Replies to post #13145 on A.I.M. Users Bulletin Board (AIMUSERS)

[aptus]

Hi LH,

Using AIM to rebalance is one way to go and I don't see any major theoretical problems with that method.

Back at the 2001 AIM conference I spoke a bit about the MACRO and MICRO views of portfolios.

At the MICRO level I let AIM direct when to buy and sell. At the MACRO level, rebalancing to initial allocations tells me when to buy and sell.

I suggested using MPT to create those initial allocations back then, but oh how the years have made me wise :-) I no longer think MPT is a good method for allocating individual stocks (however I still think it's a good method for allocating Index funds and Sector ETFs).

I'm now a fan of using the Sharpe ratio to allocate individual stocks. However it doesn't matter how you choose to arrive at the initial allocation, the important concept is to rebalance whenever your portfolio gets some set percentage away from the initial allocation (I use 7% in general).

This forces you to buy low and sell high at the micro level (using AIM) as well as at the macro level (rebalancing). And it's all automatic. No Emotion. No Greed. No Fear.

Sure beats watching the ticker every day.

[OldAIMGuy]

Hi Keith, Re: Composite Summary Retirement account....

I'm sort of doing what you suggest in my own IRA, but in a different fashion. I keep track of each of the individual components in on Newport installation and then also keep a summary "ira mutual fund" in my main history on another installation.

Each week I look at the broker's statement for total value and cash reserved. I then take the net value of the equities and divide by the current baseline number of shares showing to come up with an NAV to report to Newport.

When I do make a trade, I take the NAV just before the trade and divide it into the value of the purchase or sale to come up with the "number of shares" bought or sold at the NAV. Then in Newport's TRADE window I report the trade with the "number of shares" traded at the proper NAV.

I started mine with an arbitrary 10,000 shares at $7.2776 NAV to match the actual total value. The current number of shares is now around 9000. Here's what it looks like currently:

All those trades that show up are what actually occurred in the various components of the summary account. I like how they indicate that there's been activity along the way. So, the summary account isn't determining what I do with the components, but the other way around. However, remember that this account's made up of ETFs so not much rebalancing has been necesary so far. All have moved pretty much in concert with each other so far.

I see a greater need for rebalancing in an account like yours where you own individual stocks. Some could get pretty far out of hand in total value compared to others at various times.

When you rebalance internally, you won't need to report anything to your summary account other than the minor difference between the value of what you sold and what you bought.

Re: Dividends and interest...
I just update the Cash Reserve in the summary to reflect the current value of the Cash including all dividends and interest. I do not do this through the "Add/Deduct" Trade options as they look at New Additions and Deductions and non-AIM related events. I just click on the Maintenance button and change the cash value to match the broker's statement. This accounts for the increase in the P&L statement and keeps it more accurate.

Hope this helps,
Tom