First, if you have not rebalanced your portfolio recently, consider doing so anytime now. The S&P 500  is down 6.84% for the month ending on April 29. Bargain territory!

Next, here is how our fearless, intrepid investor did over the last two weeks, writing covered calls on Novavax (NVAX) on Mondays.  To lower the risk of being assigned, she wrote those $10 out of the money instead of the usual just out-of-the-money sale, as she did in the past.

On April 22 expiry date, she sold ten covered call contracts on NVAX and got $US227.50.

On April 29 expiry date, she sold ten covered call contracts on NVAX and got $US547.50.

And her plans when the market opens at 9:30 AM today?

Since 1994, retirees have relied on the 4% rule as the safe percentage of their portfolios’ value to spend in retirement. That would have protected them from running out of money in every 30-year period since 1926, even during the worst economic conditions.

However, there is no precedent for today’s combination of high inflation and high market valuations.

Bill Bengen, the rule’s inventor, says at this time, we should reduce that percentage further. There are over 300,000 financial advisors in the United States and Canada. Mr. Bengen is among the few worth listening to.

He recently stated that we should reduce our withdrawal rate until we see whether the current inflation rate is a long-term or a short-term phenomenon.

On average, a 7% withdrawal rate would have worked ever since 1926, Mr. Bengen’s research shows. When the S&P 500 was selling at bargain rates and inflation was low, investors could have safely taken out as much as 13% to start.

What withdrawal rate is safe under today’s conditions?

Our members and subscribers who believe in our investment philosophy would have a 50/50 asset allocation between the US market as represented by the S&P 500 and cash or near-cash (give or take 10% or so in favor of one or the other). The S&P 500 can be represented by an exchange-traded fund (ETF) that tracks the S&P 500.  There are thousands of ETFs. About six qualify. SPY is a good example.

As of yesterday, the S&P 500 is down 6% for the week. The cash or near-cash percentage is up.

Consider buying you more S&P 500 to restore your asset allocation.

How effective is our investment philosophy?

For years now, throughout a market cycle (peak to trough to peak), it has outperformed over 90% of portfolios including professionally managed ones,

Will the S&P 500 drop further? Will it become a greater bargain?

Funding Retirement in Today’s Complex World of Finance

 Dr. Wayne Young, Investing Mentor

Creating wealth and security for retirement is often a very foreign and complex concept for the everyday investor. Derivatives, cryptocurrency and hedge fund propaganda have clouded the minds of many, diverting attention from some very simple and proven strategies for accumulating a large self-constructed fund for retirement.

Principles are pretty straightforward. Invest in accounts that carry tax advantages to have money grow unhindered for as long as possible—take advantage of compounding growth as opposed to loss of gains through paying the proverbial taxman every year.

Invest in a broad selection of companies by buying an exchange-traded fund (ETF) which tracks the S&P 500 with minimal fees. Do it on your own. No need for a broker to collect 1-3% only to send an underperforming portfolio package your way when you can access these same stocks for essentially free.

Most fund managers, over 90% of them, cannot beat this index over the long term. Why pay them for underperformance? Now that is most certainly clouded judgment. Ten percent over 25 years with consistent deposits into a self-funded ETF backed fund will produce incredible returns–with very little risk and the lowest available fees.

As Charlie Munger stated, “The big money is not in the buying or the selling, but in the waiting.”

Be consistent. Be patient. Allow for that much-deserved security you seek in your retirement wealth to grow before your eyes.

Dr. Wayne Young.

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Dr. Wayne Young – Dentist, Entrepreneur, Philanthropist and Mentor

Bio

Dr. Wayne Young graduated from the University of Alberta, earning a Bachelor of Science (BSC) and a Doctor of Dental Surgery (DDS) degree, both with distinction. For over 30 years, he has been a leader in the dental community in Western Canada.

Throughout his accomplished career, Dr. Young has continued to pursue educational opportunities to further refine the development of his skills and knowledge and amplify the impact of this work. To that end, he has worked with humanitarian organizations performing restorative dental work on underprivileged children in Southeast Asia. Dr. Young is a faculty member for The Institute for Dental Excellence (T.I.D.E.), serving as an advisor and supervisor to new dentists during the practical components of their course work.  Closer to home, Dr. Young regularly mentors dental students in one of his thriving clinics.

In creating the Young Foundation, he sought to support, through diverse means, the transformation of this generation of youth into inspired, empowered, self-determined global citizens. In so doing, he has supported and mentored thousands of Canadian youths as they pursue post-secondary studies and transition into the work force.

Dr. Young has approached his entrepreneurial ventures with this same spirit of growth and development, always wanting to learn more, to expand his network of connections, to broaden his area of influence. Dr. Young now seeks to share his common-sensical, multi-faceted wisdom with professionals wanting to secure their financial wealth now and for years to come.

In her core portfolios, our fearless, intrepid investor  had a 50/50 asset allocation between S&P 500 and TDB166. TDB166 is a US dollar-denominated money-market fund. She recently sold all her TDB166 shares. She then converted these US dollars to Canadian dollars. The objective here was for her to buy guaranteed investment certificates (GICs). These are the Canadian equivalent of US certificates of deposit (CDs).

