Advanced Investing - Options - Part 3 - Selling Calls and Puts together

Welcome.

Putting it together: Selling Calls and Selling Puts

In Part 1 of this series we talked about selling Puts on stocks that you would like to own.  Go back and read that if you haven't already.

In part 2 of this series we talked about selling covered Calls on stocks that you already own.  Go back and read that if you haven't already.


We're about to start getting a little more involved and you need to be comfortable with those strategies before you begin doing "fancier" stuff.


Ok, here we go.

There are times when you might want to both sell and Put and a Call on a stock.  In exchange, you are going to take in premium payments upfront - you are going to receive cash right away.
This strategy is best when you like owning the stock but it is either:
     Volatile - where the price normally moves up and down a lot, or
     "Dead Money"- where the price doesn't move much at all.
In my mind, there are other strategies that are better when you can identify a clear price trend.  Perhaps we'll talk about those another time.
This is a strategy for when there is not a clear trend, either because the price is bouncing up and down a lot or because it is not moving up or down much at all.

By selling the Put, you are agreeing to buy shares at a set price, if the price falls that low or lower.  This is a good thing if you already know that you like the company and you know that you'd like to get shares of the company when they go "on sale" (during a price decline).

By selling the covered Call, you are agreeing to sell the shares that you have if the price rises that high or higher.  This is a great thing, if you are confident about how much the shares are worth, and you think you know that the price will come back down before long, or if you are simply ready to sell the shares and be done with that company for a while, but you want to sell only if/when the price rises.

For each of these contracts, both the Put and the Call, you will receive cash in exchange for selling someone else in the market those contracts.  This "premium" can really be a nice way to increase your position in a company because you are effectively decreasing your purchase price by the amount of premium you take in, if you are put the shares.

For example.

First Solar.  FSLR.

I'm not suggesting that anyone take a particular position on this stock.  I don't have a position in this particular stock.  I'm just using this as an example.

As you can see, while FSLR has periods where the price trends up and down, it has done both in the last several years within a fairly defined range.  If you bought when the price was at or below $40 per share, you did well.  If you sold when the price was at or above $60 per share, you did well.

You could have made even more money, by taking in upfront premiums to do the same thing.  If you have sold Puts on FSLR at a $40 strike price ($40 per share) and also sold Calls on FSLR at a $60 strike you would have been paid a lot of money in premiums that would have usually expired worthless, but when they didn't, you would be buying stock at the bottom of a defined trading range and selling at the top of the range.  And you would have been paid to do it several times over and over again.

This is the power of this two-legged strategy.  It allows you to get paid to wait to buy shares when they go on sale and also to get paid to wait to sell those same shares when they are in demand and the price is high.  

"Buy Low, Sell High" is the old saying.  

And here we've told you how to get paid to do it.

But, as I've said before, keep in mind, this article is just for your education about how this idea works.  

I'm not suggesting that you should actually do this, or that you should actually execute the illustrated example.  

This is just an educational exercise.  I'm not your adviser, broker, financial planner, etc.  

Do your own homework so you become comfortable with this concept.

Challenges are Brewing

Friends, there is a major crisis brewing in our country.

You have noticed the symptoms of it, I'm sure: the BLM protests, the race protests, the emerging violence that is being used to suppress free speech, the rise of neo nazi groups, political radicalization. It is sad.

I think I know why it is happening, though, and it has nothing to do with race or politics; it is all about debt.

The poorest 20% of households held negligible debt relative to their incomes back in 1980. Now that same poorest 20% of our population - those most in need of a chance to get ahead - they now hold 250% of their income as debt. This is five times more debt to income than the wealthiest 20% hold.
Those poor people can never repay it.
As they are starting to realize this, they are becoming angry and they are starting to lash out. We are starting to see this as the symptoms of this pervasive feeling that "something is wrong".

Most of those mentioned above have borrowed to finance education, a worthy goal. But even as the government encouraged and facilitated this widespread debt bubble in education, those who are struggling under its obligation have little of real value to show for it. Many are unable to service their debt, in fact 3,000 student loans become delinquent EACH DAY. This bubble is unfathomably big - over $1.5 TRILLION and climbing.

Student loan debt is not collateralized at all. There is nothing to repossess when they stop paying.

The most insidious problem, however, is that these loans are specifically exempt from being able to be discharged through bankruptcy. Even if someone goes bankrupt, they still owe for these student loans.

Will they somehow figure out a way to suddenly come up with the cash to pay it off? I don't think so. They're backed into a corner...They don't have anything to lose.

I think they're starting to turn to violence as their only means of possibly effecting change. 

I don't think they're really thinking about it this way - it is more like the zeitgeist that is growing and turning this huge chunk of the populace slowly.

44 Million Americans have student loans. Many are unable to repay them. The rate of default on student loans is growing.
None of that is good for anybody.

Getting back to the whole poorest 20%, and not just the portion of that population that are mired in education debt - the problem is that the rate of debt accumulation and the interest on that debt (even in these very low interest rate times) is growing faster than the economy as a whole.
There literally is no economic means for these mostly good people to ever solve a math problem like that! It is an unwinnable fight.

In addition to the student loans, we are seeing the highest ever total loans for cars, and they're being financed for longer terms than ever before - why - because people can't make the monthly payments under the past "normal" terms.

