Hello everyone! Well it’s the official start of summer for us teachers and I cannot overstate how thankful I am that this year is finished. As I look back over the year I’m just amazed at all the ways Jesus showed up in my life. All the mistakes I made and still He was there. I hope you’ll take time today to look back and know His work in your life as well. His way is undeniable and once you see or experience it, you’ll know it’s there always.
With that, I thought I’d make a post today about a complete investment playbook for today’s markets. I realize now that is a bold claim but if you follow me for a few minutes I’ll share with you how I’m tackling the stock market. That said, I’m always on the lookout for new and innovative ways to improve so stay tuned.
Let’s consider an investment playbook for today’s markets.
Post Agenda
- OptionBoxer Investment Playbook Overview
- Generating Cash Flow
- Growing Portfolio
- Options, Options, Options
- Long Term Investments
OptionBoxer Investment Playbook Overview
First, I won’t go into great detail about which assets I hold. I think it’s better if you decide what suits you specifically. Instead, I’ll focus on the structure of my investment playbook so that you can consider it’s potential for your own investment strategy.
Now, rather than get overly wordy here I’ll simply layout my playbook in bullet format and explain each further along in the post.
- Income generation
- Growth potential
- Supplemental Options Strategies
- Long term Investments
Pretty simple, right? There really isn’t much too an investment playbook for today’s markets if you aim for simplicity. However, what you’re sure to find as you start is a gauntlet of information and potential investments. So many in fact that if you aren’t mindful of your goals, years can be wasted on another path.
Regardless, in the sections ahead I’ll discuss each step in my investment playbook so that you can consider it’s viability in your own investment philosophy.
Generating Cash Flow
This step in the investment playbook is really more about our lives, today. Not some distant impossible time horizon. By generating consistent cash flow from our investments we have the choice, right now, today, to do something with that additional income. Of course, reinvestment for the future is also an option but this income gives us the option to use it now or save it for later.
For me, I have my income generation happening across 2 different taxable brokerage accounts. If the future was the primary concern these holdings would be better suited to a tax advantaged account to avoid the tax man. However, since I want the option to spend the additional income today, it had to be accessible today.
As you begin your search for high-yield assets you will undoubtedly find many that yield 100% or more. Namely, Yieldmax or Defiance funds. I talk more about these funds and my concerns in a recent post, “Using Options to Generate Interest Free Margin”. In short, I like and dislike them at the same time. So, in my investment playbook I use these high yield holdings to increase the yield, strategically.
In all, my philosophy around income generation is fairly straight forward. I want the highest yield I can get without sacrificing upside potential. To achieve that goal, I’m currently holding a mix of BDC’s, REIT’s, LP’s, Growth and High-Yield stocks. 25 different assets in all among the two income generating accounts. Probably more than I need but I’ve leaned into diversification in case something goes wrong.
Finally, these investments have increased in value by 6.37% over the past year and generated $622.96 in dividends. I’m projected to earn $1,084 in the next year and the total investment so far is $8,253. Additionally, the accounts yield is around 14% but I won’t achieve that mark until I’m fully invested.
Growing Portfolio
The second step to an investment playbook for today’s markets is growth. Admittedly, this should probably be number 1 but I prefer having more money today so income is first for me. No matter the order, I think it’s important to have both. Still, we wouldn’t be investors if growth wasn’t a core of the playbook. As such, it’s where the lion’s share of my capital flows.
The income generated by those other two accounts, for now, is mostly reinvested into those 25 different holdings. However, this is where some overlap begins to occur. Let me explain.
While my income generation accounts are mostly to generate income I’ve also incorporated a few growth focused ETF’s to the mix. So far, those holdings make up the bulk of the growth within those accounts. For perspective, in one account my growth holding comprises 20% of the total account and in the other the growth holding is 15%. By far my largest positions in those accounts. This brings the overall yield down but allows the account to grow while the other holdings spin off cash.
The overlap here is that I have growth based assets in my income generation accounts but I also have growth focused assets in my longer term accounts. You may opt for a cleaner overall picture but I like the growing income accounts as well as the growing long term accounts.
