Q...........
Tom, I have a couple of questions. I have about 8700.00 in a fidelity money market account for my IRA, but it's sitting in cash at the moment.
If I use the Aim method to buy and sell funds, what proportion of that should I start out with for a cash reserve?
2. Where funds are only traded at the end of the day, wouldn't you be at risk of getting a different price from the one the day before which initiated the
signal. I.E. Let's say that you own a fund who's shares are at 60 today and AIM tells you to sell some of those shares, so you place the order based on the 60 price,
but they're not sold until the settlement of the next day where now the price may be at 57. Does that skew the whole method?
3. The last question is how do I know when to start? What if I buy now into a fund and it's at the high, will I be cheating myself, or by the same token I could wait and just keep watching it go higher?
How can I best time my entry into the fund?
Thanks,
Jeff
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A...........
Hi Jeff,
Thanks for the note and questions. First, it would be good to start with about $2900 as your Cash Reserve and the remaining $5800 can be invested. This is a nice size portfolio for a start-up AIM account. An IRA is a great place for your first experience as there's no tax complications.
I'd recommend that the Fidelity Select (sector type funds) funds have greater volatility and therefore better AIM potential than the more diversified funds.
Yes, there's a bit of a problem for us with mutuals that only settle at the day's close. However, AIM is self-correcting in that regard. If you sold 10 shares at $57 instead of $60 because the market turned against you near the end of the day, AIM will take into account the $300 difference in the next calculation for your future buying and selling. Also, it's not too often that fund prices move 5% in a day.
I usually wait until about 1PM to 2PM Eastern time on the day I'm trading to place my order. If I'm selling, I look at the NASDAQ to see if it's up for the day. If it is, I place my Sell order. Usually the market won't reverse enough to hurt me. I do the same thing in reverse for my AIM buys. If the market's off a bit in the early afternoon, then it's pretty sure that I'll get a price that's very close to what AIM wanted. However, this may not be possible for you depending upon your schedule.
Your last question is the really hard one to answer. The "How High Is High?" question could have been asked many times in history and been answered "Too HIGH!" and been right in the short term. Long term (and that's what AIM's about) the answer has always been "Invest Now!" and has been right.
If you had written to me in October of 1998 I would have given you the same answers, but the Cash Reserve I'd have suggested would have only been $1650 with $7050 invested. My risk indicator for AIM, the Idiot Wave, was only asking for 19% Cash at that time and right now it's asking for 34%. So, if the IW is still working, you should have plenty of Cash Reserve to last out a really nasty correction.
AIM won't buy until there's good reason to do so. It's a great purchasing manager for your account. One final bit of advice - AIM's sort of "slow motion" so try to be patient with it. Remember that it is going to want a 10% gain MINIMUM before it even thinks about selling your first shares. As nutty as the market has been, that might not take all that long! Once AIM's in either the Buy or Sell Mode, it will usually trigger successive orders as the market continues its long term move at that point. I usually get strings of sells followed by strings of buys.
Please keep me posted on your progress. Feel free to ask questions anytime they come up.
Best regards, Tom |