There is also a huge amount of simple consumer debt - credit card debt, department store debt, gasoline card debt, even cell phone debt! - you name it. It's hard to repossess it, it's not worth much anyway if you did repossess it and the rate of growth of this debt and its interest rate is growing faster than people will ever be able to repay.

Total household debt is now above $13 Trillion. That's higher than it ever was before the financial collapse in 2008. The government's debt has doubled since 2008.

Total household income has been stagnant for decades (really it has actually been declining since there are more two-income households than ever now). This is a bad problem. We're more productive than ever, but things cost more, and we have less disposable income to buy things with. And there are more things to buy now (smartphones, cell service, internet access, etc).

This shift is happening. We can all feel (I think) that something is not right. We know about the symptoms.

I believe that at some point the government is going to have to wipe out and forgive all of these loans. They've tried everything. They've tried quantitative easing, they've tried lowering borrowing costs so that debt could be refinanced and paid off more easily over time - but most borrowers (both people and corporations with debt problems) simply borrowed more money since the rate was lower; it seemed like they could afford more.

Individuals and some corporations have been forced into austerity through bankruptcy, but I believe austerity is coming country-wide.

The call for the massive wipeout of debt will become deafening. It will become so because so many people are so without hope because of the debt load they bear. There are so many of them the poorest 20%, the 44 million Americans with student loans (yes there may be some overlap in those two groups) that together, they are going to bring massive change. It will happen on a scale that will call to use the term Revolution. It will happen because, taken all together, they are the single largest voting block.

We may even see great people with great prospects renounce their citizenship and set out for a new life in other countries, effectively reversing the flow of immigration which has allowed America to attract so many of the world's brightest minds for so long!

If you have read this far, you might be concerned, even afraid. I know that I'm more worried about this now than ever before...

What can we do...?

If you can, pay down your debt(s).

If you can, seek great financial information about your investments. I use my own service (shameless plug) RB Research.

If you can, buy a little collectible gold before the government bans it. (They did before, then they confiscated it all, and then they devalued the dollar in relation to gold - effectively stealing the gold and then declaring it to be more valuable after the fact. Only some jewelry and collectible gold was exempt.)
If you can, buy a little cryptocurrency (Bitcoin or an altcoin that suits you).

If you can, stock up on food that you can keep at home which has a long shelf life.

What might this massive shift in our great country bring about?

We may see a massive fall in the value and usefulness of the dollar. Imagine a $20 loaf of bread or a $5 can of coke.

We may see an actual overhaul of our tax, tax service, health service, and social safety nets....for example....Rather than being able to keep paying for things that the government wants to spend on, but can't afford based on tax revenue, which is usually covered by issuing more bonds (US Government debt) we may see real tax reform. I suspect that it will be a national sales tax that will replace income taxes with a rebate mechanism to effectively keep poor folks from being taxed on purchasing life's necessities. This may be pushed through with a ban on /elimination of cash (to eliminate gray and black market transactions).

If something like that happens, where the government starts getting its tax revenue from sales tax receipts that are collected at checkout by WalMart, Amazon, and every other retailer, we can expect the collapse of the tax-preparation industry (no more Turbo Tax or H&R Block).

If healthcare keeps getting more expensive and then the system is rebuilt, we are likely to see lower prices overall in that system, and a whole new set of policies that govern the purchase, terms, and limits of "insurance" coverage.

If we go through an overhaul like that, our social safety nets will likely be disbanded and reformed under one program where each candidate receives all support, aid, and service from one agency and has one "case manager" (which might be a computer algorithm). This will probably be done to reduce cost and to reduce duplication of services.

There may be a real examination of a Universal Basic Income and a punitive tax on the wealthy to redistribute some of their wealth.

The changes that we can expect are hard to forecast and I'm not at all sure that I'm correct about how these things that the government either does now or is heavily involved with, will change and I am only giving you my best guess as to what form they will take in the future.

I just want to bring some of this information to your attention.

I'll leave you with a few parting figures to drive the point home.

There are 44 million Americans with student loan debts.

Those good people have an average of $30,000 in student loan debt.

Their average starting salary is under $60,000 per year.

The average cost of a new home in America is around $250,000. That makes their achieving the "American Dream" harder than ever - or perhaps impossible.

Rates for all kinds of debts are rising. That means that those who are struggling to make ends meet now will have a harder time in the future, or it will become impossible for them.

The average new car is purchased for $36,000.
The average new car loan payment is around $400 per month.

Rents are rising.

The price of almost every good and service, except food, has been rising for a long time.

Total household income is lower than it has been in a long time despite productivity being higher than ever.

Total household disposable (discretionary) income peaked in 1969.

Total personal debt is higher now than ever before.

Total household debt is higher than ever before.

Total government debt is higher than ever before.

Political radicalization is becoming mainstream.

Violence, justified by political disagreement in the mind of its actors, is becoming more common and accepted.

Suicides are increasing.

Retirement Savings are, on average, woefully inadequate. People are finding that they simply have to keep working even when they don't want to, even if they can't physically do it anymore.

This is all bad, friends.

Start getting ready. But be kind to those who have it worse than you - as you can see - they really are struggling, massively. They feel like they're being backed into a corner.

Give our elected representatives a break too - they've got to deal with this set of issues. And there may be no "good" solution available at all, just a host of bad ones and all the attendant unintended consequences thereof.

