Yesterday, I met with our federal government member, Terry Dowdall MP, to encourage legislation allowing Canadian investors to sell cash-secured puts in their tax-advantaged (registered) accounts. You can see my reasoning below.
How Canadian Investors Can Earn More Money.
How the Canadian Government Can Collect More Taxes.
Most Canadians have one or more registered [tax-advantaged] accounts. They can enhance the income in these accounts by using derivatives. They can write (sell) covered calls on any securities they have in these accounts. Further, they can earn more money by writing (selling) cash-secured puts on these securities. However, they are not allowed to do so in tax-advantaged accounts in Canada.
American investors are allowed to do so in their tax-advantaged accounts.
History shows that securities held in tax-advantaged accounts in an appropriate asset allocation over the long term have been the investor’s best way to grow savings. They will likely remain so for many years if investors use derivatives correctly.
What is an appropriate asset allocation? How can investors best use derivatives?
An appropriate asset allocation can be 50/50 (50% in securities and 50% in cash or near-cash, such as money markets). 60/40, 55/45, and similar allocations also work.
Asset allocation accounts for the largest share of portfolio returns.
It is essential to have a high percentage of a portfolio in cash or near-cash and return to that allocation whenever market movement changes it.
How can investors best use derivatives?
Canadian investors can best use derivatives to increase their returns even more if allowed to write (sell) cash-covered puts. The federal government would collect more taxes when investors withdraw money from these accounts.
The federal government should consider the benefits of allowing investors to write (sell) cash-covered puts in registered accounts.
It is an excellent example of a win/win case.
