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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: Jack Jagernauth who wrote (6228)	11/18/1998 12:37:00 PM
From: OldAIMGuy	Respond to of 18928

Hi Jack, Both complaints are valid if one did, in fact, ignore them! We spend a fair amount of time here discussing the commissions relative to AIM. Certainly full service commissions would inhibit most AIMers, but today's discount brokerage costs are below the radar screen of of most investors. AIM investors almost always make more money than their brokers - probably a unique feature of AIM. To condemn any system that isn't Buy And Hold for its tax consequences is like condemning any automobile that uses some form of fuel. We have a choice - trade profitably and pay the taxes or don't trade. To say we're not going to trade means we have to face the market risks as they materialize and not respond. This type of blind faith doesn't fit my business plans as an investor. There Ain't No Free Lunch! In a bull market, AIM is always struggling to keep up with the Buy & Hold investor. In a bear market, AIM becomes pro-active and used its purchasing power to build the portfolio. In a flat cyclical market, AIM trades both sides profitably - EVEN AFTER TAXES AND COMMISSIONS. If we set the trade range too narrow to cover our commissions and taxes, then we're trading for the benefit of just the tax collector and the broker. This isn't sound business practice in any form of business, including investing in equities. Check #12 in the FAQ page at the AIM site for more details. execpc.com #3 and #6 also address the commission end of this business: execpc.com execpc.com (note: I was paying about $50 minimum commissions at the time I wrote these. At $15 commissions today, these statements might just need revising.) As I've been reporting recently, all of my trades are profitable on a LIFO basis. Most of the time AIM and I have made 30+% on these trades. When commissions are 1% to 2% of the trade value, at the highest, they aren't really a factor. Taxes are of greater concern, but that's the price we pay for being profitable. As long as the taxes don't exceed 100% of the profits, how can it not be beneficial? In the US, we currently pay about 20% Federal capital gains tax. So, if we assume that we always make at least 20% LIFO, and 2% is commissions, that leaves 18% taxable gains. Taxes are another 3.6% of the total. So, of the 20% gain we started with we have 14.4% left for ourselves. We now settle that cash into a money market account earning 4.5% or so until its used again. I guess we could also criticize AIM for making more taxable income as interest! I have a feeling that whomever wrote that review suffers from "Not Invented Here" syndrome. Some of the other stuff at the site makes sense, however. Getting out of debt, for instance. We need to recognize that the brokerage is our Purchasing and Sales Department all rolled into one. We also need to recognize that the Tax Collector is our silent partner. Mr. Lichello doesn't hide these facts from his readers, but does say that the interest earned on the Cash Reserve will pay for lots of the costs of trading. Compare the relative tax efficiency of AIM to the Short Term Trading methods. There you are paying taxes on ALL gains, since ALL gains are realized gains. In AIM, you only pay taxes on realized gains while the remainder of the portfolio grows tax deferred until another portion is sold. Then, only that additional portion is taxed. If our portfolios were large enough for us to never need to trade again, then maybe we could stop AIMing and therefore stop the taxes on capital gains! I'd gladly "suffer" without AIM under such circumstances! I hope this helps to answer such thoughts about AIM. Comments? Best regards, Tom