Be kind.

How to set Goals

Welcome.

You must set Goals

Without Goals, your chances of success are infinitesimal

That's harsh, I know.  But this is Advancing to Greater and we're not here to make you feel better, we're sharing the very best information that has been collected, filtered, and distilled down through a decade and a half of daily reading on principles of success.

Without goals, how are you going to know if you've succeeded?

Said another way, how can you hit the target if you don't know where it is?  What it is?
In which direction it is?

There is a ton of research that does, and ongoing research that certainly will, show that those who set goals are much more likely to achieve them.  There is also research that shows that those who are high achievers (who've already "made it") are people who set written goals for themselves and refer to them often.

So, how do you put yourself into this category of those more likely to achieve?

Simple, 

get out some paper...

goals that aren't written down aren't goals, 

With the blank piece of paper out, I find that it is wise to jot down some notes about the goal or goals that I'm about to write out.

Goals should be:

• They should be Specific and they should matter to you
• They should be Measurable - how will you know if you're making progress of if you've achieved your goal
• They should be Attainable or Realistic - not so huge that they seem impossible.
• They should be Relevant or Rewarding to you.
• They should be Time-bound or Trackable.

People often use this "SMART" mnemonic to help them think about their goals, but there are few other notes to keep in mind before you write out your goal in its best form...

It is important to use positive wording - for example, if you were making a goal about your healthy food choices, you should avoid saying "Don't eat junk food."  Instead, you'd want to word it "Make healthy food choices" or "when I'm hungry, I will eat foods that are in accord with my diet plan."

Words like "don't" and "never" and "no" and "not" have their place, yes, but they set a negative, limiting tone.  I find that with careful wording, you can use positive word choices that set a more uplifting, agreeable, hopeful tone in your goals.

Goals should be few, I have found.  

Ben Franklin identified all the things about himself that he wanted to improve upon and set about tracking them all, but he found he made no progress.  

He did figure out though, that when he limited his focus to a few things that he really wanted to change - he was able to do accomplish his goals, set new habits, and then move on to the next set of things he wanted to improve about himself.
Winners Focus, Losers Spray

Goals need to be reviewed frequently.  Once you've written them out, set out a schedule for tracking your progress and reviewing your goals, updating and changing them as necessary.

Now, it is time to start writing your first draft of your first goal - this is going to take some time and some re-writing, but it is not hard.  Let's begin.

One goal per page.

The first line of your goal is going to be your positively-worded "TO" statement.  For example:

• To reduce my bodyfat percentage from 25% to 23%

This statement is specific, measureable, attainable/realistic, relevant/rewarding and positively worded.


Next, we add the time-bound/tracking to it on the next line by writing when we want to achieve it, starting with the word "By"

• By July 15, 2017.

Next, the best thing that we can do is map out how we plan to make this goal happen, line by line, starting with the phrase "I will accomplish this by"

• Exercising 5 times per week where I either elevate my pulse into the "fat burn zone" as indicated by my FitBit and keep it elevated there for 45 minutes, or by accomplishing one High Intensity Interval Training workout as led by Lisa Marie from Bodyrock.tv 
• When I shop for groceries, I will buy only healthy foods to stock my refrigerator and pantry.
• When I am hungry, I will eat only those foods which are specifically allowed by the diet plan I have chosen to follow while I accomplish this goal,  "Eat to Live" diet from the book, Eat to Live, by Dr. Joel Fuhrman.
• Logging my weight and bodyfat percentage into my FitBit app every four days, starting today, May 16, 2017.

Remember that this is your first draft - you can add a bunch of items to your plan of how you will accomplish your goal.  You can also revise this later as you work on other parts of this goal, or after you have been working on actually accomplishing your goal - maybe you notice that you forgot something and need to edit your goal.  That's cool.

The next step is confronting the challenges that you will face and overcome as you achieve this goal.  We put these expected challenges into our written goal so that we think about them and plan for them now, before we have to "make a decision on the fly" which might prove unnecessarily challenging.

Start by writing out "Challenges I expect to face and how I will overcome them are:"

• Unexpected hunger or cravings while I'm at work where the only options are unhealthy snacks in the vending machine in the hall.
• I will overcome this challenge by bringing into work a couple different healthy snack options which I will keep in my drawer so that I do not have to think about the vending machine in the hall.
• Tiredness when I get done with a long day at work and don't feel like leaving my house after I've just gotten home from a tiring day at work and I would rather not go to the gym.
• I will overcome this challenge by waking up earlier so that I go to the gym first thing in the morning, and then going to work after that.  Or:
• I will pack my gym bag the night before and put it in my car, so that I have everything I need with me at work.  I will then drive straight from work to my gym so that I get my workout in!

These are just examples, and you can write out as many challenges and solutions as you can foresee.  Keep going until it feels "right."  Then consider revising your first draft of your first goal which you have done in the best way possible.  There are often some wording changes or spelling mistakes that you will catch and choose to correct.  Making your goal more "perfect" will make you prouder of it, and therefore, in my experience, you will work harder to achieve it.

That's it.  You've done it.

You've written out your first goal in the best way possible.  You are advancing to greater!

The next step is where the rubber meets the road though - now you must have the self-discipline to put your goal into action and actually start working on it, start working to achieve it!

