Hi Toofuzzy
I thought that's where FolioFN (or whatever the name is of that low cost trading service) and LD-AIM came in?
Maybe pretending you've got $7K of stock (virtual stock), hold $3K of real stock and keep back perhaps $3K for cash reserves (3 consecutive buy trades at $1K each) and then AIM as normal (10K stock/3K cash) using a discount broker.
At around 8 good quality individual holdings each selected from different sectors ($48K in total) you're reasonably diversified and if any one goes belly up then your loss is 12.5% of the total actual fund - yes painful, but far from critical. As time passes and your fund grows then the cost of a single failure reduces (e.g. 6.25% of the total account once you're up to 16 stock holdings).
Not only do you tend to get more (larger) volatility when AIM'ing the individuals, but you can also apply periodic re-balancing between the individual AIM accounts (Couch Potato - fixed yearly style perhaps) and also re-balance between the stock/cash sides (vWave).
That way you're capturing individual stock volatility (individual AIM's), sector volatility (periodically re-balancing between AIM accounts) and market wide volatility (vWave alignment re-balances). All of those little-bit-extra's collectively add up, and which ETF's (at least in part) miss out on (and I dislike paying even 0.5% to a fund manager to perform a task that I can do myself).
The principle benefit of ETF's as I see it is that of being able to access markets/sectors/styles that would otherwise be difficult/impossible (e.g. offshore exposure) through holding individual domestic stocks that had exposure to that same market/sector/style.
The way I like to visualise it is that, assuming a 60/40 average stock/cash blend, vWave is somewhat akin to a market wide AIM and as such typically adds around 1% of stock value (0.6% of total fund) additional benefit from re-balancing. Beneath that the individual AIM's each add around 1% of stock value (0.6% of total fund). Additionally the Couch Potato style re-balancing adds a (lower) 0.5% of stock value benefit (0.3% of total) by periodically re-balancing between the individual AIM accounts. Such that collectively all three re-balances add maybe 1.7% of the total fund value.
Where therefore cash earns 5% and stocks average 10% then an average 60/40 stock/cash blend averages 8% - add onto the above 1.7% makes 9.7% - nearly the same as buy-and-hold, but with less risk (overall volatility). Which in turn has compound benefits over time, uplifting the compound average closer to the mean (worth perhaps an additional 1% p.a. based on Cresmont Research's longer term indications of the Dow having a 5% compound, 7% mean (capital values only).
If you then turn your focus to the 'cash' side and - perhaps through holdings an AIM managed blend of bonds/cash in a similar manner to how Tom does for his retirement account (CHY and cash) then again you'll generally uplift overall fund performance further.
And in my particular case I yet further periodically add selective leverage/gearing of up to 50% of the total account value (which is great when you can borrow internally e.g. from your own cash reserves). But then again my personal objective is to better buy-and-hold, otherwise I'd be inclined to just be a buy-and-holder and buy into a high yield stock fund, which I appreciate is not the same objective for others.
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