Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Liberals or Conservatives

Is your refrigerator running?

If so, I hope it gets a lot of votes. 😉

The federal election is next week. I didn’t watch the recent debate. But I heard it was a train wreck.
If the polls are any indication it will be a pretty close race between incumbent Trudeau and O’Toole.

Who I’m voting for

Short answer, no one. 🙂

If I had to vote I would choose the party that will cause the least amount of interference with me on my road to financial success. And right now that vote would go to team Purple.

The People’s Party has a mandate to drop capital gains from the current 50% inclusion rate, down to 0%.

If that happens, asset prices would rise as lower taxation increases demand.
And the Loonie would become stronger allowing Canadians to invest globally for cheaper. 🙂

Alas, historically speaking Purple has never gotten more than 2% of the votes in my area. So I would be wasting my time going to the polls. My electoral district has always voted strongly for team Orange. So unlike before, I’m going to sit this election out.

From a purely economic point of view voting just isn’t a good use of my time.

What I’m doing instead

Rather than going to the booth and waiting in line, I plan to use my time next Monday to learn about the covered strangle option strategy. I’ll also catch up on emails, and make trading plans for October.

I’m responsible for my own life, not someone else.

I shouldn’t depend on others, or feel like they owe me something.
Why give that power to someone else rather than holding onto it myself?

So I don’t really care who wins the election.
The individual decisions I make on a daily basis are way more important.

The party leaders don’t even know me. They don’t care about my personal, daily problems. They are just strangers. I’m not trying to throw shade at anyone. It’s just a simple fact. The more I depend on giving power to someone else, the less efficacy I have over my own domain.

If the Liberals wins again, that’s cool. My net worth has grown by over $1 million since Justin Trudeau became Prime Minister in 2015. So more of the same isn’t bad. And if the Conservatives win then I’ll adapt to their new policies.

Priorities

Talking about politics can be fun. But at the end of the day, nobody is going to help me get to where I want to go.
Nobody will give me permission to tackle large goals and test my limitations.

If I want to choose my own path through life I have to take responsibility for myself. 🙂

What can I do today that will give me more time tomorrow, regardless of the election outcome?

Here are some ideas…

• Believe I can create my own destiny.
• Commit to building a 7 figure liquid portfolio, not just want to have one.
• Focus on opportunities rather than obstacles.
• Associate with positive, successful people.
• Believe I am bigger than my problems.
• Value my time and choose to get paid based on results.
• Spend time to learn how to better manage my money.

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Random Useless Fact:

A lucid dream is a type of dream where the dreamer becomes aware that they are dreaming.
This skill can be learned.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

A properly diversified portfolio should include businesses from all over the world. Valuation wise, stocks in developing countries are currently much cheaper than in North America. So in today’s post I’ll go over several emerging markets ETFs to consider adding to your portfolio.

VWO and IEMG

The Vanguard FTSE Emerging Markets ETF has a low management fee of 0.10% and over $100 billion of assets. It trades in the U.S. under the ticker (VWO) and in Canada under (VEE)

The iShares Core MSCI Emerging Markets ETF is another good option if you want to own some South Korean companies as well. The ticker is (IEMG) in the U.S. and (XEC) in Canada.

If you want to know more about the differences between VWO and IEMG you can watch my recent video here. I also discuss alternative EM funds that have a dividend or small cap tilt.

Emerging markets with or without China

China’s economy has slowed down, and many analysts are concerned about increasing regulations.

Do you know what happened to Alibaba founder Jack Ma after he criticized the central government?

[removed]

Regular citizens are affected as well. Employees from the education and high tech sectors have seen the value of their stock holdings plummet, wiping out savings practically overnight.

This year alone, the Chinese government has implemented the following new rules.

• Ban tutoring companies from making profits.
• Restrict online video game usage to 3 hours a week for anyone under 18 years old.
• Increase regulation of celebrities, and their fans.
• Crackdown on technology companies.

As a result of increasing government intervention the Chinese stock market has way underperformed the S&P 500 lately.

International investors are left with 2 choices. Either this pull back in Chinese stocks represents an opportunity to buy companies on sale, OR China will forever be an environment associated with regulatory uncertainty and is not worth investing in.

As usual, it’s a good idea to consider the choice from a long term perspective. If you think the Chinese stock market will grow over the next 10 years then investing in a diversified emerging market ETF would be an appropriate choice. Chinese companies make up a very generous portion of VWO for example.

On the other hand, if you don’t want to invest in China, then other options exist. For example, (EMXC) is the iShares MSCI Emerging Markets ex China ETF. This fund gives you exposure to emerging markets excluding China.

Ether way, there is something for everyone. 🙂

My EM strategy moving forward

Personally I plan to increase my exposure of emerging market stocks by selling put options on VWO with a Delta of around -20%. I will build up my emerging market investment until it’s worth about 10% of my liquid portfolio.

Earlier this year I made the case for why investors should look at emerging markets. It’s because that’s where most of the economic growth will most likely come from in the future. The U.S. is great at consuming, but over the long run I’m looking at which country is great at producing.