Perseverance is the final element.  It is what will separate the achievers from the quitters.  Perseverance is the single most important element.  Get after it.

You set a good goal, and you created a great plan to achieve it.  

Now, stop thinking about the goal and work the plan!

Very Advanced Investing - Done For You

Welcome.

So, you want someone else to manage your investments...

That's fine, it is not for everyone.

Assuming you don't have access to the kinds of money where you need to know about Hedge Funds that outperform....here's how to get great investment performance done for you.

Cambria Asset Management provides it.  And its really good.  Check it out here!
0% Management fee.
No Commission fees.
No rebalancing fees.
Plus, they use the Betterment technology to execute it beautifully for you!

Betterment is the only other Do It For Me (DIFM) investment manager that I've ever recommended to my friends and family.  I wrote about them in this blog post back in March of 2016.

Now, Cambria and Betterment are working together and it is going to light the industry on fire.

Cambria is a fast-rising star in the investment management world.  So is Betterment.  Together they are even better.

There isn't more to say about this.
To get better performance from someone who does it all for you, you're going to have to have a lot of money to start with and you're going to have to pay them a lot of money every year.

...perhaps I'll write a post about that in the future...


If however, you don't mind a few minutes of simple re-balancing every month or so, you can save yourself some money by using Alpha Dogs.  It's the best.

Very Advanced Investing - Risk Parity

Welcome.

Risk Parity - removing unnecessary risk

Ray Dalio is one of the most famous and important men in the world of finance, and perhaps, in the whole world itself, full stop.  Most people have never heard of him.  That's kind of how he likes it (though he has done many more interviews and appearances in the recent past than ever before).

Ray Dalio founded Bridgewater Associates. 

It became the largest hedge fund in the world.

Their core investing philosophy is based around the idea of controlling risk by carefully divvying it up and expressing that investment thesis very carefully and broadly through almost all assets in almost all markets.

In a simple image - it looks like this:

A more detailed image that starts to hint at the hidden complexities in the strategy is:

I highly suggest reading as much as you can, directly from them.  They write well, and it won't take you too long to read it all.

Here is their main page.

Here is their main Risk Parity page.

The beauty of their main idea is - 

since we cannot know what the market is going to do in the future, 

let's figure out how to build a portfolio that will do well no matter what happens.  

By carefully crafting a portfolio that understands that there can only be four things happening (Growth either rising or falling and Inflation either rising or falling) and carefully selecting what goes into that portfolio so that what you own what will be going up no matter which of those four things is prevailing.

What they've found and provided for their very happy clients is that you can be properly compensated for taking appropriate risks in a smart way over time, without knowing, or even trying to guess, what is going to happen in the future.

Mr. Dalio started this as an exercise to create a safe, smart portfolio for his family.  

What could they put their money into if there wasn't an investing genius, like him, around to look out for it?  

He called his creation All Weather.  

It was a portfolio that would survive, and even thrive, through any market "weather."

In an interview with Tony Robbins, for the book Money: Master the Game,

Ray was coaxed into giving up what a "regular person's" risk parity portfolio might look like - 

without the daily rebalancing; 

without the careful asset selection; 

without the endless advanced mathematical modeling; 

and importantly, without the financial leverage that Bridgewater employs for its clients.  

Here is what Ray Dalio gave up for Tony Robbins to share with the world:

Gold 7.5%

Commodities 7.5%

Stocks 30%

Long Term US Bonds 40%

Intermediate Term US Bonds 15%

This is quite a good portfolio and it is one that an average investor could manage for themselves forever, rebalancing it on a regular basis, in a tax-efficient way.  Doing so would provide the average investor with high confidence of achieving 4 to 5% above the risk free rate of return (The risk free rate of return is, basically, what you'd earn if you hid your money in short term US Treasury Bonds).

Bridgewater does a bit better, themselves, by being so much more sophisticated with the implementation of the strategy and by using leverage to increase their returns.

Here's where I'm going to provide you with the real valuable nugget:

You can do even better and for a 0% management fee!  (If you use Vanguard.)

Check out the safety and security of the Alpha Dogs strategy offered by RB Research and manage it for yourself in a Vanguard account.  It's that simple.  

Alpha Dogs offers the same kind of sophisticated theoretical mathematical modeling going on in the background, but without you having to do the math, without you having to figure out how to do the rebalancing.  It is all done for you, you just have to choose to follow the information that is presented to you.  I think you'll find it extremely valuable!

If all that is still too much for you, I will lay out a way to get this all done for you, so you don't have to lift a finger, in my next blog post, which is coming soon!

Ray Dalio wrote a book in which he laid out his principles for success.  It is a hugely valuable book and one that I re-read frequently!  I highly recommend it.

RB Research

Welcome.

The holy grail of investing has been created.

There is now a way for you to enjoy the same investing information that I use and which I've shared with my friends and family.

It is called AlphaDogs and it is hosted at RB Research.info
AlphaDogs backtesting has shown that it would have produced three-times the return of the S&P 500 since January 1, 2000!

Basically, this is a way to invest in super low-cost ETFs through Vanguard but we give you the information you need to know what to buy and how much to invest in each position.
The result of that information over time is priceless:

• higher returns
• lower risk 
• less volatility
• avoiding catastrophic losses
• and hugely increased confidence in your portfolio.  

