Rescue My IRA: 2015 Annual Results

The Rescue My IRA year-end post for 2015 is long overdue – here we are in February already!  But we have a snow day and I just got my recordkeeping for January and February caught up, and I’m motivated, so I think I might go ahead to put together a wrap up post.  This is the fourth full year of running the account using a covered call strategy; this report covers the January through December 2015.

Rescue My IRA followed a winding road in 2015, ending the year
almost exactly where it started!

 Bottom Line Up Front – or “BLUF,” as we like to say at my office: Rescue My IRA started the year with a statement balance of $167,659.68, and ended the year at 167,609.77.  While that is technically a loss of -$49.91 on the year, it’s basically breakeven since the percentage is -0.0003%! 

Meanwhile, my benchmarks of the DJIA returned -2.20% on the year, and the S&P 500 returned -0.70%, so I suppose that you can say we outperformed them.  But you can also say that nobody is happy about it.    

Long-term Performance – in dollar terms, the account’s statement value has increased from $127,606.44 at the start of 2012, to $167,609.77 at the end of 2014, a gain of nearly $41K.  Besides the DJIA and S&P 500 results, a third benchmark I use is a goal of a 12% annualized return. Here’s a summary of the results, by year:

2012: 4.11%

2013: 16.31%

2014: 8.50%

2015:  0.00%

The average annual return for these four years is 7.23% - that’s not bad, but it is short of the 12% goal I’ve set for Rescue My IRA – and it basically matches the long-term average return on the S&P 500.  Looking at it another way, the calculator at http://www.moneychimp.com/features/market_cagr.htm suggests I could have done more like 15% or so from 2012-2015.   

Analysis – as we did last year, here’s an assessment of why Rescue My IRA falls short of the benchmarks on annual basis:

First, I am a “small time, retail investor” – as such, my fees are fairly high, and I don’t spend all of my time managing the Rescue My IRA account at Scottrade, although I do find time to check in on it every day. 

Second, while I started the year with the goal of getting most of my cash reserve in the market, and was able to get down to 5% cash, by mid-year I had reassessed and set a goal of getting the reserve up to 30% by October – eventually getting to the 25% level.  Hindsight doesn’t lend itself to determining whether staying fully invested would have improved performance – or worsened it! 

Finally, I only invest in S&P 500 stocks as part of my risk management approach, focusing on shares that are rated 4- or 5-stars, and further limit my selections to dividend payers in the range of from 2% to 5% annually.  This approach may limit how many home runs I get, but it does reduce my risks as well.

All of that said, the conclusion I’ve come to is that I don’t have anything to complain about with these results.  I have a good feeling about what I’m accomplishing by being in control of the investment choices and approach in Rescue My IRA – and that is one of my primary goals for this account. 

Resolutions for 2016 – it’s now traditional to end the annual results post with some resolutions. 

By the way, I did not accomplish either of my resolutions last year, which were to find alternatives for putting my cash reserves to work, and to work on revising the Rescue My IRA trading plan.  I suppose I can account for this by saying I was keeping busy – I taught a graduate level class at Catholic University in the spring, and I started a farm, called “Hawksbill Hop Yards,” on the side…but this year will be just as busy, since I’m teaching again, continue to run the farm, and will open a brewery this fall – so I guess I won’t hold out much hope for achieving anything I write this time either!     

I still would like to find a way to put the cash reserves to work while they are not invested in stocks.  Going forward, I’ll probably settle on 20% as the target reserve amount, so maybe keeping half of that in CDs or bonds will work.  The remaining half would be for liquidity purposes.

   

Retooling the trading plan seems like a low hanging fruit goal, so I’ll try and take this on, especially if I come up with a way to achieve resolution number 1.  As I wrote last year, now that I have a few years of experience with this approach, there are probably some insights I can apply to improve my results by a few percentage points (but there won’t be major changes). 

That’s it for the tardy 2015 wrap-up.  It’s onward and upward for Rescue My IRA, and I will continue to use the covered call approach for 2016.       

I hope my readers were more successful with their accounts in 2015 than I was – and here’s to happy trading next year! 

Rescue My IRA: January 2016 Results

It’s likely that no small trader is having fun in this market – and like many of those accounts, Rescue My IRA is down from the year’s starting point, notching in at -4.6%. That’s actually better than the market benchmarks – the S&P 500 (all Rescue My IRA stocks are drawn from there) is down -8.77%, and 80% of the DOW 30 stocks are down year to date. 

I’m very comfortable with the level of risk that we have in the account – there are 14 positions in play, so the portfolio effect will protect us from significant losses.  Some of the shares show paper losses, but my plan is to keep rolling them out through the course of this correction.   We also still have a few that are in the money with the possibility of being called away for a gain, so we can take comfort in that.

As far as trading returns for the account go, between dividends and covered call premiums, we were able to generate cash returns of $300.98, or 0.18%, during the month, based on the account’s starting value for 2016.  Actually there were no stock sales this month, which may be a first for the account, which began in October 2011!

Here is a summary of benchmark results for December 2015 – as always, these amounts are net of commissions and fees. 

Account Status:

·        Total Account Value, 1/31/2016:  $159,952.67, which is down from the December 31, 2015 close of $167,609.77.

·        Total Cash Reserve, 1/31/2016:  $40,750.30, or about 24%; that’s up from last month’s balance of $40,173.77. 

·        Core Stock Positions (as of 1/31/2016 – no changes this month):  AAPL (100 shares), CMI (100 shares), CSCO (500 shares), DIS (100 shares), DOW (200 shares), FB (100 shares), GM (200 shares), IP (200 shares), JPM (100 shares), NUE (200 shares), QCOM (100 shares), SBUX (200 shares), SPY (100 shares), XRX (500 shares)

Performance Metrics:

·        Option Premiums Collected (net, month of January):  $152.64 (0.09%)

·        Capital Gains Collected (net, month of January):  $0.00 (0.00%)

·        Dividends Collected (recognized on the ex-date): $149.00 (0.09%)

·        Interest on Cash Reserve: $0.34

·        Total, Absolute Return:  $300.98 (0.18% absolute return, estimated annualized return 2.15%) 

Next Month To-dos:

There are five positions with dividends during February:  AAPL, CMI, IP, QCOM, and SBUX.  If all are collected, the account will receive $305.50, or 0.18% return on the 2016 beginning balance.  At the time of this writing, three have already gone ex-dividend; however, the March call on CMI is in the money, and if that position is called away it will reduce the dividend haul by $97.50.  

The good news on CMI is that if the March contract is called then there will be a gain on the position of $125.00 – that is one of two likely gains this month, and it offsets the lost divided if it is called away on the ex-dividend date.  The other is FB, where the February contract is in the money and the account stands to make a gain of $138.00.  Those two gains combine for an estimated return of $263.00, or 0.16% return on the account’s starting value.

The NUE position has an in the money February contract that I will manage by rolling out and up.  The stock has been out of favor for some time even though it has an S&P 5-star rating and if I let it get called I will take a big loss.  Instead, I’ll continue to hold it and wait until the position is break even or better before letting it go.

All in all, it looks to be a slow month for Rescue My IRA – just waiting for bottoms before the activity level increases again. 

That’s it for the January update.  Until the February post, happy trading!