Where did all my interest go – and where can I find yield?
Once again, the market has provided a great deal of information without really saying a lot. Is that an old Chinese Proverb – like “he who says nothing says everything?” No – not really – what I am referring to is what are you getting back on your savings?
Interest rates are at low levels – providing on a real basis – bugger all – in terms of return for investors that are holding cash and paying down debt. Now don’t get me wrong – paying down debt is not such a bad thing – but what about the savers out there – or those in the transition to retirement or actual retirement stage of life. Can you get by on a 3% a year return?
Comments from the big honcho at the Reserve Bank of Australian – Glenn Stevens this week suggested that the bank had room to cut rates further, in order to boost business confidence. This is welcome news for markets – more money being forced into Property and Stocks in search of return, but how are you faring in this environment?
Well hopefully what I can share with you may help you move from holding a pile of cash, into other assets, which are yielding more return for you.
Having a low volatility of return is one of the big appeals of cash – your interest rolls in, every year. This is a good thing, from a certainty perspective, but is clearly underwhelming from a real return ie return less inflation perspective.
So how about some real yield?
The key aspect to this, is that we are not speculating on the market or chasing high returns. Instead, at a very conservative level, we are looking to lock in low volatility of return. This type of covered call trading is simply looking to be paid for time passing by – not dependant on the stock going up – hence a difference from directional and speculative trading.
All too often, the less aware investor and trader closes their mind to being even open to considering this strategy, let alone applying it, simply because they are not truly understanding the strategy and how it works. To be clear – there is a huge difference between thinking you know how a strategy works and actually intuitively knowing this.
Get paid while you sleep
We are looking to get paid for time – and specifically time decay – not what the stock may do. This is a huge mindset shift, given the strategy requires you to be holding the stock, but nonetheless it is the case. As such, for a consistency of return through selling at the money calls, where you wish to achieve maximum time decay, will yield solid and consistent return. This may sound a little tame, but do you want income, or excitement?
To give you an idea of where things are at the moment, the At The Money options we recently sold over ATI, which we traded and closed, with Dividend, for 5.5% – through May/June or our current position in URBN, which will yield around 3.2% if exercised for just on the month. That is money in the bank, nothing more to do, thanks very much! Remember this is for around a month, not the year!
Sounds appealing and it is. When the strategy is applied correctly – not taken “off piste” and having the turbos and leverage applied, the low volatility of return, not to mention the ongoing nature of the return, make it extremely compelling.
This is what we are doing and we would love for you to join us, because if Mr Stevens does cut rates further, and you are simply holding cash – your income falls, and those using this strategy will likely make even more, as stocks continue to get bought up. And, let’s face it, saving is never going to make you rich!
What about my dividends?
We look to target dividends, where the opportunity presents itself, just as I mentioned above for ATI. But that is not the main game. Take Telstra, that portfolio favourite. Yes it will pay a decent dividend – around 14c. Last time around it also paid 14c, and the stock dropped 21c over the coming weeks. That aside, dividends come twice yearly – what if you could have extra cashflow each month, rather than every six?
Invest a small amount of time now – and live off what you learn for a lifetime
Take another look at how this is happening right now and consider whether or not, this kind of regular and more consistent return stacks up for you by attending a free training session – simply by clicking here.