All for the cost of a basic Netflix subscription!  That's an amazing deal.  Check out RB Research.
Here's their Facebook page.

Free Cars Forever

Welcome.

Imagine: You don't owe a dime for your car.

Follow this plan and you never will.

Here at Advancing to Greater we focus on providing the insights that will allow the curious internet wanderer to find nuggets of wisdom.  This one may be among the finest.

70% of Americans have less than $1,000 in savings, according to a recent nationwide survey.

This forces people to borrow for their cars.  Half of all car sales are financed at the dealer.  

The average car payment is now $776 per month!  The average loan is over $43,899!

This is still too much for many people, so the lenders have to extend the loan term in order to be able to afford the monthly payments.  

The average car loan was for 69 months in 2016!

Now one-third of loans are for 73-84 months.  That means those borrowers are paying for a long time on a rapidly depreciating asset and they'll be underwater on their car loan until year 6 or 7!

That's crazy.

Here's how to do this right.

Let's say you want a new Toyota Corolla with all the goodies.  It's a great car, reliable, and fun, but not too fancy.  Those go for about $24,000 now.  That's a $400 per month car payment.

A basic 2005 Toyota Corolla in good condition in my area goes for about $2,300 now.  So, instead of going into debt to buy a car, you save up and buy that for cash.  Then, you take the monthly car payment that you would have had with the new car and you set it aside in your savings account that you have for your next car.  In ten months, you take that $4,000 you have saved up, you sell your 2005 Corolla and get back probably every penny of your $2,300 that you paid for it, add that to your $4,000 and you take your $6,300 shopping and you buy a much nicer, newer Toyota Corolla.

You keep paying yourself, and not the bank, that $400 per month payment that you were ready to sign up for, and in another ten months, you sell your $6,300 car for about $6,000 and you add to that your $4,000 in savings and you go buy a much newer, nicer $10,000 Corolla.

In just twenty months you have majorly upgraded your ride - and you've done it while never owing the bank a penny.

You keep doing this until you have as nice and as new a Corolla as you want - or whatever other car you want!

Once you have that car, you keep doing this, keep paying yourself a car payment - heck, go crazy and start setting that money aside in an investment account, earning the market's rate of return and in 10 years, you'll have over $68,000 at 7% per year, average!

If you get 10% per year, average, you'll have over $79,000!

That means that you can buy a nice new car, and still have money left over earning interest for you!

If you took out $40,000 and bought yourself a new car with that and you left $28,000 in the account and you kept contributing to it at the same rate, you'd have about $68,000 in the account again in 5 years!  

If you wait a few more years, you have over $149,000!  

At that point, you can have new cars, essentially for free, because the gains alone will be paying for your next car each time!  Free cars forever!

Then you can start using that extra cash for your retirement - because your car purchases are paid for, forever, by your patience and smarts.

Here's a tool that you can use to play around with these numbers yourselves.  The power of compounding is incredible!

Here's Dave Ramsey's version of this idea.

**Advancing to Greater Pro Tip: 

Never buy a new car.  Always buy used.  They can be nearly new, but they cannot be new.  This will save you so much in the long run!  Cars depreciate at a spectacular rate!

How to set up your life if you're just starting out, or just starting over.

Welcome.

So you're starting your life on your own, now....

It's time to make some decisions so that these years are among the best years of your life.  There are some things that you can make sure you have, and some things you need to make sure you avoid, in order to have the best possible experience, the least stress, and the most probability of achieving your goals.

The main thing to keep in mind is:

Add Assets.  Limit Liabilities.

Avoid debt like the plague.  

Not only will whatever you buy with debt cost you more: it will cost you more for longer.  It is far better to save up and go without until you can afford to pay for it all at once.  This is called the "One Payment Plan" and it rocks!

Add Assets by saving and investing.  Every little bit that you save and invest now will pay you dividends from that time forward, and that compounding growth is the magic road to wealth.  Save Save Save.  Invest. Invest. Invest.

The other thing to keep in mind is:

Keep your expenses low!  

Your savings rate determines the length of time that you have to work to save for retirement.

The more you can save, the sooner your retirement will come.  This was already discussed some here.

Since you are starting out, you can consciously choose low-cost, low-expense options and live your life that way - intentionally, putting you far, far ahead of everybody who realizes too late that they're spending too much and has to try to figure out how to reign in an out of control spending habit and expensive lifestyle choices.

If you can balance those two things to keep in mind, with your desires for the things that you want in life, you can have the best of both worlds.  It just takes some up front planning and some conscious decision-making about the inherent trade-offs of each decision.

Practical steps to take:

*Max out all retirement savings options you have.  

If you work for a private company, max out the 401(K).  See if they have a program to get employees discounted stock, or any other assets.

If you work for a government, in addition to your pension there is likely a 457(B) plan that is sometimes called Deferred Compensation "Deferred Comp" - yup, max it out.

If you have neither of those options, open yourself a Roth IRA and max out your contributions to that.

Those options will not be enough.  The 401(K) was only created to supplement already-existing company pensions, back when it was created.  You cannot save enough in a 401(K) or an IRA to have enough for retirement.  There just won't be enough money in there when you get around to needing it.

So, you will need to open other investment accounts on your own. 

*Have an Emergency Fund.

This cash savings account will be there to help you out when some large, unforeseeable expense comes along.  