Thankfully the barrier to invest globally is now lower than ever thanks to afordable trading commissions, and a variety of ETF options. 🙂

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Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

August options trading review

This month I received $1,169 in premiums from trading options. This is another new record for me!

In today’s post I’ll break down my trades for July. And I’ll explain how I make option trading decisions to maximize income without blowing up my portfolio. 🙂

Here are some key points from this month.

• I sold 8 options, 6 Puts and 2 Calls.
• My largest trade was selling a put option on the S&P 500 (SPY), expiring in a year, worth over $500.
• My total trading commission was $8 for the month.
• 11 options from previous months expired in July. All 11 expired worthless. 🙂

Below is a table detailing my transaction details.

Thanks to reader feedback I have added a few new columns for clearer trading insights!

• Initial underlying price – The market price of the underlying stock/ETF when I made the options trade.
• Price difference % – How much the underlying will have to rise or fall to be in-the-money (ITM).
• Initial days to expiry – How many days remain until the option expires, from the day that I traded it.
• Initial Delta – Delta measures the probability of an option expiring ITM. For example, if a put option has a Delta of -10%, it means there is a 10% chance it will get exercised, and a 90% chance it’ll expire worthless.

Raw data from IB statement here.

Taking a LEAP of faith

A LEAP, or “Long Term Equity Anticipation” is a longer term options strategy where the expiration date is more than one year away. Due to this longer term contract, LEAPs generally offer very attractive premiums.

As mentioned on Twitter I sold a LEAP this month (my first ever) on the SPDR S&P 500 ETF.
I chose this fund because it’s well diversified with a lot of liquidity.
The strike price I chose was $290, which is a 33% discount. The average market correction historically is 33%.

The expiration date is in June 2022. It’s not quite 1 year away, but close enough.
After commission I earned US $517.36 from this one LEAP options trade. 🙂

The Delta for this trade was -7.4%. So there’s basically a 93% chance this will expire worthless.

Other options sold

I sold 2 AMC puts with a $15 strike. This was a calculated gamble on a meme stock. The high implied volatility means the premiums are too good to ignore. But to limit my risk I kept the expiration date short (15 days.) I also chose a strike price that’s deep out-of-the-money so that AMC would have to fall 65% to trigger an assignment. This option had a 98% chance of expiring worthless. It expired just last week, worthless. 🙂

I sold a $40 covered call for Summit Materials (SUM.) This is a construction materials company that makes cement. I originally bought this stock in 2017 because I thought Donald Trump was going to build a wall at the US/Mexico border. Alas, that didn’t happen, lol.

The stock is still up a decent 34% since my purchase. But it’s overvalued now. And its return on capital is a measly 5%. There’s little reason for me to keep this stock. This is why I don’t mind the Delta being a little higher for this trade at 17%.

Options trading at a glance

Since I started in April I’ve traded over 30 options that have already expired. Surprisingly none expired ITM.
I like to play it safe and choose trades with conservatively low Delta values. 🙂

So far I have earned $3,564 from option premiums. This is before capital gains tax.

Thanks for joining me on my options trading adventure. I hope to continue trading options in August and keep doing my “Wheel” strategy, as well as sell covered calls on stocks that I no longer want to keep.

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Random Useless Fact:

Not everyone can afford healthy food all the time.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

The world is not fair

Personal finance is like peanut butter. You can’t spread it too thin.😀
That’s why there are consequences for taking risks.
But sometimes people can reap the rewards for their actions, but not accept any of the risks.

Wall St. executives walk away with millions of dollars while their clients lose money.
Pro war advocates profit from selling weapons, but do not face any risk themselves of dying in a war.

Risk analyst Nassim Taleb wrote a popular book, Skin in The Game.
In it he says that accepting risk when making decisions is necessary for fairness.

Otherwise it creates a problem of asymmetry; one gets the rewards, while others are stuck with the risks.

Individuals make decisions based on incentives. A fund manager that gets a percentage on wins, but no penalty on losses is incentivized to gamble with his clients funds.

In order to have social justice Taleb advocates focusing on fair symmetry and risk sharing.
Forcing skin in the game corrects asymmetry better than thousands of laws and regulations.

Picking a side

Persuading the government to force bad actors to put skin in the game is a noble cause.
But I’m doubtful it will be effective.
Politicians themselves enact asymmetric policies all the time. Party leaders can offer voters particular monetary benefits or services if elected. Of course the leaders don’t directly pay for these benefits themselves. The cost will be paid either by taxation or inflation.

So perhaps a more practical approach is to position yourself with those who get the rewards, not those stuck with the risks. 🙂

Policy makers won’t increase interest rates now as doing so would kill the economy. But the longer they wait, the worse an economic crisis will be. So if rates aren’t going up meaningfully now, they never will unless there’s a currency crisis first.

What to do about it

Currency devaluation isn’t just a likely outcome in the future. It’s already been happening for decades.

The dollar lost 50% of its value over the last 30 years. It’s just been a gradual decline – not very noticeable from year to year.

A currency crisis simply means an acceleration of what has already been going on.

