This year’s final
report on Rescue My IRA results will closely follow the 2015 format – it summarized
the key highlights without spending too much time on the monthly
commentary. So here goes:
BLUF,
or Bottom Line Up Front:
- From January through December 2016, Rescue My IRA rose from a balance of $159,592.67 to $183,945.12. January was tough, as that result was down from the December 2015 balance of 167,609.77, which I use as the basis of year-to-year comparisons.
- The dollar gain for the year, calculated on a December to December basis, was $16,335.35, or 9.75%. This result is right on the benchmarks used for the account – the S&P 500 gain was 9.54%, and the SPY ETF gain was 9.64%.
Long-term
Performance:
In dollar terms, the
account’s statement value has increased from $127,606.44 at the start of 2012,
to $183,945.12 at the end of 2016, a gain of more than $68K. Besides the S&P 500 and SPY ETF results I
mentioned above, 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%
- 2016: 9.75%
The average annual
return for these five years is 7.73% - 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. Last
year I found the calculator at http://www.moneychimp.com/features/market_cagr.htm, which suggests I could have done closer to
16% over this time frame, 2012-2016.
Analysis:
There are a few
possible reasons that explain why Rescue My IRA falls short of the benchmarks
on annual basis. Most importantly is my
status as a small time retail investor – which means I pay fairly high fees on
average, and my trades are all manually entered, a process that is less
efficient to computerized trading.
Although it didn’t
hurt the results as much in 2016, I have steadily increased the amount of cash
reserves in Rescue My IRA. At year end
the account was nearly 41% in cash, which is a risk management philosophy I
will pursue for the near term, as I expect the market to turn south during
2017. This approach has the potential
for reducing returns during 2017 if I am wrong and the market continues an
upward trajectory.
I’ve continued using
the strategy of focusing on S&P 500 stocks, and specifically choosing shares
that are rated 4- or 5-stars and paying dividends in the range of from 3% to 5%
annually. This approach may limit how
many home runs I get, but it does reduce my risks as well.
I’m happy with the
results and 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 2017:
During 2016, I finally
found a way to put the cash reserves to work by selling cash secured puts on
the SPY ETF. The results were decent and
certainly contributed to matching the market.
For now, however, at least for the first half of 2017, I will not use
this strategy, as I believe we are in for a correction and I would likely get
assigned the puts. I’ll just keep the
money in cash for now – although I may look at some preferred stocks as an
alternative.
I had thought about retooling
the Rescue My IRA trading plan last year, but never did it. Now that I have some practice with the Cash
Secured Puts approach, it seems like I need to incorporate it in the
write-up.
One final idea – while
I appreciate the risk mitigation that portfolio diversity offers, and that is
why Rescue My IRA will usually have between 12 and 16 active positions at any
given time, I could go for a simplified approach that uses S&P 500 ETFs,
like SPY, as a surrogate for the actual shares.
I hope be able to spend some time working on a strategy for doing this
during 2017 – we’ll see.
In
conclusion:
As we look at the
brave new world of 2017, there are things I hope I am wrong about, namely my
concerns about a near-term market downturn or recession; but I also believe in
the long-term growth of the stock market, so that there is the possibility of a
positive year overall. I’m simply going
to put a larger cash reserve in place and wait it out.
I hope my readers had
a great 2016, and are looking forward to an excellent 2017. Happy trading to all!
