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

To: LemonHead who wrote (6903)	2/24/1999 12:39:00 PM
From: OldAIMGuy	Read Replies (1) \| Respond to of 18928

Hi Keith, That charitable remainder trust was interesting. I looked around at the bond market and ended up choosing a bond fund instead of individual issues. In that particular case, I used ACM Govt. Securities Fund (GSF; current price - $8-3/8; current yield - 10.7%) as the source of income. The trust owned enough of it to cover its annual pay-out and just a bit more. The "equity" side of the trust was invested in Am. Century's Ultra Fund and Am. Capital's Pace Fund. This started back when I had very little experience with mutual funds, 1988. It also was before the "invention" of the "vealie" or "split SAFE." I started these accounts with 50/50 equity and cash but soon realized it was too heavy in cash. Since the charitable trust had no need for "income" other than to cover its annual pay-out, the interest was used to spawn new investments periodically. As the "equity" side continued to grow, so did the corresponding Cash Reserves. There's very close parallels to my own accounting here. I started with a significant portion of my overall portfolio in GSF, NUV and ACG to produce enough income for living expenses for my family. This wasn't gravy train living, but good enough that I wouldn't hear too many complaints! The rest of my portf. was devoted to growth. In my early independent days, I could have been classified a "short term trader." AIM and I became acquainted in '86, but I didn't implement it until Jan. of '88. I had learned that "The market giveth, and the market taketh away" in 1987, so was looking for something that would work better than my seat of the pants asset allocation. My portfolio wasn't designed with AIM in mind. It was what was left over after the bashing I took in late '87. However, many of the short term trading stocks that I used also were pretty good AIM stocks. I usually studied the companies quite a bit before I traded them. It was the build-up of the Cash Reserve from AIM that helped out on our family income. A good AIM year was a bonus income year as well. I take interest on the Cash Reserve as well as dividends as current income. So, January of '98 when I was sitting at 36% Cash overall made for some comfortable living. By August, I was down to 16% Cash and was already starting to pull in the belt a notch or two. By October, Cash Reserve bottomed at 5% of total portf. value. Lean times, especially with one kid in college (freshman) and one in 6th grade. Well, it seems like the markets have been anxious to get me back up to more normal cash levels. I'm back to about 15% as of the end of Jan. I've had "lean times" in '87, '90, '94 (a little) and again in '98. I think that my rather heavy dependance upon small and mid caps has probably made for less stability in my income stream. These volatile stocks, when the market moves down, soak up cash in a big hurry. If I had a bit more of the large cap stocks, maybe I wouldn't be wearing out as many different holes in my belt! Certainly the investment pyramid we build as working people is going to be different from that we want to have as retirees. The main thing is to have the basics covered and comfortably so. Given a growing world economy we can take what's left and invest for growth to compensate for inflation over time. As in the trust example the growth side, if that trust still existed, would now represent much greater than 50% of the portfolio after starting at just 20%. This has also been true of my own account. Not the same ratios, but the results have been similar. Once in a while, as we see our living expenses rise, I'll grab a bit more of a bond fund or other income generator to compensate. I should also explain that I use AIM for the bond funds. It's a very long cycle and won't excite many of us, but I'll sell off bits of the bond fund when it has a high NAV (it's a closed end fund) and then buy back some shares when it's depressed. I rarely let the Cash Reserve rise to much above 10% to 12%. So, when bonds get trashed (usually when Mr. G hikes rates) I will get a chance to naturally add to my bond position - and just when the yields are the best. Even if one started with nearly all bond funds for income, with good AIM they could eventually see the stock side grow. If one needed the extra income that would come from the Cash Reserve side of the stock accounts, maybe it would make sense to NOT USE "vealies" when nearing retirement. Just let the Cash Reserve grow and grow. Along with it would come more and more interest income. Best regards, Tom