then you basically have a box camera. Then you can experiment with faster shutter speeds for action shots or for bright light. Etc.

Have you been to Tom Veale's "other" AIM site, the one for ETF's? What Tom did was to pick 13 or so ETF's that reflect the whole U.S. economy. Divide the pot of money among those (with a cash pot) and then AIM each of those; they will fluctuate differently as the different sectors of the economy move up and down.

Recently, Tom changed the mix somewhat, but that's ok.

You can also start a "watch list" and also AIM those stocks. I would suggest that the "watch list" should include some of the PIC stocks that Tom and Don Carlson and others have extracted from Value Line's "reject pile". To start with pick stocks with no debt.

Consider opening an account with FolioFN. It's a very weird system, but it's all computerized and very efficient and, after my initial disbelief was overcome, I have found it amazing. The people there in customer service are all extremely helpful.

For publications, I like Forbes magazine the best. And a "group" that I only recently "joined" and like a lot is the American Association of Individual Investors. They do nice work.

Take any recommendations from any "tip sheet" with a grain of salt. The market is still very high and there is a lot of downside potential. But add tip sheet recommendations to your "watch list".

Finally, Tom put me on to the "Zig-Zag Charts". They only go back three years, but the Lichello AIM system depends of stocks and mutual funds that fluctuate a lot. Stocks of companies that have a lot of debt are likely to fluctuate a lot and then become "deep divers" (a euphemism for stocks that make one final plunge, never to be seen again).

Good luck and have fun (too bad it's real money!!!)

- Al

P.S. NEVER BUY AN AIRLINE STOCK. [Even Warren Buffett has lost money on airline stocks. He said that if he could go back in time he would shoot down the Wright Brothers. And then he went and bought both the largest executive jet time share company AND the largest flight simulator company. Go figure. Even WB is not immune to a testosterone boost.]