I’ve decided this approach makes sense for me and if I ever want to retire, I’ll need the growth my long term holdings will “hopefully” provide.
Options, Options, Options
In the past, I was a speculative options trader. Almost exclusively. However, as the years have passed I’ve mostly transitioned into a strategic speculative options trader. I’ve found the strategies I prefer and I use them sparingly to supplement my accounts potential.
To start, I don’t trade options in my IRA. I could but I generally just let those growers do their thing, with hope there will be enough there to support me in retirement. Rather, I limit my options trades to one of the three taxable brokerage accounts I have. I’ve already told you about two of them that focus on income but I have another dedicated to riskier assets that have the highest growth potential.
Of the three taxable accounts I use, the third one get’s the most capital. Well, sort of. I commit more of my income to that account but it works out to a similar amount for all accounts if you include the income from the first two. Regardless, I have and will continue to trade options on either of the three accounts. I don’t have a preference which account I use to make trades. I use them all so that if I have a trade using my buying power in one, I can still initiate another trade in another account if I see something I like.
In all, my options trades are mostly limited to the following strategies these days.
- Covered Collar
- Covered Call
- Iron Condor
- Baby Rhino
- Poor Man’s Covered Call/Put
- Cash Secured Puts
- Ratio Spreads
Occasionally I’ll implement another strategy, such as the strategy discussed here to generate interest free margin but my favorites are still the top 5 I discussed here. That said, I’m always testing and looking for new plays to make so this list can change based on my findings or what the market is doing.
The point though is I use them sparingly and don’t attempt to trade any strategy over another. I try to identify which strategy will make sense when capital or buying power are available to add to my bottom line.
Long Term Investments
For the final step in my personal playbook, I look at ETF’s that I believe will both grow and be around for my lifetime. I certainly don’t want any “fads” or “trends” sneaking into the two accounts I have focused on my future. I’m happy to sacrifice whatever parabolic move happens in favor of steady compound returns. Of course, you’ll have to make that determination for yourself and your own accounts.
In these two accounts, one an IRA and the other a taxable account, I want holdings that have at least a 10 year history of market beating or at least market performing returns. My thoughts are if I can get a few that beat the market and some that match the market I should be able to earn above 7% returns until I’m eligible to retire.
Additionally, If my projections are correct I’ll achieve more than a million in these accounts alone by age 60. Add that too my income producing/options trading accounts and I theoretically will have 2-3 million at that time. Maybe a long shot but even near the $1 million mark still affords me a comfortable retirement to accompany my teacher retirement salary.
In all, the focus on this branch of my investment playbook is at minimum, market performance. I at least want to match the percentage return of the S&P over time. Currently, I haven’t been able to do that because more than half of these accounts are sitting in treasury based ETF’s waiting for the next bear market. A bear market that may not come for many years but if it ever does, I want to have capital available.
For now, I slowly DCA into these positions each week or month, keeping plenty of dry powder earning about 4-5% interest. Should that interest rate decline to some paltry amount, I’ll of course pivot and begin deploying more capital. My hope is we get a protracted bear market so that I can DCA into my holdings at discounted prices before that swell up over whatever years I have remaining. We’ll see how that goes. I may end up fully invested right about the time we fall off a cliff.
Final Thoughts
In total, this is my version of an investment playbook for today’s markets. It may not fit you as I’ve described it here but it does cover some important bases, at least to me. I prefer generating income so that if I decide I need the additional capital it’s available to me today. Not some 20 years from now.
However, the core of my playbook is focused on growth. If I can achieve $1 million or more from my long term portfolios and supplement that with a few hundred thousand from my income accounts. I feel like the future, at least financially, is on stable ground.
Hopefully, through this post you’re able to consider your own investment plan and prepare a system that meets your goals. I would however offer a word of caution as I depart. In my experience, swinging for the fences lends itself well to strike outs. Sure, you may hit a few bombs along the way but you may also end up with a woeful batting average. Just something to consider.
Until the next post.
God bless,
Jeff
