Need serious advice

[niceneasy]

friends and money mix like chicks with two dicks

Biggie Smalls

I am not sure entirely what Biggie was getting at except to say advising your friend is a bad idea.

Talking shop is ok and telling him what you are doing even. But if you advise him and he loses, on anything, you will be friends no more

 

[FanOfFridays]

Quote from niceneasy:
Talking shop is ok and telling him what you are doing even. But if you advise him and he loses, on anything, you will be friends no more

Absolutely +1, and that means any sort of guidance which he acts on.

With regard to 7-10% downside risk/6% upside potential being appropriate for his funds, I guess Random.Capital is right when he says we need to define 'conservative' . I wouldn't call that conservative.

To the OP, it's a truism on these boards ever since the first Schwager book came out, but you are aware that a CC position has the same risk profile as a naked short put position, right? I believe that's the case, atticus can come along and correct me if I'm wrong on that.

 

[dmo]

Quote from traderNik:



To the OP, it's a truism on these boards ever since the first Schwager book came out, but you are aware that a CC position has the same risk profile as a naked short put position, right? I believe that's the case, atticus can come along and correct me if I'm wrong on that.

Correct, short a call and long the underlying is otherwise known as a synthetic short put.

 

[Hester]

Quote from drcha:

For example, by writing far-month in the money covered calls on large cap dividend payers, one should be able to achieve 7-10% downside protection and 6-8% return.

However, inflation will eat him alive in those things, with a 30+ year time horizon. His wife is the same age and also in excellent health, so it is very likely that one of them is still going to be around in 30 years. So in the overall picture, are ST bonds and CDs really conservative?

Covered calls may be OK for his conservative funds. But ONLY if he is able and willing to gain learn a lot about them. With covered calls, if you want them for income or as a conservative strategy, I don't like writing far month calls. I like to always stay in the front month. This way the theta you sell decreases much quicker, and you can readjust the price that you will allow your etf or stock to get called away at each month. It gives you more flexibility while capitalizing on more time decay.

If you convince him to learn options and he wants another conservative strategy, I would go with a cost free-collar. I really like that as a nice conservative strategy. This is for if he is scared of another dip in the value of his etfs. If he doesn't need the income from covered calls, he can do a collar to protect from another big pullback of the market.

I am not saying he should or should not use options in his portfolio. But if he decides he does, covered calls and collars should be fine.

You are right in saying inflation will eat him alive if he keeps his money in cd's for thirty years. If he thinks he will live for 20-30 years, then a large portion of his portfolio needs to be in stocks. Thats what I tell everyone that asks me where they should put their money.

"In no 30 year period has bonds, commodities, real estate, cash or virtually any other investment imaginable outperformed stocks."
You could start the day before the great depression, and stocks still outperformed 30 years later.

 

[nitro]

Why not ask the best investor in history?

http://warren-buffett-portfolio.com/

Scroll down to see his portfolio. Pick between five to ten stocks in that portfolio. Always include PG in any portfolio is the only advice I will give you. The rest shoul be somewhat diversified.

So for example, here is one I made up from that list:

1. PG
2. NKE
3. GSK
4. AXP
5. UNP

Have 10% cash at all times for those times that markets implode. Sell out of your biggest gainer once every six months and rotate into another one in the list that is beaten down. Never rotate out of PG.

Mix in some high grade corporate bonds. Mix 30:70 weighting for his age to stocks:bonds.

 

[Jacob Fries]

Quote from drcha:Annuities or financial advisers are going to go over like a lead balloon, and I don't believe in those myself, anyway. Otherwise, I appreciate all responses. [/B]

I would never choose an annuity unless I were becoming an invalid and losing the ability to trade.

I have put 10% of my net earnings and profits into CDs since 1984 and, while lacking the performance of my futures trading, they are the largest portion of my portfolio. Future secure. And I never touch the things, unless I can get a better rate elsewhere, for a minimum of five years. I am still riding 7% CDs from years ago. Again, the performance will not thrill anyone, but I don't have to think about them. I just set aside profits in places I don't have to manage... some people use a pillow or a gallon jug. A CD was my choice of a bottom-earning instrument that usually does not gain on real inflation, but never succombs to bad trading days, market burps or broker errors.

Now, for those "experts" on ET who feel I am not a real trader without putting all of my eggs into my own trading systems, I have two words for you, and they are not "happy birthday."

 

[traderlux]

I ran across the following post on another thread, quoted for your consideration as follows:

Rearden Metal
Registered: Jan 2003
Posts: 5675
02-06-06 05:11

When it comes to options trading, I think certain personality types gravitate naturally towards varying strategies accordingly.

Those who instinctively crave limited risk/unlimited returns will seek out options buying strategies. (Or lottery tickets.)

Those who fall in love with the idea of time decay, the concept of 'if the market is boring- great! I make money.' ...will seek out options selling strategies.

Those who crave a very high probability of success on each individual trade (Even though the wins will be small, and the occasional losses can be huge) ...will seek out OTM options selling strategies.

Those who crave safety instead of 'action', will seek out spreads trading strategies.

And finally, those who are complete amateurs with absolutely no concept of the way options work ...will seek out covered call writing strategies.

 

[TheoHornsby]

Quote from vhehn:

a person in his mid 60s that does not already have years of option experience should not be speculating in options with his nest egg. i find it interesting that he is thinking about investing in the market now after the biggest run in history. where was he this spring? at this time i would say keep his conservative funds in cds and wait for the next substantial pullback to deploy funds.

+1
+1

 

[TheoHornsby]

Quote from Jacob Fries:

I am still riding 7% CDs from years ago. Again, the performance will not thrill anyone, but I don't have to think about them. I just set aside profits in places I don't have to manage... some people use a pillow or a gallon jug. A CD was my choice of a bottom-earning instrument that usually does not gain on real inflation, but never succombs to bad trading days, market burps or broker errors.

7% is a great return for cash but that's the past and helps no one exploring what to do in the present

 

[erol]

Quote from dmo:

If you're right they won't remember. If you're wrong they'll hate you, and you'll feel awful.

I really like this quote... ^