The latest data suggests Canada experienced 3.7% inflation year over year. The idea that money can lose 50% of its value from today in the next 10 or 15 years is a real possibility.

So how can you protect your purchasing power?

Hold onto low interest debt if you have it. Do not pay it off.
Inflation should cover the carrying cost and then some of any mortgage debt.

Why pay down your debt today when you can use devalued dollars in the future to pay it down?

You should also be investing in assets that will outpace inflation over time, such as value stocks and real estate.

Back in 2008 central banks bailed out mostly institutional investors.
But this time, if there is a crash, retail investors will need a bailout as well.

This means investing now is less risky than before.

And people are catching on. Margin debt is near all time highs.

See the moral hazard here?

Market speculators no longer have skin in the game.
Today we are witnessing a huge wealth transfer from innocent savers to savvy investors.

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Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Can you time the markets?

Absolutely. Markets have cycles, and if you understand where we are in the cycle you can make more informed investment decisions. Market timing isn’t complicated. 🙂 You just have to be ware of the business cycle, and know how to value investments.

This week’s video about market timing

Any market can be timed if you have the right information and strategy.

In the video I explain how to time the stock market, the housing market, and even cryptocurrencies.

You can click here to watch it on YouTube, or see below. 🙂

Building the right strategy requires reliable data and metrics.

The 3 primary metrics I use are:

1. Macro economic indicators.
2. P/E ratio, earnings yield, or dividend yield.
3. Technical signals.

Housing example

The sales to active listings ratio is a reliable monthly statistic that’s freely available.

This figure usually stays above 20%, suggesting a seller’s market with strong demand relative to available supply.

In Vancouver for example, the market experiences pullbacks occasionally.
During these times the sales to listings ratio falls to below 12%.
This is often the best time to buy, and the opportunity won’t last long.

So if you only buy homes in a buyer’s market you can probably find some great deals.

What does timing the market look like?

I’ve bought 3 properties in the Greater Vancouver area so far.
Each time was a rare period when the market favoured buyers. 🙂

If I buy another property in the future I will be using this strategy again.
Wait for sales to drop and prices to fall before taking action.

Is it possible to time the exact tops and bottoms of the market? No.

Timing the market for me is about picking up quality investments at discounted prices.
It means when the market falls, I intentionally try to “time it” and buy more before another bull market starts.

But just because it’s possible to time the markets I don’t think everyone should be doing it.

It can be risky to undertake and easily backfire if the data is misleading or misinterpreted.
Fortunately time in the market beats timing the market.
So if you’re patient you can still make a profit, even if you got in at a market high. 🙂

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Random Useless Fact:

Canadian banks are making record profits again.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Making sense of real estate taxes

Real estate has historically kept up with inflation. But I’m not sure if it can keep up with taxation moving forward.
I’m all for reasonable taxes. I benefit a lot from government services. 🙂
But at some point real estate taxes in Canada can start to feel excessive.

Someone buying a house in Vancouver BC today could pay up to 9 different kinds of taxes.

Doesn’t that seem more complicated than it needs to be?

Nevertheless, it’s important to know the tax implications of any real estate decision you make. So in today’s post I’ll explain all the taxes you have to consider before purchasing real estate in Canada. 🙂

Nationwide

Capital gains tax
If you sell a property for a capital gain, you will pay a capital gains tax. You can fill out a Schedule 3 – Capital Gains (or Losses) form. The capital gains inclusion rate is currently 50%. You are exempt from this tax if your property was only used as your principal residence, meaning you could not have rented out even a portion of it at any time.

Non residents also have to pay capital gains tax in Canada. The amount is 25% of the profit / capital gain realized on the sale.
.
Who pays this tax: Real estate investors, foreigners and home owners who have rented out their property.

Property tax (local)
This is an annual tax paid to the local government. The proceeds pay for city services such as police, public transit, schools, roads, and public utilities. The property tax rate depends on where you live. The closer to a city center the lower the rate as a percentage of the property’s value.
.
Who pays this tax: Everyone.

Vacancy tax (Federal)
Starting January 2022, the Federal government plans to charge 1% tax on the value of non-resident, non-Canadian owned residential real estate that is considered vacant or underused.
.
Who pays this tax: Foreigners.

GST or HST
If you buy or build a new home, you need to pay the federal goods and services tax (GST) on the purchase price, or the harmonized sales tax (HST), depending on where you live. Rebates for this tax are available depending on your situation.

• Tax rates:
• 5%  (GST) in Alberta, BC, Manitoba, NW Territories, Nunavut, Quebec, Saskatchewan, and Yukon.
• 13% (HST) in Ontario.
• 15% HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, and PEI.

Who pays this tax: Everyone buying new property.

Provincial

General land transfer taxes
When you acquire a property, you must pay a tax to the government after the transaction closes. This should be budgeted into your closing costs. The amount paid depends on the value of your property.

Breaking down the provincial / local real estate taxes

British Columbia (5 potential taxes)

Property transfer tax (PTT)
You pay this land transfer tax whenever you buy a property in B.C. This was enacted in 1987 as a temporary measure to help balance the provincial budget. But it stuck around. As the famous economist Milton Friedman once said, “nothing is so permanent as a temporary government program.”

