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Strategies & Market Trends : AIM Questions and Answers -- Ignore unavailable to you. Want to Upgrade?

To: OldAIMGuy who wrote (36)	5/1/1998 10:03:00 AM
From: OldAIMGuy	Read Replies (1) \| Respond to of 221

Q......Hi Tom, I'd like to ask some questions regarding SPDRs and AIM. Can I assume that in an upwardly trending market, with no corrections, that AIM would lag the buy and hold investor? In this scenario, it would seem that AIM would be selling off into the trend, thus generating a large cash position (standard AIM, excluding Split-Safe and "Vealies"). The buy and hold investor, being fully invested at all times, will end up with the bigger gain, right? As I see it, AIM would prove to be more profitable when the market goes into a correction phase. The volatility that AIM so much loves would then put a damper on the buy and holder. Due to the very high P/E of the S&P 500, its seems likely that pullbacks and/or corrections could al- ready be in the pipeline. Of course, the big question is should I bridge jump all my money now, or wait for a pullback? I'm still debating whether or not I should go with one or two aggressive growth mutual funds, in lieu of SPDRs. One of my reasons for doing so is that if you buy the market, you can never exceed the market. However, finding mutual funds that consistently outperform the S&P is not an easy task. This is why I would stick with funds with high 3-yr. returns vs. very high 1-yr. returns. A large majority of funds end up being "1-yr. wonders." My other option is a couple of strong, volatile tech stocks like Compaq and Intel. Who knows, maybe AMD would be even better for AIM than Intel. Keep up the good work. Rob ---------------------------------------------------------------------------------------- A..........Hi Rob, As an alternative to a pure S&P index fund, you might want to look at the funds from Rydex. They have one fund that mirrors the S&P but with a higher BETA. That is achieved with some fancy footwork which would be best explained by them. There's a Rydex OTC fund as well. The list of funds at the AIM web site tries to cull the poor performers from the good ones. It measures performance against the S&P on both the short term and long term. It also looks at the fund's bull and bear market performance. Take a look at those as well. You might find one that suits your needs. The Rydex funds didn't make my list because they are too "new." One aspect of mutual fund investing is that they distribute capital gains, dividends and interest (which you should reinvest as an AIMer). From a tax planning point of view, this can be a pain. However, something in favor of the Index funds is that they have a very low "turn-over" rate which means less distributions and therefore less in the way of taxes. In each case, as the market moves upward, we AIMers have to satisfy ourselves that we are participating and doing very well on a "risk adjusted" basis. Our cash reserve is our insurance policy. We hedge our investments using the cash. Like essentially all hedging plans, there's a price to be paid for the insurance. The use of the split SAFE and vealies will help you to stay closer to the B&H investor. With enough stumbles in the price of equities (yes you are right, with high P/E's and low interest rates, it's just a matter of time until the pendulum swings the other way) our cash reserve will eventually buy enough shares so that our account is larger than the B&H investor. At that point it is very hard for B&H to keep up. This scenerio needs a long time and plenty of cycles to occur. Best regards, Tom