3 Critical Factors for Your Investing This Year
Although the S&P 500 is still up almost 10% year to date, it’s dropped roughly 5.7% in the last month.
So as we approach 2019’s halfway mark, you might be feeling like things are turning a bit and it might not be another “sit back and relax” kind of year… one where things just keep going up on autopilot.
Well, here’s how I look at it…
What Can You Control?
As investors, we should always remember that we CAN’T control the markets, the Fed, geopolitics, or other big-picture forces affecting our portfolios.
At the same time, we CAN control what expectations we have as well as the strategies we use to get where we want to be.
It really boils down to balancing a few important factors:
#1. TIME HORIZON
#2. RATE OF RETURN
#3. RISK UNDERTAKEN
Each of these elements needs to be combined in a way that makes sense for YOU.
For example, if you don’t mind waiting a long time for your wealth to really grow, you can easily get lower, steadier rates of return without taking on lots of risk.
Investing in quality dividend stocks – which I’ve been consistently recommending for two decades now – is a perfect example of this type of balance.
When the Dow jumps 30% in a year, your portfolio still surges in value.
When the market dips or goes sideways, your dividend payments keep flowing into the portfolio or buying you additional shares.
And ultimately, over a decade or two, your nest egg will likely end up having increased something like 10% a year on average.
Buying and Holding Assets
The same can be said for buying and holding other assets for the long-term – whether it’s real estate or precious metals.
In contrast, someone who wants better, faster returns is naturally going to have to take on a little more risk to get it… but even in this market, doing so is not impossible.
One way is targeting various shorter-term moves in various stocks and exchange-traded funds (ETFs).
In fact, you can even use ETFs to target moves in plenty of areas beyond stocks and related investments.
For example, there are widely-known ETFs targeting gold, silver, oil, and other commodities.
There are also ETFs and exchange-traded notes (ETNs) that are designed to rise when stock sectors, indexes, or various commodities fall in value… even some that produce two or three times the moves!
Again, you should expect some losers when you follow a more active approach… but the overall result can still give you a more rapid compounding effect even in choppy markets.
And if shorter-term gains of 5% or 12% still aren’t enough? Then you can simply slide the risk scale a bit further out and use greater amounts of leverage!
Using Leverage Isn’t Always a Bad Idea
Contrary to popular belief, using leverage isn’t always a bad thing nor does it even have to involve borrowed money.
For example, some of the funds I just mentioned use a limited amount of leverage to amplify moves in their underlying benchmarks.
Similarly, buying options to speculate on various up and down moves can do the same thing with even more dramaticeffects… while still never exposing you to unlimited risk like short selling, futures trading, or other leveraged approaches do.
And as I’ve proven over and over again, selling options can also help investors get extra investment income while actually LOWERING their portfolio’s overall risk in many cases!
As the market is dropping, selling put options on companies you wouldn’t mind owning is a terrific way to collect upfront payments while possibly getting you into the type of solid long-term investments I mentioned a moment ago.
Likewise, if you sell some covered calls against stocks you already own, you simply stand to collect extra income on top of any regular dividends you’re already earning.
And as long as you write contracts that have higher strike prices than your entry prices, the worst thing that happens is you book some additional capital gains.
Even if the major markets keep falling from here… or bouncing up and down without really going anywhere for the rest of the year… there’s no reason to get frustrated or sit on the sidelines.
You have plenty of ways to continue building your wealth whether you want to stay very conservative… get very aggressive… or split the difference with a more active approach like option selling.
To a richer life,
— Nilus Mattive
Editor, The Rich Life Roadmap