• Tax rates:
• 1% of the value up to and including $200,000.
• 2% of the value greater than $200,000 and up to $2,000,000.
• 3% of the value from $2,000,000 to $3,000,000.
• 5% of the value over $3,000,000.

B.C. offers a tax refund if you are a permanent resident or citizen and have never owned a property before. It is called the first time home buyers’ program. This tax refund will only cover properties worth $500,000 or less.

Who pays this tax: Everyone except first time home buyers.

Foreign-buyers Tax
For a foreign national or corporation, a 20% additional tax on the purchase price is paid whenever you buy property in the following regions of the province:

• Capital Regional District
• Fraser Valley Regional District
• Metro Vancouver Regional District
• Regional District of Central Okanagan
• Regional District of Nanaimo

Who pays this tax: Foreigners

Speculation and vacancy tax
Residential properties in large urban centers are subject to this annual tax.

2% for foreign owners and satellite families.
0.5% for Canadian citizens or permanent residents who are not members of a satellite family.

You can be exempt from this tax if it is your principal residence or if you have it rented at least 6 months out of the year. But you have to fill out declaration form every year to claim the exemption.

Who pays this tax: House flippers, speculators, foreign owners, and satellite families.

Empty homes tax – Vancouver municipality

If your property is empty or is only lived in some of the time, and it is located in the city of Vancouver, then it may be subject to a 1.25% tax based on its fair market value. You would pay this levy every year.

Who pays this tax: Owners with empty Vancouver homes for more than 6 months of the year.

Additional school tax

This tax applies to homes worth more than $3 million. The value is determined by the provincial government. It’s basically a wealth tax specifically on real estate assets.

• Tax rates:
• 0.2% on a residential property assessed between $3 million and $4 million.
• 0.4% on any portion over $4 million.

Who pays this tax: Owners of any property that is worth over $3 million.

Ontario (3 potential taxes)

Land transfer tax – Provincial
You pay this tax one time when you purchase a property in Ontario.

• Tax rates:
• 0.5% of the value up to and including $55,000.
• 1.0% of the value from $55,000 to $250,000.
• 1.5% of the value from $250,000 to $400,000.
• 2.0% of the value from $400,000 to $2,000,000.
• 2.5% of the value over $2,000,000

ON offers a tax refund of up to $4,000 for first-time home buyers.

Who pays this tax: Anyone who buys property in the province.

Land transfer tax – Municipal (Toronto)
You pay this tax one time when you purchase a property in Toronto, on top of the provincial land transfer tax.

• Tax rates: $81 fee + HST for administration fee. Plus…
• 0.5% of the property’s value up to and including $55,000.
• 1.0% of the value from $55,000 to $250,000.
• 1.5% of the value from $250,000 to $400,000.
• 2.0% of the value from $400,000 to $2,000,000.
• 2.5% of the value over $2,000,000

Toronto offers a tax refund of up to $4,475 for first-time home buyers.

Who pays this tax: Anyone who buys property in the city of Toronto.

Non‑Resident Speculation Tax
You pay this 15% tax when buying a property if you are not a citizen or permanent resident of Canada. This tax only applies to the Greater Golden Horseshoe Region.

Who pays this tax: Foreigners pay this NRST.

Alberta

Property transfer and mortgage registration fees
There are no property transfer taxes per se in AB. But there is a small fee for buying a property.
There is also a mortgage fee if one is used to purchase a home.

Rates:
Property value: $50, plus $2.00 for every $5,000 of property value.
Mortgage component: $50, plus $1.50 for every $5,000 of mortgage.

To put this into context, purchasing a $400,000 property in Alberta with a 20% down payment would cost about $360 in total fees.

Who pays this tax: Everyone.

Saskatchewan

Property transfer and mortgage registration fees
Similar to Alberta, Saskatchewan charges fees instead of a standard land transfer tax.

Rates:
Property value: $25, plus 0.30% of property value over $8,400.
Mortgage component: $160 for the registration of a new mortgage.

For context purchasing a $400,000 property in SK with a mortgage would cost about $1,360 in total fees.

Who pays this tax: Everyone.

Manitoba

Land transfer tax
This tax is paid for anyone purchasing property in the province.

• Tax rates: $70 fee + the following…
• 0.0% of the property’s value up to and including $30,000.
• 0.5% of the value from $30,000 to $90,000.
• 1.0% of the value from $90,000 to $150,000.
• 1.5% of the value from $150,000 to $200,000.
• 2.0% of the value over $200,000.

This means purchasing a $400,000 property in Manitoba would cost $5,720 in land transfer tax.

Who pays this tax: Everyone.

Quebec

Welcome Tax – Provincial
A land transfer tax you pay to the province.

If the property is outside of Montreal.

• Tax rates:
• 0.5% of the value up to and including $50,900.
• 1.0% of the value from $50,900 to $254,400.
• 1.5% of the value from $254,400 to $505,200.
• 3.0% of the value over $505,200.

If the property is inside of Montreal.