Without an Emergency Fund, you'd be in a position where you would otherwise have to sign up for debt.  And since we're advancing to greater, that's not something that is even an option.

You can start small with this, but you quickly want to grow this to the point where it can sustain you through any major personal financial disaster.
Got in a terrible car wreck?  Emergency Fund to the rescue.
Can't work for some reason?  Emergency Fund is there.
Furnace died?  Emergency Fund got you.


*Last - but not least - be careful about your love life and serious relationships.
It is easy to spend waaaay too much in this area of your life, especially if you get serious, and most especially if you get married.
Kids too, are major expenses.  And you're on the hook for the cost of rearing them for 18-26 years!

Be sure.  Seek pre-nuptial agreements.  If you're already married, consider setting up post-nuptial agreements.

If you cannot be sure enough, protect yourself by finding out about the wonderful world of Trusts.
Trusts are legal entities which own your assets, in the way you want them owned, and they must be used in the manner in which you specify.  Find a great estate planning attorney to explain their benefits to you and help you set one up.

FREE Gasoline Forever

Welcome.

I know what you're thinking...

"There must be a catch."

You'll see.  =)

My family bought almost exactly $1,000 of gasoline last year.
It seems odd that it came so near to that big round number.  Anyway,

Exxon will reimburse us a little bit more than that entire amount.  

Here's how you can get in on the same program.

First, you need to know how much you spent on gas last year.
Your online banking can be a real help with this!

Second, you need to know what the dividend currently is on XOM.  You look that up on Yahoo Finance or Google Finance or anything like that.

On November 13, 2020 XOM's annual dividend is $3.48 per share.

$1,000 divided by $3.48 = 287.35  I'd round that up to 288 shares.

For a total outlay of 288 times the current price of XOM ($35.85 on 11/13/2020) you'd have all your gasoline costs reimbursed every year.  288 x $35.85 = $10,324 

A total investment in XOM of $10,324 reimburses your total expenses for gasoline each year.

If you want to buy a few more shares, go ahead; that way you know you're going to be over-reimbursed for you gasoline purchases.



It's kinda fun to fill up and know that Exxon is gonna pay you back for what you're spending right then.  It feels like you're getting away with something.

You can do this with anything:

Electricity (use ticker D), Groceries (ticker KR), Water (YORW), etc.

Now you know how you can get reimbursed for the costs associated with just living your life!

Design your Life, Improve your Lifestyle

Welcome.

Intentionally think about and design your life to improve your lifestyle

Most people will find this post after they have already made important life decisions.

You already have a place to live.

You already have a job.

You already have transportation.

And once decisions like those are made, they seem to gain a certain amount of inertia.  

They seem to be hard to change.

If you've found this after you have already made those decisions, or if they've been made for you:
I understand.

But you will still find value here.  

Even moreso if you manage to read this before you make those decisions!

What is "lifestyle"?

The way in which a person lives.

If you could design your lifestyle, what would you choose?

A life with extra money?

Freedom to choose how you spend your time?

Good relationships?

The way your live your life is determined by these factors.

The size of your house is the #1 predictor of your expenses.

If you want to have a life that costs you a ton of money, buy a big house.

Or rent a big apartment.

Go ahead.  

You know how impressive it looks to have a big place.

But who are you trying to impress?

Do they even care?

Do they think about your big house all the time?

A big house costs a lot to keep.

It costs a lot to insure.

It costs a lot to heat and cool because there is so much air inside to "condition."

That's a lot of electricity, natural gas, and water.

Big houses also require more landscaping, more maintenance, and more security.  

Large houses also create a much stronger-than-normal psychological pressure to

Keep Up with the Joneses.

And that sickness spreads like a cancer into other areas of your life.

It makes you want to have nicer cars, which are expensive to buy, maintain, and insure.

It makes you feel like you have to have a boat, like your expensive neighbors do.

It makes you feel like you have to get the jet-skis too!  The list just goes on and on.

All those expensive things require that you earn more in order to have them.  That means you have no choice but to work harder, to take that job you don't want, to give up on your passion because it doesn't pay enough, to take the promotion or transfer that you don't want, or just to work more hours - all just because you need the money!
By signing up for all those expensive things, it requires that you give up your own agency - your own free choice! - to determine anything else about how you live your life; your lifestyle.

Do not yoke yourself with the burden of expenses that are not deeply important to your living the lifestyle you desire!

Killer Commute!

For Richer or Poorer....It's your choice.

Plan to live close to work.
That will reduce or possibly even eliminate the need for a car and its contingent expenses.
Fuel, wear and tear, routine maintenance, insurance, etc.  All of these costs are directly impacted by the length of your commute!  Not to mention the psychological and possibly medical harm caused by the stress of commuting in heavy traffic and sitting for lengthy periods of time.

If you can walk to work, that's wonderful!

If you live too far to walk, commute by bike!
If you're afraid of being too slow or too sweaty, strap an electric motor on your bike!

If you cannot commute by bike, carpool/rideshare or take mass transit!

The best way to do this is to find a place to live after you've found the job that you want!
That way, you have the job you want, and you can project how much income you might earn from it.
Knowing that amount of income will help you select a place to live that fits your budget and which is really, really close to your work.

If possible, live East of work so any traffic that you must deal with is minimized and the sun is not in your eyes when you are commuting.  (Assuming that you have chosen your job during "normal" hours.)

