Q.......
Hi Tom,
I have about 10 years to retirement. We've planned for ourselves in what we hope is an adequate fashion for the future, but it's going to be nip and tuck living on pension, IRA and other savings.
In reading about AIM and your comments about its use, I'm struck with something that I can't resolve for my own situation. In many places you refer to AIM raising way too much cash to be practical for an investment portfolio. In our case, it's the fear of not having enough cash that is inhibiting us from investing more aggressively.
Can AIM be adapted to our modest retirement holdings?
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A.........
Hi RC,
I see what you are talking about. Yes, what I found in long term studies of mutual fund investing with AIM "by the book" was that it seemed like AIM never made adequate use of the Cash Reserve and it grew to be out of proportion to the equity.
In one example, after 10 years with Ultra Fund (TWCUX) the cash reserve had grown from 33% initially to over 70% of the portfolio. Now, that may have been an exceptional period of time, but the data did include the '87 "crash." However, what I perceived as a problem, may be your solution.
You have 10 years until you have to start drawing on your retirement investments. Maybe you should start your AIM accounts and run them exactly by the book. Start with 33% Cash for mutual funds and 50% Cash for individual stocks and let AIM do its stuff. Growth will be very good in the first couple of years but will slow as the cash hoard grows. However, this is just right for your situation.
You'll have a very fat cash position (and the interest that will also have accumulated) just when you will need it. With a full 10% SAFE for buying, your mutual funds will only call for cash under extreme duress. This means that your cash won't be tapped unless there's really good bargains around. The rest of the time it will provide you with interest income and a no-risk source of funds.
The last chapter of the 3rd edition of Mr. L's book addresses the idea of using short term govt bonds for a portion of the Cash Reserve. I think this is a great idea - especially as that hoard gets big. You may be able to shift as much as half of it to the higher yielding bond funds.
It looks like you have the time to make AIM work for you. If your portfolio had been run for the last 10 years in mutual funds by AIM, this recent market correction would have barely been noticeable! If you were at 70% to 80% Cash Reserve last July, you'd barely have seen a change in net worth! And, if AIM had done any buying, you probably would have already started to return those dollars to the Cash pile.
Please let me know if I can help as you get started with AIM.
Best regards, Tom |