• Tax rates:
• 0.5% of the value up to and including $51,700.
• 1.0% of the value from $51,700 to $258,600.
• 1.5% of the value from $258,600 to $517,100.
• 2.0% of the value from $517,100 to $1,034,200.
• 3.0% of the value over $2,000,000.

This means purchasing a $600,000 property in Montreal QC would cost $7,863 in land transfer tax.

Who pays this tax: Everyone.

Putting things into context

Most people don’t have to pay all of the taxes above. But it’s important to know which ones affect you. Let’s look at an example case below:

Buying and selling on the west coast

Let’s say you don’t live in Canada but want to buy a $1 million vacation home in Vancouver.

You keep it empty most of the time. And sell it in the future for $1.5 million. Sounds great!

But before you take your $500,000 profit let’s break down the taxes you’ll have to pay.

• Property transfer tax – $200,000.
• Capital gains tax – Up to $133,750.
• Property tax – $3,750 / year.
• Federal vacancy tax – $10,000 / year.
• GST – $50,000.
• Property transfer tax – $18,000.
• Speculation/vacancy tax – $20,000 / year.
• Empty homes tax – $12,500 / year.

That’s a total of $448,000 of taxes you have to pay to buy and sell a property in Vancouver. That’s almost your entire $500,000 pre-tax profit, lol.

You’ll also be taxed $50,000 each additional year you hold onto the property after the first year. So you better hope the property’s value will grow by at least 5% a year to keep up with taxation.😂

After paying for real estate agent, conveyance, and lawyer fees you would be lucky to break even on your initial investment.

Here are 3 lessons we can take away from this example:

1. The taxes are very prohibitive to buy real estate in Canada for foreigners.
2. Do not flip real estate for a quick profit. Keep it for at least 7+ years for a higher chance to appreciate and reduce the rate of transaction costs.
3. Despite what governments say about wanting more affordable housing, they actually love it when real estate prices rise. The more transactions that takes place, and the higher property prices go, the more money the government makes. That’s how they increase tax revenues without directly “raising” people’s taxes. Sneaky. 😉

An alternative to buying property directly

I wonder what new tax governments will add to real estate next.

Rather than investing in real estate directly, maybe it’s better for most people to just buy a REIT instead.

Note that all tax policies are subject to change. It’s a good idea to speak with a tax specialist before making any purchase decisions. 🙂

______________________________________
Random Useless Fact:

According to Census Bureau data, 52% of millennials live in their parents’ home.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

What’s your sign? 

What is your take on horoscopes? Legit or completely meaningless?

If your birth month has no effect on your future prosperity then the rich should be proportionally distributed.

Yet that’s not the case.

For example, roughly 9% of people in the general population are Libra.
However, Libras make up nearly 20% of billionaires.
Meanwhile Sagittarius accounts for about 8% of the general population, but only 1% of the super rich.

How can this be?

Why are Libras more likely than others to become billionaires?

Could it be that Libras are smart and hard working? They’re also charming, good at negotiating, and strive for “balance”, which is the symbol of their sign. These are all valuable traits to get ahead in life and build wealth. 🙂

We know that children born near the beginning of the year are more likely to become CEOs, doctors, or professional athletes. But Libras are born in September/October.

Furthermore, FORBES released a list of the highest paid entertainers.

Out of all the celebrities, 12.7% were born under Taurus. This sign is associated with determination and stubbornness. George Clooney and Jerry Seinfeld are some of Hollywood’s most highly paid Taureans.

Once again, Sagittarius was at the bottom, only making up 2.7% of the list.
Oh man. If you’re a Sagittarius you should thank your lucky stars that astrology isn’t real.

Or is it? 😮

We have data showing the distribution of births throughout the year. It’s fairly even with slightly higher births in July and August. The numbers are not dramatically different month to month.

If astrology is nonsense and has no predictable usage, then how can we explain the findings mentioned above?

Why are people who are born Libra or Taurus disproportionately more successful?

There is clear evidence to suggest the month we’re born in correlates to where we end up financially & socially.

But what is the cause? What is the connection? 🤔

I’m not saying I believe in horoscopes, but…

Okay, hear me out before you roll your eyes.

My sign is Taurus. And it’s scary how much I completely resemble one.

Taureans are widely known to be calm, stoic, grounded, and logical, using practical knowledge and experience to orient themselves in the world. When it comes to finances they are natural wealth attractors who also love to manage and grow money.

I mean, that’s basically me! 😀

The similarities are just getting started. According to Co-Star Astrology…

Taureans like things to be predictable. They are perfectly happy eating the same meal over and over, or wearing the same outfit for a week straight. They prefer things be consistent than chaotically good.

Again, this is me. My personality type is INTJ, meaning I like to know what’s going to happen before it happens. I don’t like to explore the unknown. I need structure.

Taurus on practical planning

They are like machines. And no matter what life throws at them, they will inevitably overcome their obstacles because they’ve already prepared for every contingency.

This describes me perfectly. Like Batman, I like to be prepared for anything. I specifically made a financial stress test with warnings signs, and solutions to every possible negative situation I could think of.