Your commute and your mode of transportation have a direct impact on how much you spend and how much time you spend not doing something else that you would rather do....
Do you love to sleep in?!  Would you rather do that instead of getting up early in order to commute?
Would you rather be spending that time with friends or family?

It is your choice.
You just have to choose, intentionally, to configure your life to support your desired lifestyle.

Hobbies, Diet, and Exercise

Each of these things should bring you pleasure and they shouldn't be too expensive.

Everyone should have a hobby.  But be mindful about how much money and space you dedicate to it.

Perhaps you can find a way to incorporate your hobby into your work?  And keep the equipment for your hobby there?  That frees up a perceived "need" for space for your hobby equipment that puts pressure on you to choose a bigger, more expensive residence.  Just be intentional about this area of your life so that it lives in concert with the other areas of your lifestyle design plan.


Your dietary and exercise choices will have a huge impact on your life.  Invest a little time in planning them out so that you can have what you want with ease.
A lot of very high achievers swear by eating the same breakfast everyday.
Some even have the same lunch every day.  This frees them up from having to spend mental energy and willpower on small decisions which they can largely automate - or at least have it feel like it is automated.
Plan your meals ahead and cook/prep ahead of time.  This will save you a lot of energy and time, but especially it will save you money.  Too many people pay extra for the convenience of going out to eat too often.  Going out to eat should be a treat, not your default option.


Similarly, your exercise choices can be a drag on your lifestyle or a synergistic support.
Many people buy large, expensive, heavy exercise equipment.
It seems like the "normal" thing to do.

Chances are though, that if you live close to work, you also live close to a gym.  If you do, you can pay the gym a small fee on a monthly basis and have access to a much broader array of equipment than you would if you warehoused all that stuff yourself, at your own residence.
If there isn't a "real" gym nearby, there is probably someone with a pretty nice one in a garage near you.  And they're likely hoping that someone like you would come along and offer them some money to use their stuff and their space.  You might be their first customer as they build their small business!

If there is no acceptable gym or yoga studio or otherexerrciseboxthingthatyouliketodoforexercise that is within walking distance, then you can workout at home.  Craigslist can be your friend as you find cheap ways to get the equipment you need.
It is never okay to drive to the place you exercise.
It would be better to go for a run or a walk around your neighborhood and then turn a park or playground into a gym.

You know what else is expensive?

Kids.  Kids are expensive.

They're also optional.  Children also divide a family's wealth as it is passed down.

How many will you have?  One?  Two? Three?  Four?  None?  It is up to you.  Be intentional with your family planning.  It will have a direct impact on how big a home you think you need and how much income you feel that you need to earn.

But kids are really cute, too.  Totally worth it.

Pets too, are expensive.  And optional.  They cost a surprising amount to keep and their medical expenses can be a lot.  They also create a demand for space and may lead you to choose one (usually more expensive) residence over the other because of them.  

Pets also require planning and they limit your spontaneity and travel.  You have to plan for their care.

It's gonna be okay.

Ending up with the lifestyle you want is all about the decisions you make.
If you don't have the lifestyle that you want, start making reasonable changes to get it.

You do not have to change everything.  And you don't have to do it all at once.

Start looking for a new place to live that is closer to your work.
Maybe you want to start looking for a less expensive mode of transportation.
If you want to go crazy, look for someone to buy all your large, heavy, expensive exercise equipment and get a gym membership.  Decide if you can you rent the equipment you need for your hobby instead of buying it and storing it yourself.

It really all comes down to understanding that every decision you make has an impact on your lifestyle forever (or until you consciously re-decide to do something else).
Every dollar you earn gets assigned a job, 

either on purpose (through intentional lifestyle design),

or by default.  

The more you spend on your shelter, transportation, hobbies, eating out, etc, the less you have to save and invest or to spend on the things that make you happiest at a deep level.
Conversely, if you are saving and investing every dollar, you are trading for the future utility of that dollar and not being able to enjoy some thing or experience that you could be using it for, now, at the present time.
Simply realize that every dollar is an inherent tradeoff.
Use that as a thought to guide your design of your balance of saving, investing, spending.

Realize too, that every minute is irretrievable, and that perhaps you don't want to spend too many of those minutes commuting.

Advanced Investing - Options - Part 2 - Selling Puts

Welcome.

Here's where investing starts to become a lot more fun.

This is where you start to pad your account with 'extra' money.

100 shares of a stock is called a "round lot."
200 shares would be two round lots.  300 shares, three round lots.

Round lots are really the only amount that professional investors will take a position with.

There's a reason why that is.  

Options.

Options are contracts that trade in the stock market just like regular stocks do.  

Each option contract controls 100 shares of stock.  

Well, here's a cool thing you can do that is different from the strategy of Selling Covered Calls.

It's called Selling a Put.

This is a fantastic strategy which will allow you to be paid to buy stocks at a discount.
Does that sound as good to you as it does to me!  Yes!
Obviously, that's a better way to invest - so lets Advance to Greater and start doing it.

Here's the idea behind selling a Put.

Think about a nice house on a nice street.
Imagine you live there and you like it so well that you'd like to buy the house across the street for your child to live in, and you just noticed that the house has a new FOR SALE sign out front.

