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Where I Invest My Own Money


As our contributor Jesse mentioned, “Don’t tell me what you think, tell me what you own.” As our readers and members know, we offer a wide variety of trading and investing strategies, but I'm often asked where I'm investing my own money. In this article I will share how my personal holdings look like.

Short Term Options Trading

My short term trading account is dedicated almost exclusively to SteadyOptions strategies, such as StraddlesIron CondorsCalendar SpreadsButterflies, etc. This is mostly non directional short term options trading. 

We recommend allocating no more than $100,000 for SteadyOptions strategies. We always have been very upfront about the fact that those strategies are not scalable to large accounts, and I follow those guidelines in my personal account. No position is larger than $10,000 (10% of the trading account), and once the account value significantly exceeds the $100k threshold, I withdraw money to get it back below $100k.

I personally trade most of the trades we share with our members. I'm using Interactive Brokers for my trading account, and also for my long term accounts and TFSAs.

On average, this account value is typically around $60-100k, which is less than 10% of my investable funds. I keep at least 20-30% of the account in cash. My target for this trading account is triple digit yearly return.
 

Long Term Investing

My long term funds are invested in the following way:

  1. About 80% are invested in index funds. The index investing strategy is based on Canadian Couch Potato principles, and is divided equally between Canadian, U.S. and international stocks and Canadian bonds.The Couch Potato strategy is a way of building a diversified, low cost and low-maintenance portfolio designed to deliver the returns of the overall stock and bond markets at minimal cost. 

    While most investing strategies are based on picking individual stocks, making economic forecasts, and timing the markets, Couch Potato investors recognize most of these activities are counterproductive. They understand that investors give themselves a greater chance of success by simply accepting the returns of the broad stock and bond markets.
      
  2. To boost the returns and provide protection against market crashes, I implement variations of Steady Momentum and Anchor Trades strategies (put writing and hedging). In addition, I apply a very moderate leverage (around 120-130%) by selling ATM SPX options every month (Steady Momentum investing style), but also maintain a constant hedging by buying far OTM SPX puts, using up to 2% of the account.
     
  3. About 10% of the long term funds are invested in growth companies with strong fundamentals, using various options strategies.

My target for the long term investing is 15-20% per year.
 

Real Estate

I was fortunate enough to purchase few rental units in good areas of Toronto and Ottawa before prices took off. All those units are cash flow positive and provide me with nice stream of income every month. I intend keeping those units for the long term and use them as part of my retirement income.
 

Conclusion

As Jesse mentioned: "Diversification is your best friend. There are many ways I diversify my portfolio including asset classes (stocks, bonds, cash, alternatives), geography (global stocks and bonds), and factors (market, term, size, value, momentum, trend, volatility) just to name a few." Diversifying my investments provides me with different sources of income and also reduces the volatility of my investments.

As you can see, I'm putting my money where my mouth is and trading the same strategies we offer to our members.
 

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Thanks @Kim for posting this article. I also would like to keep hold of a 'low risk / low maintenance / long term portfolio'. In reference of the above article I implement a 'Gone Fishing Portfolio' using ETF's. But I would like to add some protection and/or pay for it using the short SPX puts as mention in point two. Would you please be so kind to zoom in on point 2, and explain this a bit more ?

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To give an example, selling 1 ATM SPX put for $1M portfolio means ~30% leverage. Then I buy few far OTM puts for protection, each put around $10, so 10 puts would be around 1% of the portfolio value. The idea is to have a nice P/L chart that would boast the returns by 1%+ per month if the markets go up, but also provide a nice hedge in case of a market crash. 

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7 hours ago, Tamas said:

@Kim when to roll the long puts? do you buy puts once a year or if puts are cheap? 

Around once a month, and trying to do it on an up day. The puts are spread between different strikes and expirations.

 

5 hours ago, candreouTrade said:

@Kim - do you store much in cash?

When you do get your cash inflow do you put that to work end of the month or end of the year?

