Rescue My IRA: December 2016 Results

Last month during my catch-up post for October and November, I posted a strategy that I had begun to put in place for Rescue My IRA as we look forward to what 2017 holds.  I’ll start this month with a brief recap of those ideas, since I’m continuing to execute trades based on those assumptions.

Looking forward to 2017, I believe that the market faces headwinds from two factors:  first, the market has to come to terms with the American election; and second, we have to remember that we’ve been on an 8-year recovery since the end of the so-called Great Recession of 2007.  Even though the market appears to have responded positively to the election, it seems to me that we are due for a cyclical consolidation now, and that would have likely happened no matter how the election turned out.     

My focus for now, until we see how these variables play out, is to take money off of the table and hold it as cash reserves.  I started in August with about $34,100 in cash, and as of December 30, I had increased that amount to $72,000 – about 41% of the account value.  I will continue to work on getting this amount to 50% of the account value while simultaneously maintaining the other risk management strategy I have, keeping a portfolio of between 12 and 16 positions in play. 

The near-term downside of this strategy is that there is less money working for me in the market, so it is reasonable to expect that monthly results will fall short of the S&P 500 and SPY benchmarks I use to track performance.  That didn’t happen in December, thanks in large part to a tax-free spin-off from XRX (I counted the new shares as a dividend for tracking purposes) – and Rescue My IRA ended up slightly ahead of the market.  However, in the early months of 2017, I expect that the account will lag the benchmarks, no matter whether the market is up or down. 

I’m planning to do a 2016 annual recap next week, but meanwhile, here is the benchmark data for the account during December:     

Account Status:

·        Total Account Value, 12/30/2016:  $183,945.32, up from the November close of $180,605.81

·        Total Cash Reserve, 12/30/2016:  $72,046.12, or about 41%

·        Core Stock Positions (as of 12/30/2016):  AAPL (100 shares), ABBV (100 shares), CMCSA (100 shares), CNDTw (100 shares – this is the tax-free spin-off from XRX), CTL (300 shares), DIS (100 shares), FB (100 shares), GE (200 shares), GM (200 shares), IP (200 shares), KO (200 shares), MAS (300 shares), MDLZ (200 shares), MOS (200 shares), XRX (500 shares)

·        Cash Secured Put (CSP) positions (as of 12/30/2016):  None

Performance Metrics:

·        Option Premiums Collected (net, month of Dec):  -$624.02 (-0.37%)

·        Capital Gains Collected (net, month of Dec):  $848.87 (0.51%)

·        Dividends Collected (recognized on the ex-date): $1,796.25 (1.07%) – includes tax-free spin-off from XRX

·        Estimated Interest on Cash Reserve: $0.62

·        Total, Absolute Return:  $2,021.72 (1.21 % absolute return, estimated annualized return 14.47%) 

·        S&P 500 Index 2016 year to date performance as of 12/30/2016: 9.54%

·        SPY ETF year to date performance as of 12/30/2016:  9.64% 

·        Rescue My IRA year to date performance as of 12/30/2016: 9.75%

Next Month To-dos: 

In keeping with past practice, during 2017, whenever a percentage is shown in the monthly forecast, it is calculated using the December 31, 2016 account valuation.  Also, the forecast and actual returns are always calculated on a “net of commissions and fees” basis, since these are costs that lower the amounts I receive. 

For January, there are two positions that will go ex-dividend, ABBV and MAS, yielding an estimated $94.00 in dividends.  At the time of this writing, ABBV has an in-the-money January call written against it, so it is probable that the stock will be called away, reducing the dividend haul to $30.00 from MAS.  The expected yield from dividends is either 0.05% or 0.02% for the month – the balance of returns will need to come out of stock gains or premiums. 

The account’s continuing situation is that many of the covered call positions in Rescue My IRA are month-to-month contracts.  In January, seven positions face expiration dates:  ABBV, CMCSA, CTL, FB, GE, IP, and MOS.  Only four are in-the-money as I write this summary, but if all seven are called away, the account will recognize revenue of $759.02 from stock gains.   

For now, these estimates add up to about half of my goal for the month, which is a net return of about 1%.  Given the cash reserve strategy in place, I expect some challenges – but I’m up for it, and I’m looking forward to seeing what the market holds.  My outlook is not quite bearish, but certainly aware of some potential risks in the market, so I don’t expect much for the first few months of the year.    

That is the December update.  I’ll post a 2016 wrap up later this week.  Until next month, happy trading!