Imagine walking across the street to talk to the owner and you find out that they want to sell the house for $300,000.  Now, you think to yourself, that you know the house is a nice house, and you know that you'd like to have it, but you think $300k is a bit more than you want to pay.
You think $250,000 is a good price.

(here's the magic)
So, you create a contract with the seller, but on these terms:

The seller agrees to pay you $10,000 now which you get to keep no matter what.
In exchange for that payment, you agree to buy the house for $250,000, if the seller can't sell it for more than that within two months.
After two months, the contract between you and the seller expires.

That's it.

Now think about this deal.
You have agreed to buy the house for the discounted price that you thought, ahead of time, would be a fair price.
You got paid to make that deal.
You have two months to wait to see if you get the house for the discounted price.
Either way, you have an extra $10,000 in your account!


Let's think about why the seller would agree to this.
As soon as they have that contract with you, they know that they have a minimum price that they're going to be able to sell the house for within two months.
So its like insurance for their sale of their house.  Perhaps they want that insurance because their employer is making them move by that date.  Or perhaps they're worried that the housing market will tank, right while they're trying to sell their house.
To the seller, this Put contract is an insurance policy.  One which they are happy to pay for.



This is also the basic premise behind the option strategy of Selling Puts.

There are people out there who want a little insurance for the stocks in their portfolios.
As such, they are willing to pay for that insurance.

Stocks that are very safe will have very small insurance premiums.
Stocks that are very, very risky will have much larger premiums.

When the price of a particular stock is trending higher and everyone knows its a good stock to buy, insurance premiums will be small.

When the price of a particular stock is falling and people are unsure how far it might fall, insurance premiums will be large.

The important thing is - you only sell Puts on stocks that you'd love to own, and at prices you'd be happy to pay.
If you want to get fancy, only sell Puts when the price of a stock you want is trending lower.
That way, the premium you will take in up front will be larger.


I'm using Intel in this example, because it is such a great company, with such a dominant market position.  Intel makes the computer chips that are inside most computers.  Ask yourself, will there be more computer chips in the future, or less?  More, obviously.

As of this writing, Intel is trading at $36.44 per share.  That's an okay price.  It's fair.

But we want to pay less.
Let's say we're willing to buy it for $35 per share.


So, we go over to where it says Option chain and click there.

Now, what we will see is:

First let's change the expiration date of the contract to go out a couple of months from now and look at the contract that we're interested in:

So, for selling this Put contract, we can expect to receive anywhere between $0.84 to $0.87 per share - but contracts cover 100 shares each, so its really $84 and $87 per contract in our account.

For the simplicity of this example, let's say that you were able to sell your contract for $0.86 per share ($86 per contract).

Just for being willing to buy 100 shares of Intel at a price that we'd be happy to pay ($35 per share or $3,500 per contract), and being willing to wait a couple months, we get paid!  Its awesome.

The expiration date of the contract determines what will happen to the shares after the market closes on that date.  Here's how it's figured out:

If, on November 18, 2016 Intel closes for $35.01 or more, nothing happens.   The contract simply expires and you might choose to sell another contract - again choosing a strike price that you would be happy to pay and an expiration date you prefer.

If on November 18, 2016 Intel closes at $35.00 or less, $3,500 will be withdrawn from your account over the weekend for each contract you sold and you will receive 100 shares of Intel for each contract you sold.  Your real price for those shares, though, will be $34.14    

that is $0.86 per share less than $35.

That's it, those are the only two possible outcomes.  

In one case you get paid to wait.  

In the other case you get paid to buy shares of a company you want to own at a price you are happy to pay.

Easy-peasy.  

Now, of course you can't trade stocks through Google Finance or Yahoo Finance - you have to use your own broker.

Each broker has its own way of doing things, but in my experience, its pretty darned easy to do this.
If you need help your first time, there are usually very helpful people at your broker's support center that you can reach out to for help.  Once you do it a time or two, its easy.

I'll show you how it looks in Interactive Brokers.  Other brokers will be similar.
Here's how you select the contract.

And here's what the order looks like - all you have to do is click submit.

Select Sell.

Input the desired number of contracts to trade (remember one contract covers 100 shares!)

Select which expiration date.

Select which price - I suggest putting in about what the market is trading them for (within a penny or so) 

Make sure the order type is a "Limit Order" - on Interactive Brokers that is "LMT".

Look everything over carefully to make sure its right...

then click Submit Order.

Done.

Relax.

But what's the catch?

Simple, most brokers have rules for who they will allow to sell these contracts.

For most people, you simply have to fill out a form on their website and submit it.

Then, they will approve you for either:

"Cash-covered puts" - where you have to have the full $3,500 set aside for the duration of the Put contract .... or,

"Naked puts" - where you have to set aside some portion of the $3,500 as a good faith deposit on the contract.

That's it.

Obviously, you don't want to sell contracts for more shares of Intel than you can afford to buy- 

for example, if you have a $25,000 investment account you don't want to go selling 10 contracts because those contracts would cover $35,000 worth of stock - which you might have to buy.

Avoid that uncomfortable phone call from your broker, please.

Also, keep in mind, this article is just for your education about how this idea works.  

I'm not suggesting that you should actually do this, or that you should actually execute the illustrated Put sale.  

This is just and educational exercise.  I'm not your adviser, broker, financial planner, etc.  

Do your own homework so you become comfortable with this concept.