How I’ve Made My Wife 36% A Year In Her Roth IRA

The last several weeks have been my most active period of trading in more than a decade, which isn’t a coincidence – I only get really aggressive during major bouts of volatility.

Indeed, the last time I remember buying and selling so many different investments across so many different asset classes was March of 2009 … and most of those moves worked out pretty well.

Take a purchase that I made in my wife’s Roth IRA account back on March 23, 2009.

She had most of her money parked in cash at that time, and I could sense we were a lot closer to a market bottom than a market top so I purchased 300 shares of the Vanguard Total Stock Market Index ETF (VTI) at $34.36 apiece.

Total investment: $10,308.

While there was no way to be sure back then, my timing was pretty darn good – March 9th had marked the absolute market bottom during the financial crisis.

And what has the ETF done since then? Take a look …

Graph

At the absolute top of the market before the COVID crisis, it was up as much as 340% … but even after this recent bounce, it’s still up more than 250%.

Of course, I just cashed out my wife’s position on April 21st, for a total return of 395.63%.

How can this be possible when the ETF itself has never risen that much?

And why would I decide to cash out now?

Let’s start with the first question.

How To Make Compound Returns Hassle-Free

When I initiated the position roughly 11 years ago, I requested that her dividends be reinvested into additional VTI shares.

That simple action of accumulating more shares with the ongoing income caused her total share count to rise to slightly more than 373 over the ensuing 11 years.

In other words, my wife’s stake in the VTI increased 24% automatically!

So when I placed her sell order, which executed at $136.97, she ended up with $51,089.81 in her account.

That’s a total profit of $40,781.81 – or 395.63% — on the original $10,308 investment.

You’ll often hear people say the best returns come from time in the market rather than timing the market.

Well, in this case, it’s both.

But why wouldn’t I just let this position continue to run higher? Why am I deciding to cash out after the bounce?

As I’ve been telling you, I don’t believe the odds are in favor of more short-term gains … at least not substantial ones.

To be sure, I could be wrong. In which case, we might miss out on another 20% or 30% if the indexes return to prior highs.

At the same time, look at this chart of the Wilshire 5000 index’s market cap divided by U.S. GDP …

Whilshire

Buying Like Buffett Once Again

This particular relationship is one of Warren Buffett’s favorite valuation tools and as you can see, we are still in nosebleed territory. In fact, we are still higher than the last financial crisis peak!

Do I want to be a major owner of stocks at these prices and with so many uncertainties out there right now?

Not especially.

You’ll also notice that even Buffett himself has been notably quiet during the recent volatility.

That’s a major departure from past crises when he was writing opinion pieces about betting on America and taking large stakes in battered businesses.

As Buffett’s partner Charlie Munger recently told The Wall Street Journal

“I would say basically we’re like the captain of the ship when the worst typhoon that’s ever happened comes. We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity. We’re not playing ‘oh goody, goody, everything’s going to hell, let’s plunge 100% of the reserves [into buying businesses].”

This, from a 96-year-old investing legend who has pretty much seen and done it all!

Call me crazy, but I’m with Charlie.

Yes, I’ve already traded a few stocks for nice gains. Sold a few covered calls. And even initiated a new speculative position this week.  

However, my general feeling is this is a time for reducing your overall risk and increasing liquidity.

I believe it is more likely that this is the eye of the hurricane than the end of the storm.

And as I’ve just shown you, this wouldn’t be the first time I’ve correctly identified a major turning point in the markets.

To a richer life,

Nilus Mattive

Nilus Mattive

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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