From the popular women’s magazine Bustle…

Taureans, with their dependable, steady natures, are good with money. As someone born under the sign of Taurus, you place a very high value on stability, which motivates you to plan and save for the future.

Totally me. My blog’s tagline since the beginning literally says, “planning for the future, one investment at a time.”

Digital magazine Thought Catalog says that..

Taurus are homebodies and like to relax more than adventure out into the world.

Again, I can totally relate to this as my favourite hobbies include reading books, watching TV, surfing the internet, and playing board games – all indoor activities. 🙂

Even the bad qualities of Taurus apply to me

Co-Star Astrology warns that, Taureans are…

“sometimes overly determined to achieve material success.”

Material success is my path to a secure financial future, which is very important to me, even if I have to make sacrifices elsewhere.

“Taureans don’t respond to criticism. Not even that they negatively react to it, but it’s almost like they are made of cement, and any feedback just bounces right off. They don’t budge.”

Again, this is 100% me. I’ve easily brushed off criticism in the past.

“Taurus are stubborn. They’re slow to change their minds because change threatens their sense of stability… They can also be reckless, especially when they are young… Once they decide they like something, they go all in.”

All true. I am stubborn, and don’t change easily. I also make reckless moves sometimes.

One time in 2013 I agreed to purchase a property with no conditions. The crazy part was I signed before securing any financing. I could have lost my 10% deposit, but I really wanted to buy it. Silly me. Such a Taurus thing to do, lol.

Horoscope compatibility

Some pairing of signs are said to be more compatible than others. For example, Taurus and Leo are not a good fit for each other, according to astrologers. Luckily I did not marry a Leo.

I didn’t do any astrology research when choosing a life partner. But after getting married I looked up how compatible I am with my wife based on our signs. Her birthday is in December. To my surprise, astrology.com described our relationship very accurately. 🙂

Fate or coincidence

Horoscopes can be a touchy subject. I once got into a debate over it with a close friend.
It nearly Taurus apart. 😎

I’m not saying horoscopes are real, but my personality seems to line up with the quintessential Taurus.

You may have some doubts. What if I subconsciously molded my personality to match the Taurus stereotype?

It’s possible. But not likely. I didn’t pay any attention to horoscopes when I was in school.

In my mid 20s a friend told me I’m probably good at managing money because I’m a Taurus, even though she knew nothing about my financial situation. Nevertheless, I was intrigued enough by her unsolicited comment to look into my horoscope.

But by then my personality had already been established. Besides, since I was a child I had exhibited all the core Taurus traits such as stubbornness, dependability, resiliency, and a preference for things to stay the same. I was simply born this way.

I’ve looked into the other 11 zodiac signs and none of them even come close to describing me.

In conclusion

Maybe the time of year that you’re born can affect your personality, and your financial path.
And horoscopes are possibly a way to explain how it affects you.
I have a friend who doesn’t believe in astrology at all. But she’s a Scorpio, so she’s a natural skeptic. 😏

I know the plural of anecdote is not data.
So at the end of the day Astrology is just for fun and is not supported by scientific evidence.

But still. It makes you wonder doesn’t it? 😀

I can’t be the only Taurean who can relate to the memes in today’s post. 😅

Readers, do you believe horoscopes have any validity at all? And does your personality match your sign?

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Random Useless Fact:

Some pictures you can just smell.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

July options trading review

This month I received $1,068 in premiums from trading options. This is a new record for me!

In today’s post I’ll break down my trades for July. And I’ll explain how I make option trading decisions to maximize income without blowing up my portfolio. 🙂

Here are some key points from this month.

• I sold 8 options, 6 Puts and 2 Calls.
• My largest trade was selling a put option on the S&P 500 (SPY), expiring in a year, worth over $500.
• My total trading commission was $8 for the month.
• 11 options from previous months expired in July. All 11 expired worthless. 🙂

Below is a table detailing my transaction details.

Thanks to reader feedback I have added a few new columns for clearer trading insights!

• Initial underlying price – The market price of the underlying stock/ETF when I made the options trade.
• Price difference % – How much the underlying will have to rise or fall to be in-the-money (ITM).
• Initial days to expiry – How many days remain until the option expires, from the day that I traded it.
• Initial Delta – Delta measures the probability of an option expiring ITM. For example, if a put option has a Delta of -10%, it means there is a 10% chance it will get exercised, and a 90% chance it’ll expire worthless.

Taking a LEAP of faith

A LEAP, or “Long Term Equity Anticipation” is a longer term options strategy where the expiration date is more than one year away. Due to this longer term contract, LEAPs generally offer very attractive premiums.

As mentioned on Twitter I sold a LEAP this month (my first ever) on the SPDR S&P 500 ETF.
I chose this fund because it’s well diversified with a lot of liquidity.
The strike price I chose was $290, which is a 33% discount. The average market correction historically is 33%.

The expiration date is in June 2022. It’s not quite 1 year away, but close enough.
After commission I earned US $517.36 from this one LEAP options trade. 🙂

The Delta for this trade was -7.4%. So there’s basically a 93% chance this will expire worthless.

