Q..........
Tom,
I am somewhat of a "newbie" to AIM investing. I did buy
Robert Lichello's book back in the early 1990s, but did not
fully put its thoughts into practice. I am much more
likely to do so now. My thoughts are that the AIM
investing approach would be a wonderful compliment to a
momentum or dynamic asset allocation strategy. (Another
thought is that diversification across investment
strategies may be as important as asset diversification,
but that can be another discussion.)
The key question I have is to understand the strategy you
are using for your distributions. I believe that a sound
distribution strategy will be just as important as the
accumulation strategy we have been pursuing in the last 20
years. With some previous purchased stock (via employee
sponsored plans) and as well as stock options, it is my
plan to have "windfalls" occurring during the next 3 years
to invest into AIM (for equity preservation as well as
diversification). Also, a few years after that, my
tax deferred account should be to a sufficient level to
sustain my monthly expenses, if I desire them to use the
funds for that purpose.
In your taxable and tax-deferred accounts what distribution
strategy do you use?
Thanks for your informative website and input to my
questions,
Dave
A........
Hi Dave,
Thanks for the note regarding getting back to AIM and
also including some asset allocation in your planning. Yes,
much will depend upon how your financial situation is at
retirement. There's always the basic investment pyramid
that should be constructed.
At the base of the pyramid when retired, you need to
include income producing agents that will securely pay for
your base living standards. This is the Foundation of your
pyramid. I like to think of the income from this area as
what I call my "tight belt" income. I can pay all the bills
and taxes and live okay, but it's not luxury. That's our
worst fall-back position.
In retirement, the next section of the pyramid is most
likely made up of dividend producing stocks that would show
up in a "growth and income" type of fund. These have a
higher risk in capital and income, but that risk is
moderated with AIM. Depending upon the size of your overall
portfolio, this section might be worth up to or even
greater than the Foundation.
Finally, there's the top of the pyramid. This will
contain the most speculative and least total value of the
portfolio. Should we guess well and they grow to large
holdings, maybe they can shift to the middle section of the
pyramid and be replaced. Again, AIM can moderate this
section's risk.
As far as asset allocation goes, you will have to decide
what areas of the US and World economies are going to
continue to grow and prosper. Since AIM is a very long term
strategy, your decisions should be based upon very long
term views of the economy, not the next FED rate move.
In a way, AIM is a form of asset allocation all by itself
in that it shifts value back and forth between equity and
cash. Speculative markets like 2000 should have taken most
AIM users very heavily into cash near the peak. By year's
end, it would have used up a considerable portion of the
cash or maybe all of it depending upon the selections of
equity made for the account.
I use the income from the Cash Reserve as part of our
living expenses. It's the premium above and beyond
my "tight belt" income. It helps me to also be a very good
cash manager. I don't go spending cash on every new IPO
since I know that it means a reduction in my monthly
income. AIM must be signaling for serious buying before I
put the cash back to work.
Like a good statesman, every decision we make as
investors has consequences. If we sell shares of a rising
stock, we're losing some future potential while adding to
our cash and therefore our income. If we buy shares we know
we have the potential of a very nice LIFO gain should the
price rise again. We also know that we're losing current
income as we gamble on future capital gain. A politician
will always be happy to accept applause for a popular
decision no matter what the real cost might be. A statesman
understands that with or without applause, there's a cost
for every decision made.
I hope I've understood your questions about "distribution
strategy" correctly. Overall, my IRA is invested in just
two mutual funds. One is a mid to large cap momentum fund
(American Century's Ultra Fund, TWCUX) and the other is a
small cap fund ( Am. Cent's New Opportunities Fund TWNOX). I
let them choose the sectors, concentrations and follow
their own proprietary momentum models. I manage the risk of
owning their funds with AIM and their money market funds.
In my personal account, the asset balance is partially
due to the internal growth of certain components, partially
because of original allocation and partially AIM's
Equity/Cash ratio. It was constructed on the pyramid concept
first and next on a macro-economic basis. AIM takes care of
the equity/cash ratio of each component. I periodically do
some re-balancing when things look a bit out of touch with
reality. The current allocation is shown at
aim-users.com
Scroll down to see the pie chart of my holdings as of the
end of 2000.
Please let me know if this has helped. I'll be happy to
answer further questions as they appear.
Best regards, Tom |
