S&P 500 9-Month Moving Average

This month we’ll look at an investment strategy that’s based on the S&P 500 9-month moving average.  Specifically, if the S&P 500 is above its 9-month moving average invest 100% of capital in an S&P 500 index fund.  Otherwise, hold 100% of capital in cash.

As you’ll see from the above link, the strategy does have some merit, but I would say the results are mixed.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

joseph AT StockMarketMovement.com

 

Timing the Market

People like to try to time the market.  But how can they tell when a good time to get in or out is?  In this month’s analysis I look at historically how the market has performed over the next twelve months given its performance over the previous twelve months.  The results seem counterintuitive, but maybe that’s why timing the market doesn’t usually work out very well.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

joseph AT StockMarketMovement.com

 

Ride Out or Sit Out a Bear Market

We aren’t quite in a bear market right now, but we’re definitely in correction territory.  The Dow and NASDAQ are down about 10% from their all-time highs earlier this year.

With that as a back drop, the current analysis covers, historically, if it was better to sell and sit out the market whenever there was a drop of 20% from the peak in the previous 200 trading days, or if it was better to just hold and wait it out.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

joseph AT StockMarketMovement.com

Dollar Cost Averaging

Suppose you have a large sum of cash that you want to invest.  Should it all be invested at once, or incrementally over a period of time? The fear many people have is that they’ll buy into the market at the peak, and their investment will immediately fall in value afterwards.

In this post we’re going to look at a case study of the difference in outcomes between putting all of the capital into stocks at once, vs. putting 12.5% in each quarter over two years.  Which is better isn’t really clear cut, as there are times each strategy does better than the other.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

joseph AT StockMarketMovement.com

 

Lifetime Income: S&P500 Plus Strangle Options

I’ve looked at several strategies that can be used to extract income from an investment in the S&P 500.  One strategy involved purchasing a small amount of call options on the S&P 500 in addition to investing in the index, and another strategy involved purchasing a small amount of put options on the S&P 500 in addition to investing in the index.

The strategy described this month is a combination of the above two, and this combination is called a strangle.  The basic idea is that the put option provides some amount of protection from the market falling, while the call option pays for the put option in the years the market rises.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

joseph AT StockMarketMovement.com

Lifetime Income: S&P500 Plus Protective Put Options

This month’s analysis is another twist on the constant payout strategy I covered earlier.  That strategy consisted of putting all capital in S&P500 ETF’s, and drawing out a constant amount each year.  This provides a fixed annual payout for as long as the capital lasts.

In this month’s strategy, all capital is again invested in S&P500 ETF’s, and a constant amount is withdrawn each year.  However, an additional amount is withdrawn and invested in 12-month put options on the S&P500 ETF.  If the market has a significant drop during the year the put options offset a portion of the decline, so that any subsequent market rise will boost capital from a higher base.  If the options are not in the money at the end of the year, the principle balance is lower than it would have been had the options not been purchased.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

 

joseph AT StockMarketMovement.com

Lifetime Income: S&P500 Plus Index Options

This month’s analysis is an interesting twist on the constant payout strategy I covered last month.  Last month’s strategy consisted of putting all capital in S&P500 ETF’s, and drawing out a constant amount each year.  This provides a fixed annual payout for as long as the capital lasts.

In this month’s strategy, all capital is again invested in S&P500 ETF’s, and a constant amount is withdrawn each year.  However, a portion of the withdrawn amount is invested in 12-month call options on the S&P500 ETF.  If these options are in the money at the end of the year, the value is available for additional spending.  If the options are not in the money at the end of the year, the amount available for spending is reduced by the amount that was spent on the options.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

 

joseph AT StockMarketMovement.com

Lifetime Income: Constant S&P500 Inflation-Adjusted Payout

Continuing on the annuities and lifetime income topic, I’m going to look at a modification of last month’s analysis.  Last month, I analyzed putting capital into S&P500 stocks, and taking the dividends and a fixed percentage of assets every year as payout.  The advantage of this strategy is that capital will never go to $0 (unless the S&P500 goes to 0), because the capital withdrawn is a fixed percentage of its current value.  The downside is that year to year payout varies greatly, making budgeting extremely difficult.

In this month’s analysis, I look at what happens if the amount taken out each year is constant (adjusted for inflation).  Obviously budgeting is a lot easier, because the same amount of income is available each year.  However, with this strategy the capital can go to $0, and as you’ll see it would have gone to $0 with higher withdrawal rates over the study period.

If there are investment topics you’re interested in that I haven’t covered yet please send me an email:

joseph AT StockMarketMovement.com

Lifetime Income: S&P500 Payout

I’m changing tracks a bit this month.  I got an email asking about annuities and annuity alternatives.  There’s no single way to look at this, so I’ll post analyses looking at it several different ways.

This month’s analysis is very simple, put a lump sum of money into the S&P 500, and take out only dividends and a small percentage of the underlying capital.  This is very different than an annuity, which pays the same amount (possibly with an annual inflation adjustment) every year.  There are many variations of annuities.  You can get a good introduction on Investopedia to learn the basics.

Today’s analysis runs from 1970 through 2016, and all of the results are inflation-adjusted.

If there is enough capital to live off of only the dividends, this strategy would have worked out fairly well over the study period.  The annual inflation-adjusted payout was reasonably consistent through the mid 1980’s, at which point growth in the stock market and corporate earnings allowed the annual payout to appreciate substantially.  By the end of the study period, inflation-adjusted annual payout was more than twice the initial value, and underlying asset value was more than three times the initial asset value.

Taking out even a small percentage of capital each year as payout had a significant effect.  While the annual payout over the study period was reasonably maintained, the portfolio value was not.  Over a longer period of time, it’s likely the payout would reduce substantially as well.

Take a look at the analysis and let me know if you have any questions, or variations you’d be interested in seeing.

I love hearing from my fellow investors, so if there’s anything you’re interested in please send me an email:

joseph AT StockMarketMovement.com

Option Trading Strategy – QQQ Put Spreads

A ‘Put Spread‘ is when you buy a put and simultaneously sell a put on the same underlying security, with the same expiration date, but at different strike prices.  E.g., buy a put on QQQ for $100 per share 3 months out, and simultaneously sell a put on QQQ for $105 per share 3 months out.  As usual Investopedia has a good description of the basic idea.

Put spreads do best in markets that are rising, but not strongly.

The strategy I describe involves specifically 3-month put spreads.  Any term could be used, of course, and I’ve investigated several others.  I like the 3-month spreads because they don’t tie money up for a long time, even though longer term spreads are probably more consistent.  If there were 12-month QQQ options available every quarter I would probably switch to those to get long term capital gains tax (20%) instead of short term capital gains tax (39.6%), but QQQ currently only has 12-month options available in January.

I appreciate all the emails I receive to discuss investing, so if there’s anything you’re interested in please send me an email:

joseph AT StockMarketMovement.com