A Fun Post For A Crappy Day

Friday was one of the craziest days in quite a while so let's keep it lighter with a few quick hits.

Barron's wrote about the so called Trump accounts which would be like IRA accounts for children up to age 18. These accounts could be funded up to $5000 stopping at age 18 and then left in the account to grow. It looks as though family and friends' contributions would not be tax deductible going in. There is also talk of a short window where the government would contribute $1000 to these accounts. I have not seen anything about how the $1000 would paid for. 

Let's game this out for someone who turned 18 in 1975, so today they would be 68 years old. Where coming up with an extra $5000 today might be difficult for a lot of people, lets assume $2000 instead. It looks like $2000 today would have been worth $181 in 1957 when this person was born. So assuming the same $181 contributed 18 times but not invested (due to the limitation of testfol.io), at 18 this person would have had $3258 in 1975 to put into an index fund. The first retail index fund hit in 1976 but please humor me.

The $3258 put into an index fund and just left alone would now be $896,000 after compounding at just under 12% all per testfol.io. This person almost wouldn't have needed to save for their retirement. There are plenty of behavioral mistakes that could get in the way of this sort of outcome and assuming the compounding number of 11.89% is correct, that seems too high to count on for the next 50 years. This sort of starting out type of account could still grow into a very meaningful piece of money.

More Barron's, they had a piece on healthcare costs which wasn't very interesting but there was a terrific comment to share. 

In my mid 80s, I'm working to enhance dividend and capital gains income by selling covered calls and cash secured puts on stocks and ETFs. This puts about 50% of our liquid assets to work. It generates nice returns on risk every week, month and year with, for me, minimum risks.

I've been doing this since shortly before we retired. It's a job and it's what I can do.

Everyone who is healthy, exercises, gets a lot of sleep and is able to do something to generate income during "retirement" should keep working as long as their brains and bodies will let them.

Only people with a lot of income yielding savings and investments (including great federal and state government pensions), can quit working, play, travel and pretend that what's going on in the world won't affect them or put them on Medicaid.

The first observation is that he has been making the effort to solve his own problem. I wouldn't focus on his strategy, maybe it's for you or maybe it's not, but his being part of the solution, realizing someone needs to do work on his portfolio, it sounds like he enjoys the challenge and maybe based on the rest of his comment, he's got the other aspects of his life dialed into. Taken as written, it's a great example of successful aging. 

Tidal ETFs (white label ETF provider) had a blog post about the manner in which derivative income ETFs and defined outcome (buffer) ETFs are making their way into an increasing number of portfolios. They note that investors are "no longer content with riding out volatility unhedged" and "raises questions about how asset managers and advisors are framing risk." You can get more color if you click through but it touches on some ideas we've been working with here forever and triggered an idea for a crazy portfolio idea.

Portfolios 1 and 2 obviously barbell the volatility and growth potential into narrower slices of the portfolio and when paired with BALT which is one of the larger buffer ETFs that we've looked at before. I would absolutely not count on BALT to capture the equity market over longer periods but it is pretty good at having low volatility and positive compounding. 

Instead of thinking of this as mostly a low vol alternative and levered equity, like we've talked about before, the 2x and 3x funds might be better thought of as equity with volatility overlays. At times, the volatility overlay will either help the portfolio or hurt it. It would have to overcome the volatility drag to be additive and logically, sometimes it will do that and at other times it would not. 

Tidal talked about different ways to use volatility and that's what the above idea tries to do. No matter how flawed the levered ETFs are, they worked out in this example to a reasonable outcome.

I saw this Tweet today;

 

MERIX is a client and personal holding. 

If you want blistering volatility, the APED ETF might be for you!

Just a quick word about today. I saw some pundits talking about what steps to take in case the last couple of days turns into something more protracted. We spend a lot of time here on ways to make portfolios more robust so that you don't have to react when crazy news hits that may or may not actually hurt markets. 

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.