Other options sold

I sold 2 AMC puts with a $15 strike. This was a calculated gamble on a meme stock. The high implied volatility means the premiums are too good to ignore. But to limit my risk I kept the expiration date short (15 days.) I also chose a strike price that’s deep out-of-the-money so that AMC would have to fall 65% to trigger an assignment. This option had a 98% chance of expiring worthless. It expired just last week, worthless. 🙂

I sold a $40 covered call for Summit Materials (SUM.) This is a construction materials company that makes cement. I originally bought this stock in 2017 because I thought Donald Trump was going to build a wall at the US/Mexico border. Alas, that didn’t happen, lol.

The stock is still up a decent 34% since my purchase. But it’s overvalued now. And its return on capital is a measly 5%. There’s little reason for me to keep this stock. This is why I don’t mind the Delta being a little higher for this trade at 17%.

How I make my options trading decisions

If you want to know how I choose my options and strike prices, take a look at my recent video.

I break down my thought process to earn the most premiums without taking on excessive risk. 🙂

You can watch the video here, or see below.

It’s probably easier to follow my thoughts in a recorded demonstration than to read a blog post about it.

Options trading at a glance

Since I started in April I’ve traded over 30 options that have already expired. Surprisingly none expired ITM.
I like to play it safe and choose trades with conservatively low Delta values. 🙂

So far I have earned $3,564 from option premiums. This is before capital gains tax.

Thanks for joining me on my options trading adventure. I hope to continue trading options in August and keep doing my “Wheel” strategy, as well as sell covered calls on stocks that I no longer want to keep.

______________________________________
Random Useless Fact:

Not everyone can afford healthy food all the time.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Global wealth rose 7.9% to US $431 trillion last year.
This is how much everyone owns collectively, $431,000,000,000,000.

The segment that generated the most growth was real assets such.

Society is getting richer as a whole

The financial assets owned by everyone in the world increased by 9.3% last year to a record $250 trillion.
This is equivalent to US $32,000 of investments for every individual.

Okay so what does this mean? Here are some take-aways from the report by Boston Consulting Group.

1.  Global wealth grew by nearly 8% last year. This means anyone who’s net worth didn’t grow by at least 8% in 2020 is falling behind.
2. Investments in capital markets rose 11.5% globally in 2020, fueled by easy money policies from the world’s central banks. It’s not necessarily a good idea to benchmark your returns with an index. But this 11.5% growth gives you a good idea of what the rest of the world has made in terms of investment returns last year.
3. As I’ve been warning for the last 2 years, inflation is coming and you have to invest in hard assets such as commodities and real estate. As most readers know, I bought 2 new properties since 2019, and both have appreciated in value by double digits. And I don’t think this boom cycle is over yet.
4. We do not live on an isolated island. There’s a common perception that Canada has expensive housing, especially in the larger cities. The fact of the matter is that real estate prices have skyrocketed across the world during the pandemic. This isn’t a “Canada” specific phenomenon.
5. If you have more than $1 million USD, you are part of the top 0.3% wealthiest people in the world. There are only about 20.8 million people as rich or richer than you.
6. If you have over $5 million USD, you are among the top 0.025%. Only 2 million people in the world have this kind of wealth.
7. Most of the growth in wealth over the next decade is expected to come from Asia.

Exposure to the world 

How can we financially prepare for the future?

Diversifying our assets around the world can reduce risk without hurting expected returns. Don’t get me wrong. I’m glad we have a resource based economy which has been a blessing over the last 2 years as lumber, land, oil and other commodities increased in value. That’s why the Canadian stock market index is beating the S&P 500 in the U.S. this year. But Canada only makes up 3% of global GDP.

This is why it’s sensible to invest globally.
Luckily there are all-in-one ETF investment solutions to help with that.

The 2 most common ETFs that are easy to suggest to beginner investors are the iShares Core Equity ETF Portfolio (XEQT) and the Vanguard All-Equity ETF Portfolio (VEQT)

If you’re wondering what the specific differences are between the two I’ve recently uploaded a video comparing the two funds. You can watch it here in case you missed it, or see below.

XEQT is exposed to more technology stocks and has a larger global allocation focusing less on Canada. And VEQT has more exposure to the financial sector and emerging markets. I don’t think you can go wrong with either one. 🙂

Both these funds are a great place to start your investing journey. And they will certainly take advantage of the growth in global wealth over time. But that doesn’t mean they’re for everyone. Ultimately the goal is to continue learning and perhaps branch out into other investments that better suit your investor profile over time.

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Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

In 2008 I started out with no assets and zero investment income. All I had was a dream. 😅
Since then I’ve worked hard to make my dream come true.
And today I have 3 real estate properties, a growing stock portfolio, and a 6 figure investment income.

In today’s post I’ll break down all the ways I make money with my investments. 🙂
I’ll share what assets I have, how I got started with each type, and what I learned along the way.

Revealing my total income from investing

Here are all the different types of incomes I earn from my investments today. All amounts are pre-tax.

