Managing a large Account for Income?

Illini Trader said:
Here is my problem. I am almost 77 and have some concern about how my 2 kids are going to manage their investments when I am gone.

They have seen me be unsuccessful at day trading in retirement and are convinced that it is impossible and they are probably correct. (Except for the few Elite on ET that have a true edge and are able to psychologically manage it) In retrospect this may have been a good thing as I don't have to worry about them blowing it all away in futility trying to day trade.

However, they have seen the huge rise of the S&P 500 since 2012 and are convinced that all they have to do is put a million in the S&P and draw out 100K a year and still have their funds grow. I point out that in the first decade of this century the S&P 500 had a negative return but they think interest rates are at zero for ever, and they only place to put money is the stock market and it will just go up and up and we will never have another bear market.

We all (on ET) know there will be another bear market in stocks and it may be severe if the proposed tax increases and economic disincentives create an economic contraction. So it would be a shockwave to my kids who are convinced that it is going to be easy to take money out of the stock market.

Here is my thinking. My attention is drawn to the S&P 100 that has all the big names in the S&P and is very sector diverse from Tech, Pharma, Energy, Financial, Retail, etc. I have been looking at their charts using a 2-day and a 3-day time bar and there are definite trends at different times both up and down that last from a couple of weeks to a few months.

So, here comes the pipe dream. Wouldn't it be nice to have trend following strategy that:

1. Goes long or short.
2. Divides the Account into 15 to 25 positions.
3. Uses zero margin.
4. Evaluate once every day or two for exits and new positions.
5. Has only the 100 stocks in the S&P 100 for eligible investment.
6. Produces a positive return every year.
7. Is a simple system, maybe using just a moving average of some type so that my kids could easily do this.
8. Produces a return from 10% to 25% per year.

I would be interested if you think the pipe dream is crazy or if it has a chance. I will spend some more time developing my strategy and maybe experiment with a Live Trade Journal on ET showing all my trades, positions and spreadsheet results. If I get something that looks promising I might start out with a small account and allocate 1K per position. I shared my idea with my boys and they definitely think I am crazy. They say nobody can beat the Index Funds, least of all me. Ahhhh a little redemption would by nice on the homefront.
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I hate to break it to you, sir, but I think your children’s perspective is probably more realistic.

Build a diverse portfolio using a duration approach:
1- short term: outlook should be based upon what you think average rates, gdp growth, and policy will look like over the next year
2- mid term: outlook should be based upon what you think the average of rates, gdp growth, and policy will look like over the next 5 years
3- long term: outlook should be based upon what you think the average of rates, gdp growth, and policy will look like 10+ years out

Your short duration portfolio should be used to fund cash (it’s that 4% sweep) and should sit in a portfolio of cash like assets that mature in 1 year or less. 2-4% of total portfolio.

Your mid duration portfolio should be invested in investment grade, agency, and pass through bonds. This should be optimized to generate the cash that is paid out. About 50-60% of the portfolio.

Your long duration portfolio should be invested in a mix of public and private equity investments. Try to 2x your money here every 10 years. This includes things like growth stocks (i would recommend indexing, so use spy or qqq). 30-40% if your total portfolio.
 
Illini Trader said:
Here is my problem. I am almost 77 and have some concern about how my 2 kids are going to manage their investments when I am gone.

They have seen me be unsuccessful at day trading in retirement and are convinced that it is impossible and they are probably correct. (Except for the few Elite on ET that have a true edge and are able to psychologically manage it) In retrospect this may have been a good thing as I don't have to worry about them blowing it all away in futility trying to day trade.

However, they have seen the huge rise of the S&P 500 since 2012 and are convinced that all they have to do is put a million in the S&P and draw out 100K a year and still have their funds grow. I point out that in the first decade of this century the S&P 500 had a negative return but they think interest rates are at zero for ever, and they only place to put money is the stock market and it will just go up and up and we will never have another bear market.

We all (on ET) know there will be another bear market in stocks and it may be severe if the proposed tax increases and economic disincentives create an economic contraction. So it would be a shockwave to my kids who are convinced that it is going to be easy to take money out of the stock market.

Here is my thinking. My attention is drawn to the S&P 100 that has all the big names in the S&P and is very sector diverse from Tech, Pharma, Energy, Financial, Retail, etc. I have been looking at their charts using a 2-day and a 3-day time bar and there are definite trends at different times both up and down that last from a couple of weeks to a few months.

So, here comes the pipe dream. Wouldn't it be nice to have trend following strategy that:

1. Goes long or short.
2. Divides the Account into 15 to 25 positions.
3. Uses zero margin.
4. Evaluate once every day or two for exits and new positions.
5. Has only the 100 stocks in the S&P 100 for eligible investment.
6. Produces a positive return every year.
7. Is a simple system, maybe using just a moving average of some type so that my kids could easily do this.
8. Produces a return from 10% to 25% per year.

I would be interested if you think the pipe dream is crazy or if it has a chance. I will spend some more time developing my strategy and maybe experiment with a Live Trade Journal on ET showing all my trades, positions and spreadsheet results. If I get something that looks promising I might start out with a small account and allocate 1K per position. I shared my idea with my boys and they definitely think I am crazy. They say nobody can beat the Index Funds, least of all me. Ahhhh a little redemption would by nice on the homefront.
More...

The problem is you are trying to reinvent the wheel. If you are going with a trend following system which should be simple enough to do, your time frame should be long term. The returns of 10% to 25% per year is reasonable and doable. Most of the best hedge fund managers can get 18%-28% per year. There will be years where you suffer a small loss. My advise, use the QQQ (long positions only) if price closes below the 50 SMA, go to cash. Re-enter when price closes above the QQQ. You should come out ahead, since, you are trading with the trend. Trade like a hedge fund and you will be better than 90% of aspring traders who listen to Reddit and other blogs for their trading decisions.
 
A part of my proposed strategy, rather than using the index itself would be to take advantage of the sector rotation within the SP100 as evidenced by the individual stock movement.
 
Illini Trader said:
I assume this is on the daily chart?
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Yes, use the daily chart. Easy enough to manage and less stress. I am trend following my stock positions. Also, have my puts and calls which I sell to close out on options expiration. That gives me leverage and outsized returns for my calls and puts. Not for conservative investors or traders though.
 
Illini Trader said:
Produces a positive return every year.
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The title said “for income” but you are thinking trend following which usually implies long term wealth. Why don’t you teach them to sell premium on the index if you want income?
 
If the kids don't want to trade for themselves, you could try something like
https://investor.vanguard.com/advice/financial-advisor/
upload_2021-5-17_14-4-34.png


You won't get the 25% CAGR you want:rolleyes:, but the money should last for them.
 
qlai said:
The title said “for income” but you are thinking trend following which usually implies long term wealth. Why don’t you teach them to sell premium on the index if you want income?
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I did do a lot of selling Iron Condors on SPX in 2016 and 2017 and letting them expire with the Cash Settlement. I did it with every expiration entering the trade late in the day prior to expiration. I had good success but when volatility hit in 2018 it seemed like the Market Makers could not build enough premium into the options and I had too many max losses so I quit doing that. I never got back to that so I don't know how that strategy would be doing in today's kind of market.
 
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