Monday, January 2, 2017

Rescue My IRA: 2016 Retrospective

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.  


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!