If you’re a retiree, your government is thumbing its nose at you at every turn.
All those statistics you hear about how Americans are saving more and spending less aren’t sweet music to the ears of a Federal Reserve that’s doing everything in its power to get you to spend or invest.
But economic times are tough – we hear it said day in and day out – and we want our investment behaviors to reflect it.
Yet many folks are getting too conservative, putting their money in the bank, into CDs, or investing in Treasuries. (Yikes!)
And the market? It’s seen as a red-flagged, fast and risky venture – where you can win big, but also lose big.
It’s no secret that you can’t make any money from interest on your savings or checking accounts. And that’s exactly the way the Fed wants it!
You see, the Fed doesn’t want you sitting on your money. Rather, it wants your money out in the open, circulating and backing the market.
While I agree that we shouldn’t be idle with our cash, I don’t agree with the “barely profitable” investment strategies that a lot of people are employing.
Let’s take a look at some of them. And then I’ll give you a strategy that’s wonderfully risk-averse, yet also makes significant returns on your capital.
Money in the Bank… Money Out the Door
Let’s run down the losing angles…
Bank yields are lower than 0.25%, unless you get an online account at a bank like EverBank (and even then, you’re talking a pitiful 1%).
And CDs? Forget it.
Ten-year Treasury yields are at the lowest they’ve ever been – under 2% and approaching 1.8%. That’s a do-nothing disaster.
For the record, the pundits who support a Treasuries strategy are basically telling you that earning 1.8% over the next 10 years is a better alternative than the market.
Why? Because there’s only one argument they can use: Return of capital is more important than return on capital.
In other words, playing the market is too risky, but Treasuries are safe, safe, safe (and at least have a bit better return than checking and savings).
It’s “enough” at the end of the day, the pundits claim, to get your investment back kept whole. Never mind significant returns above and beyond your initial capital.
So they say!
With such a (misguided) risk-averse strategy, most investors – scared of the market – are buying that line. And money continues to slowly pile up in checking and savings accounts.
Meanwhile, the cost of living for those of us who enjoy things like eating out, having in a nice home, a college education for their kids, travel, etc., are finding that prices aren’t going down enough to match the recessionary interest rate levels.
Cash is coming in one end, and going right out the other.
A False Dilemma
So the main dilemma for savers – after realizing that banks and Treasuries are almost no better than nothing at all – is whether to invest in risk assets. These run the gamut from real estate to the stock market.
Sure, the argument that the pundits use has some truth to it – if you’re fond of using conventional “buy-and-hold” strategies.
But the old “buy low, sell high” adage gets completely reversed.
Unfortunately, most people invest in a way that utterly defies logic. When things are cheap, they shun them. And, when things get pricey, they just can’t get enough.
You know the type: “Buy high and sell low.”
It couldn’t be more backward.
The housing market is a great example. These days, most people hate to even hear about investing in housing. But I can assure you that home prices are closer to the bottom now than they were back in 2006 and 2007 – a time when many were looking optimistically to overvalued real estate as their ticket to an easy retirement.
And if you’re wondering… yes, I’m currently investing in rental properties. I’ve been buying on the cheap for about 18 months now, actually. I’m making ridiculous offers that get me into properties at prices below what they sold in the 1990s.
But that’s another story for another time.
You CAN Have Long-Term Upside… and Income, Too
Right now, I want you to focus on today – and the stock market. Which is a far better option than the pundits would have you believe.
Is the market overvalued? Maybe.
Do I care that its valuation might be higher than my comfort zone? Not really.
Am I looking to invest for the longer term? Yes.
And, most importantly, do I need to generate income? Yes!
So, what exactly am I doing about it?
Well, I’m not letting my money waste away in checking and savings accounts. I’m not dumping it into CDs. And the Treasury market couldn’t be further from my mind.
Instead, I’m using an options strategy that allows me to accomplish everything I just mentioned above. Here it is…
Buy the Stocks You Want At the Price You Want… and Get Paid for It
Simply put, I’m trying to buy the stocks I want at massive discounts to their current share prices, which immediately gives me a downside cushion.
So while I know that the market could fall, this wouldn’t impact me, as I’m attempting to buy these stocks for 20%, 30% – even 50% – below current levels.
And not only do I get that security, I generate income, too.
Using a strategy known as “put selling,” I position myself to either own stocks very cheaply – and get paid to do so – or not own the stocks at all and still get paid for trying.
The key is to look for companies that I want to buy anyway – ones that I want in my portfolio – but at much lower prices. By selling puts at lower strike prices, I ensure that I’ll own them at much lower prices. And while I’m waiting to own them, I’m collecting a nice, fat check.
It’s like having a rental property, where I’m collecting the rent with an option to buy the property at a lower price.
Every market has opportunity, whether it’s real estate or the stock market.
However, the very definition of opportunity is “the favorable juncture of circumstances.” Put selling is a way to take the market’s circumstances and make them favorable for you and your future.