Depending on their maturity date, GICs pay over 4% annual return today. That level of return has not been seen for a very long time. Unfortunately, GICs are not available to American investors and CDs pay about half of what GIC’s do today. We continue to suggest that our American investors keep their near money-in TDB166 in an appropriate asset allocation.

Now, let us see what she’s doing with Novavax (NVAX) covered calls.

Albert Einstein called compound interest the eighth wonder of the world. It would be a greater wonder if it is combined with proper asset allocation and rebalancing, .

Proper asset allocation?

A 50/50 portfolio is a good example. Fifty percent of it would be made up of the US stock market as represented by the S&P 500 and 50% would be in money or near-money. A 60/40 or 40/60 portfolio would get different results but only marginally so. No individual stock picking!

And rebalancing? Anytime investors’ asset allocation changes by market movement, they should re-establish the balance. Taking profits when the market goes up or buying bargains when the market drops by 5% or so works well.

For example, after the  1929 crash, it took the market 14 years to break even. During that period, the worst and market history, a MarketWatch article shows that a 50/50 portfolio was positive 95% of the time after any five-year period. During any 10-years, the 50/50 portfolio had positive returns 100% of the time.

Those results do not account for transaction costs and taxation. Further, they assume that no active trading takes place.

And how does wall Street feel about no active trading? Here we have another example of the conflict of interest between Wall Street and Main Street. On balance, active traders are losers. Wall Street win every time.

Previously, we published a post about active trading. The post reviewed the results of some 20,000 Brazilian day-traders over two years. Ninety-seven percent lost money. Only 1.1% earned more than the Brazilian minimum wage. The brokers loved it, of course.

Will that be any different in the coming years? What should we do now?

Writing (selling) covered calls on Novavax (NVAX) on Mondays, strike price  just out-of-the-money, expiry date, Friday of the same week, our fearless, intrepid investor lost $65,700 in  2021 in her “fun” portfolio.

Writing covered calls means that she owns NVAX shares. How many?

She holds 1,000 NVAX shares acquired at $226.56 per share, which was close to the very top!

There is only one way for investors to lose money over the long term.  That way is to ignore one or more of the six habits we promote. Habit number three states: “Buy the US economy as a whole by acquiring an exchange-traded fund which tracks the S&P 500.” That means no picking individual stocks. She ignored habit number three. Owning NVAX lost her $172,069.59. It dropped 75.95% since she acquired it.

How will she handle this grim situation from here on?

WHY DO WE KEEP GAMBLING ON STOCKS AND BONDS?

Timothy Brown

My amateur study of professionals at large who are typically high achieving and high-income earners reveals that we have a high tolerance for risk. There is no secret there, and researchers have been looking at that for a millennium.

But why is it in today’s day and age that high-income earners who are also subjected to the highest tax rates feels compelled to gamble with their hard-earned after-tax dollars when we know full well the chances of success are minimal, if not ruinous?

One of the investment newsletters I subscribe to recently touched upon the word “folly”. It is a noun, and it generally means a lack of good sense, understanding, or foresight or an act or instance of foolishness or a costly undertaking having an absurd or ruinous outcome.

We have all done it. I have done it. My mentor Milan Somborac says he has made every mistake known to the investor and I think I am not far behind him. Thankfully, I could afford to make most of those mistakes, but one was darn near the end of my financial well-being. I escaped with dignity because I used foresight to know to get out.

If you go to our website and search for “parking money”, you will see several posts on that subject. The primary objective of parked money is to have it available to buy the S&P 500 as represented by SPY when  it drops. We have recommended buying TDB166 to park money. It is a money market fund, safe as any investment and instantly available when needed. The APY (annual percentage yield) of parked money has never been high.

Writing in the Globe and Mail on April 14, Rob Carrick has pointed out that guaranteed investment certificates (GICs) are now paying more than twice as much as any money market fund. The GIC equivalent in the US is the Certificate of Deposit (CD).

We have frequently stated that GIC stands for Guaranteed Instrument of Confiscation. Now paying the highest return in over two decades, it is still 1/2 of the rate of inflation so yes, money invested in a GIC loses purchasing power. That is the worthwhile cost of keeping our powder dry.

Americans can buy GICs from their bank even though GICs are Canadian securities.

Here is what I would do to take advantage of the current high GIC rates.

The commercial gambling industry made over $44 billion in 2021, according to the Washington Post. Gamblers who stay within their predetermined limits are not in danger of being hurt economically.

Investors can gamble in the stock market without leaving home. If they do so within their “fun” portfolio, they will not be hurt economically. Their “fun”portfolio is their predetermined limit.

What qualifies for a “fun” portfolio?

Picking individual stocks is most commonly used. Over the last two decades, the average stock-picker earned 42.6% less than the market! Do you think that this will be any different over the next two decades?

Then we have active trading. Searching for “active trading” on Social Science Research Network (SSRN) will produce many peer-reviewed papers showing that active traders are losers. Visit SSRN and look for “penny stocks”, “day trading”  or anything else that interests you about investing and see what the academics have to say about it.

Here is how to use a “fun” portfolio and benefit.

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