Wednesday, December 31, 2014

Rescue My IRA - December 2014 Results

There’s good news breaking out all over about the US economy.  There are those who have begun to worry that the market is overbought and that is the time to start tapering out of stocks.  They may indeed be prescient and able to pick up signals that things are going to come crashing down around us soon, but that is not the way I see it – as a “retail investor,” I don’t see how one can afford not be invested in this marketplace.

I think selling out into this market is what the big fish want us to do.  I started Rescue My IRA out of frustration from the table crumbs that were left to retail investors during the crash of 2007 - I want to use the covered call approach to try and beat those everyday returns.

By the way, today’s post recaps December 2014.  Next week, I’ll put together an annual recap of 2014, plus highlight a few of last year’s trades to accompany the annual recap. 

The potential interest rate shock from prospective Fed action still hangs over us, and on its own, that may well have been something to worry about.  To my mind, those fears are offset by current gas prices – I did a quick calculation that I’m getting about $60 a month back in my pocket, and I know there are people out there that could use the money more than I can.  The impact is showing up in consumer spending, and that’s enough to fire our economy for a bit longer. 

Earlier this year I was carrying a cash reserve of as much as 30 percent of the Rescue My IRA account value.  Because of my confidence in the economy, I started to lower that ratio to around 20 percent as of this month.  That will remain the plan until I see some confirmation of the potential for a downturn – possibly a down quarter of GDP growth, or similar – then I’ll start harvesting cash out of assigned positions until I rebuild the cash reserve to 30 percent. 
On the whole, December 2014 was a good month for Rescue My IRA.  The account met my goal of returning 1% in cash, between dividends, covered call premiums, and stock gains – I use a 12% annual return as a benchmark, in addition to periodically comparing my results against the S&P.  Plus, despite the terrific hiccup in the market mid-month, the account value reached a new high during Christmas week, cresting over $169K for a few days, before settling at $167,659.68 to end the year.

I’m staying with the covered calls approach – there’s nothing to convince me otherwise, at this point.  Meanwhile, here is the monthly summary of Rescue My IRA statistics for December, based on the market close on December 31. 

Account Status:
·         Total Account Value, 12/31/2014 Market Close:  $ 167,659.68, that’s down a little from the November close of 168,107.47)
·         Total Cash Reserve, 12/31/2014 Market Close:  $38,484.88.
·         Core Stock Positions (as of 12/31/2014):  BA (100 shares), CNP (400 shares), COP (100 shares), CRUS (400 shares), DIS (100 shares), EMC (400 shares), FB (100 shares), GE (400 shares), GM (400 shares), HAL (200 shares), PFE (300 shares), QCOM (100 shares), T (400 shares), WIN (600 shares)

Performance Metrics:
·         Option Premiums Collected (net, month of December):  $1,336.06 (0.86%)
·         Capital Gains Collected (net, month of December):  -$260.92 (-0.17%)
·         Dividends Collected (recognized on the ex-date): $575.00 (0.37%)
·         Interest on Cash Reserve: $0.30
·         Total, Absolute Return:  $1,650.44 (1.07% absolute return, annualized return

Next Month To-dos:

There are three positions with January covered call contracts:  DIS, EMC, and FB. If these positions are called away at expiration, I’ll earn stock gains totaling $570.32, or about 0.34% on the account value (for 2014, I am measuring this return against the 12/31/2013 account value, when I write results in January the basis will be the 12/31/2014 value). 

January’s dividend forecast is slim:  only two stocks have ex-dividend dates coming up:  COP and T.  Neither of these have January calls written against them, so I am very likely to collect dividends in the amount of $261.00, or 0.16% of the account value. 

It was typical during 2014 that I could forecast about a half of a percent return on the account between share gains and dividends, and that is once again the case for January 2015.  In fact, the forecast return is exactly 0.50%; as usual, I’ll plan to make up the balance in covered call premiums.

As I mentioned at the start of the post – I’m staying the course with the covered call strategy – Rescue My IRA just started the fourth year using this approach.  During that time, the account value has grown from around $127K to where it is now.  I could choose a less risky or easier way to invest, but that would likely mean lower returns; and besides, I’m enjoying this approach. 

Until next month, here’s to happy trading in January for my readers – and for the rest of 2015!

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