I usually don't have more than 5% in cash.

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Hi Kim ,, interesting article that I share ,, I just have a strong doubt ,,, I really like the anchor strategy that I am successfully using for (unfortunately) only a small part of my portfolio ,,, I am afraid to increase the my position because I believe that the markets have risen too much and a strong correction will soon arrive, my question is: is it more dangerous to enter now or is it more dangerous to wait for a correction that does not arrive and therefore lose opportunities of gain?

thanks in advance

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Well, if you believe the correction will come, then entering now would protect you, like it did in Feb-March. What's the downside? If the markets continue higher, IV will continue drifting lower, you will get less premiums for the sold puts and won't be able to fully pay for the hedge. So if SPY will be up say 20% next August, Anchor might be up "only" 15%. A good problem to have I think..

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Thanks for sharing your long term strategy. I'm planning to join the SM portfolio to pay for a hedge as you described above. I do have some additional questions. Would you please be so kind to have a look at them
 
  1. What DTE are you looking for when buying puts ?
  2. Till which DTE do you wait before rolling a put ?
  3. Do you roll the puts up in a bull market ( for a debit ) ?
  4. Do you roll the puts down in a bear market ( for a credit ) , so efficiently cashing the hedge?
  5. If the market really crashes, how do you determine when to cash the hedge ? Or is the answer already in question 4 ?
 

 

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1. I'm buying puts from one year to 2 years out and spreading them among different expirations.

2. I'm not rolling, just letting them to expire.

3. Not rolling, just gradually adding puts as the markets go up.

4. Yes, very gradually. 

5. Depends how much they gained already and how much more protected I want to stay. Typically I would cash most of the puts after ~50% crash.

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I might buy a put expiring in Jan2021, then another one expiring in Mar2021 and so on. Then I might might once a month or after 200 point increase (for example). There are no firm rules. I might buy more aggressively after a sharp market rise or VIX sharp decline. 

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14 minutes ago, Kim said:

I might buy a put expiring in Jan2021, then another one expiring in Mar2021 and so on. Then I might might once a month or after 200 point increase (for example). There are no firm rules. I might buy more aggressively after a sharp market rise or VIX sharp decline. 

What delta for the Puts?

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Kim, do you put 10% of your cash into Long Term option strategies (from point 2 in your article)? Do you allocate 5% to put write 5% to anchor?

I was also wondering why you allocate 80% to the couch potato strategy. Wouldn’t it be better to run an anchor strategy on these ETF’s instead of hold them long?

 

 

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It's a mix, so not necessarily 5/5.

The couch potato strategy uses Canadian ETFs that don't have options.

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If you had options available on all the ETF’s you were interested in holding long term, and the options were liquid, would you prefer an anchor strategy on the underlying instead?

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Absolutely!

I don't know why anyone would not use a strategy that outperformed the market by wide margin while being hedged at the same time (the maximum drawdown was around 10% while the markets were down 35%).

This is a wet dream of any money manager.

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@Kim what is your opinion, what is the maximum percentage of investable funds that you would invest in short-term options strategies like SO trades? 
I saw you invest around 10 percent. But if the all investable funds are 100k that is it resonable to invest around 20-25k in the short-term non directional options strategies?

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Personally I would start with paper trading then allocating $10k and increase it very gradually. But yes allocating $20-30k is not unreasonable.

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This is a very nice article.  It makes me realize I need to get some of my dead money in savings to work.  I'm nervous about a crash after such a long run though. 2 questions

What do you leave available for emergency cash, aka "the emergency fund"? 

I recently sold a rental property which I dont know if it was a good long term idea or not.  basically took advantage of high prices, but now that money is dead in a savings account as opposed to cash flowing approx $800-1000 month.  Which of your longer term strategies you listed above would you put say 100k into to replicate the cashflow from a property? 

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Buying dividend paying stock is probably the only option. Or you can sell covered calls, but this requires more maintenence.

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