Rescue My IRA: November 2016 Results

Well, somewhere around the middle of the month, I realized that I hadn’t written my monthly update for October 2016.  That’s the first time I’ve missed the monthly recap in five years on this blog.  The only pitiful excuse I can offer is that I was pretty fascinated by the last few weeks of the US election – fascinated then, and truly disappointed now, like millions of others – I don’t see how an embarrassment a day, as we have experienced over the last month, is going to “make America great again.”

America is already great, and I believe we’ll survive this election, despite the President-elect’s high school level understanding of the global economy and macro-economics in general.  My strategy going forward will simply be to hunker down in the near-term, and accept what is likely to be a lower than average return in Rescue My IRA, at least for the first year of the new administration.

It’s my sense that two factors will be setting up some market headwinds as 2016 ends: first, the market has to come to terms with the American election, and during November we saw that there appears to have been a relatively positive response.  More on my results in Rescue My IRA shortly.

We also have to consider that we’ve been on a long-running recovery, essentially throughout the 8-year timeline of the current administration.  There will be many who disagree with me on this characterization, but those folks will disagree with me on a whole lot more than that, and so be it.  If we simply step back from our disagreements and consider the probability of an economic slowdown, or even recession, after nearly eight years of growth, we need to take a sober assessment of the situation – and my conclusion is that we are due for cyclical consolidation now, and we would have been, however the election turned out.

So, I’m turning my thoughts to preparing for that situation by taking money off of the table.  During November I started to take money off of the table and build cash reserves so that I could watch and wait to see what will happen, and as I write this in early December, I currently have $62,500 in reserves.  To show the growth of cash reserves, in September, I had $34,100 or so in reserves, representing just about 17% of the account; that increased to $40,100, or 22.5% in October, and $53,200, or 30% by November.

My goal will be to get this amount to around 50% of the account value and hold it there until I can get a good sense of how things are going to go.  If the markets are positive during this time, Rescue My IRA will underperform, but if my hunch is correct, my account value will hold a little more of its value than the market overall.

That said, here is a summary of result highlights for October:

·        Total Account Value, 10/31/2016:  $177,497.69, slightly down from the September close of $178,312.12

·        Total Cash Reserve, 10/31/2016:  $53,161.61, or about 29.95%

·        S&P 500 Index 2016 year to date performance as of 10/31/2016: 4.0%

·        SPY ETF year to date performance as of 10/31/2016:  5.9% 

·        Rescue My IRA year to date performance as of 10/31/2016: 5.9%

Here is the benchmark data for the account during November:     

Account Status:

·        Total Account Value, 11/30/2016:  $180,605.81, up from the October close of $177,497.69

·        Total Cash Reserve, 11/30/2016:  $53,165.61, or about 30%

·        Core Stock Positions (as of 11/30/2016):  AAPL (100 shares), ABBV (100 shares), DIS (100 shares), FB (100 shares), GE (200 shares), GM (200 shares), IP (200 shares), JNPR (300 shares), MAS (300 shares), MDLZ (200 shares), MS (200 shares), SPY (100 shares), T (200 shares), TXT (200 shares), XRX (500 shares)

·        Cash Secured Put (CSP) positions (as of 11/30/2016):  None

Performance Metrics:

·        Option Premiums Collected (net, month of Nov):  -$533.01 (-0.33%)

·        Capital Gains Collected (net, month of Nov):  $1,975.69 (1.18%)

·        Dividends Collected (recognized on the ex-date): $179.60 (0.11%)

·        Estimated Interest on Cash Reserve: $0.20

·        Total, Absolute Return:  $1,602.38 (0.96 % absolute return, estimated annualized return 11.52%) 

·        S&P 500 Index 2016 year to date performance as of 11/30/2016: 7.58%

·        SPY ETF year to date performance as of 11/30/2016:  8.10% 

·        Rescue My IRA year to date performance as of 11/30/2016: 7.75%

Next Month To-dos:
During December, there are six positions that will go ex-dividend for the month, yielding an estimated $377.75 in dividends.  If all of these dividends are collected, the expected yield is 0.23% for the month. 

Currently, many of the covered call positions have evolved into month-to-month situations.  In fact, at the start of December, a total of eight contracts had forecast expiration dates during the month.  At the time of this writing, the first weekend of the month, five positions are still in play.  Four are in the money, and one is out of the money, but the forecast gains from these stocks are $436.78 or 0.26% yield. 

With about half of my monthly goal of 1.00% return forecast from these activities, covered call premiums will need to make up the balance.  We’ll see how that turns out in light of my updated cash reserve strategy – it will certainly be a stretch.  The flip side of that risk, however, is capital preservation…I hope so, at least!

That’s it for the November update – as always, the results are reported net of commissions and fees.  I certainly hope that the markets will perform before than my prognostication.  In any case, until next month, happy trading!