Replies to post #28088 on A.I.M. Users Bulletin Board (AIMUSERS)

[ls7550]

Hi wim

I own EFT since a few weeks in the financials, homebuilders and BRIC.
On my watch list is still a Tech EFT and an Energy EFT.

Is it the best way to put them all together in one AIM account or better to separate them. Of course its important how much money I will use to invest in each EFT. What minimum must I use for an AIM account.

Conventional AIM implies using 5% minimum trade size for each trade. Some AIMers however have opted to change the 10% BUY and SELL SAFE, 5% minimum trade size values to 10% BUY SAFE, 0% SELL SAFE and 10% minimum trade size settings. The hold zone in which AIM works each trade still remains the same, but using 10% minimum trade size increases the trade size per trade and enables smaller amounts to be allocated to each AIM account.

On the basis of a $1000 minimum trade amount, such that trading costs of perhaps $20 amount to 2% of the amount traded, then with a 10% minimum trade size setting you wont want to initiate an AIM account with anything less than $10,000 of stock value - which implies (if for example your AIM starts with 66% stock, 33% cash reserve) a $15,000 minimum total requirement per AIM account.

You can then use multiples of that $15,000 per AIM account guideline to determine how many AIM accounts you want to manage across your total investment.

Using your examples you might have one AIM account for each of 1) financials 2) homebuilders (REIT's?), 3) BRIC (which is a form of Emerging Markets/commodities/oil play), 4) Energy and 5) Tech (maybe grouped with health) and with $15,000 allocated to each ($10K stock, $5K cash) = $75,000 total investment. If you're investing less than that then combine two or more of the groups.

Generally the more AIM's you have the more volatility and inverse correlation's you'll encounter. Clustered all into one single AIM then you'll often see one stock/ETF rise and another falls - counterbalancing each other such that no trading action occurs. Managed separately and you'll capture those price volatility benefits.

You could use LD-AIM if you want to run more AIM accounts than you have required funds for. LD-AIM works along the lines of perhaps allocating 66/33 stock/cash, but only actually buying half the stock and maintaining a paper record of virtual stock for the other half - so that in practice it's more like holding 33/66 stock/cash and trading twice the AIM indicated amount at each trade point for the same $15,000 total investment, or you can reduce the total investment down to perhaps $5K cash, $5K stock = $10K total requirement per AIM account. A problem with this however is that you can exhaust cash earlier, so some LD-AIMers tend to increase buy safe (e.g. by +5%) after each consecutive buy trade (resetting once a sell trade is encountered) in order to slow down the cash-burn rate.

Regards. Clive.

[OldAIMGuy]

Hi Wim, "Critical Mass" for starting an AIM ETF account.......

I think there are two answers based upon how various members here run their own accounts.

1) To achieve reasonable trade size relative to account value, most people use between $5000 and $10,000 on the "invested" side to keep the "Hold Zone" appropriate with a $500 to $1000 minimum trade value. This would be for the more traditional AIM.

The general rule is to keep the trade size at about 5% to 10% of the portfolio control value or the value of the equity holding.

2) One can use signifiantly less investment and keep the same trade size if one used what is called LD-AIM. LD-AIM uses a smaller amount invested, but tells AIM that a larger amount was used initially. This creates a Portfolio Control value that is larger than the true value of the holding. This keeps the Hold Zone size appropriate for efficient commission expense while not tying up as large an amount in the initial holding.

The minimum order size might be anywhere from around 10% of the equity's value up to 100% on the Sell side. It depends upon the remaining actual holding value.

LD-AIM works well, but had the disadvantage of selling completely out if the price rises above a certain point. So, for those with very long term time horizons for a single investment (you mentioned the Energy sector, for instance) this might not be appropriate.

While I have only limited experience with LD-AIM personally, others here will be able to help more.

Best regards, Tom

[AIMster]

own EFT since a few weeks in the financials, homebuilders and BRIC. On my watch list is still a Tech EFT and an Energy EFT.

Welcome! And thanks for the question! That's the purpose of this board... so, with that in mind...

You've currently got three ETF's going, with two more under consideration, right? There are pros-and-cons to going the whole portfolio (the method preferred by Lichello) versus the individual holding route. Keep in mind that Lichello wrote his book and developed his AIM in the earliest dawn of the PC computer age so any calculations, any recordkeeping all had to be done manually, or with the help of a calculator, at best. So, he tends to write the system to favor the simplest, least time consuming method. With a computer to update prices instantly, software to handle the record keeping, it's a whole new ballgame. Of course, with the free calculator TooFuzzy supplied one can still do the work with the ol' #2 pencil - such exercise is helpful to get to see how AIM works. I'm speaking more to the state of technology at the time - you certainly don't need a computer to use AIM, but having one can make it easier.

Doing the whole portfolio route will generally mean fewer transactions, as a whole portfolio acts to a degree as a mini mutual fund, as some things go down, others will hopefully be going up, placing a damper on any trending motion either up or down,. The advantage of this route is that it still gives you control over how you wish to allocate the relationships of the holdings within the portfolio. For instance, if you don't want more than 10% of the portfolio value to be in the BRIC holding, when you get a "buy" order, you can choose to invest the money into some other component.

On the other hand, AIM works as a volatility capture system. The more volatile the holding with regular up-and-down movements in price, the faster AIM will increase the overall value. So, AIMing each holding (which of an ETF is already a mutual fund of sorts in the sense of being a basket of holdings) will give you better performance provided you're willing to accept that the returns will bias toward the most volatile of the holdings, to the relative stagnation of the others. Thus you might see your BRIC holdings quickly mushroom to 20% of the holdings, which may force you to do some asset re-allocation, independent of AIM, depending on how tightly you want to stick to particular percentage relationships.

Depending on your brokerage and costs of trading theoretically there aren't any minimums, per se. One could start for as low as $1000 invested, keeping the same in cash reserve if you want to use the "classic" 50/50 relationship. Obviously trades at such a level are going to cost more on a percentage basis than they would if you started with $10k or $100k. Jersey Al and I, maybe one or two others use FOLIOfn which offers a "membership" plan with no per-trade costs, subject to restrictions, of course. see http://www.foliofn.com for more info. With their system you can purchase a "folio" of stocks or funds already defined, or "roll your own" so to speak. Each of these can have up to 50 stocks or funds in them so there's a lot of latitude. You could buy $100 worth of Berkshire Hathaway, for instance and AIM it up to where Warren Buffet would start looking over his shoulder! Well, maybe not in the rest of his lifetime, but you can at least head in that direction!

Others will no doubt chime in with their perspectives too.

Keep the questions coming, we're glad to answer!

Best,

AIMster

[Toofuzzy]

Hi Wim

My own thoughts are that yo AIM them separately. My min AIM account size is $10,000 stock and $5,000 cash (LD AIM allows smaller amounts). That creates a min trade size (at 5%) of $500. I don't want to trade less than that.

You can create new AIM accounts as you have additional funds. You don't have to do them all at once and some of the asset classes you want to get in (energy ) are not at an opportune time anyway.

If you PRETENDED you had an energy AIM account but didn't buy anything as the fund you picked went down you could let AIM buy in. If it went up you wouldn't have lost anything since I am assuming you don't have the funds to fully invest in a new AIM account at the moment.

Toofuzzy