• Dividend income = $19,400
• Interest income = $9,200
• Rental income = $63,000
• Options income = $8,400
• Total = $100,000/year

As you can see there was a massive increase this year in 2021. This was mainly because of higher rental income, and the addition of trading options.

Becoming an investor

Ever since college I new I wanted to become rich, but at first I didn’t know how I was going to get there.

In 2008 I graduated and began my career as a graphic designer making $35,000 a year.
It wasn’t much, but better than minimum wage.

I was then faced with a problem, albeit a good one. For the first time ever I had savings but didn’t know what to do with it. After searching online for answers I came across an article by Freedom 55 Financial, an insurance company. It basically explained that I should invest my savings if I don’t plan to touch it for awhile.

So I did some reading about the stock market, real estate, and other types of investments.

I spent nearly all my free time learning about income statements, financial ratios, and candlestick charts instead of going out to socialize like my friends.

I was fascinated by all the success stories of famous investors like Warren Buffett and Peter Lynch.
If they can do it, maybe I could too. I loved the idea of having my money work for me even while I sleep.

By the way, don’t sell stocks while bathing in sparkling apple juice. Because that would be in cider trading. 😎

So anyway, I opened up a brokerage account with TD Waterhouse.

I wanted to buy a low risk, defensive stock. Pipeline companies were the natural choice.
And out of the major names Enbridge seemed like the safest bet.

So I made my first investment purchasing $1,000 worth of ENB.TO shares.
The $29 trading commission felt like highway robbery. But high fees were the norm back then.

In any case I was now a shareholder of a multi-billion dollar company!

A new outlook on life

I was ecstatic when I received my first dividend payment, around $10. 😀
That was the first time I made any real investment income. I was hooked immediately.

It was so much fun buying my first stock I quickly saved another $1,000 to buy my next stock.
Then in 2009 I purchased my first property using 20x leverage.

I finally figured out how I can become wealthy. I will do it through investing! 😉

There’s no need to earn a high income when I could just save some money and buy appreciating assets.
If Enbridge’s profits increase, my net worth will grow too, as long as I continue to hold the stock. 😀

Liquid’s Investment Income breakdown

I continued to invest over time. Here are the full details of my various investment income streams.
I hope you find something useful from my experience.

Dividend income = $19,400

• Income type: Passive
• Tax efficiency: Good
• Special perk: DRIP

Most of my savings over the last decade went to buy dividend growth stocks. Dividends are the bees knees. 🙂 They are tax efficient, completely passive, easy to reinvest (DRIP), and many stocks grow their dividend payments over time. What’s not to like?

Dividend income was a major contributor in helping me reach financial independence last year.

It does take awhile to accumulate though. I was investing about $12,000 a year in dividend stocks when I started out. Things were very slow in the beginning. Here’s a net worth update from 2012. That was after 3 years of persistently investing in dividend growth stocks.

I was excited to make $300/month in dividends at the time, but the growth was still linear.

But after 6 years or so the power of compounding became noticeable! My dividend income was growing $2,500 each year. 🙂 Plus I was also saving and investing $15,000 to $20,000 a year since I was earning more money in my career.

As with any long term plan, you need to have patience, and not quit early. Growth will always appear linear in the beginning. But just wait around long enough and you’ll reap the exponential rewards.

Interest income = $9,200

• Income type: Passive
• Tax efficiency: Poor
• Special perk: Higher seniority in repayment order

This is income generated through bonds, mortgage investment corporations, peer to peer lending, and other fixed income securities.

As with dividend income my interest earnings were small at first.
But I kept an eye out for new opportunities.

And today…

Over time my interest producing assets grew.

Because interest income is taxed at the highest level I try to keep these investments in tax-sheltered vehicles like my RRSP and TFSA. That’s not always possible, but I do what I can.

Here are my interest income sources and how much income they produce per year:

1. Bonds and bond ETFs = $2,900
2. Mortgage investment corporations (MICs) = $3,100
3. Peer-to-peer lending = $3,200

Bonds

I have about $43,000 of bonds and bond funds. One of my earliest bond purchases took place in 2016 in SolarShare, a green energy company in Ontario. That’s right. Your boy Liquid was investing in the ESG space before the acronym was even invented. #hipsterinvesting 😎 It was a $10,000 bond purchase with a 6% coupon.

Bonds represent a very small fraction of my overall portfolio – less than 3%. Bonds can be a great strategic holding but I generally don’t recommend them as long term investments.

MICs

I began investing in mortgages in 2014 and have slowly been accumulating more over the years. I now have $45,000 of MICs in total, and they produce on average 6.9% interest income every year.

P2P Lending

I joined Lending Loop in 2016. At first I was getting about 12% annual returns on the peer-to-peer lending platform. But delinquencies started to pile up. My returns dropped to 10% and then 8% over time. I became more and more disappointed with my performance.

After the third year I took some money out to invest elsewhere. It’s hard for me to analyze which companies are credit worthy and which will go bankrupt.

Today I still have about $27,000 in my Lending Loop account. I enabled auto-lend, and plan to just let it ride for now.

Rental income = $63,000

• Income type: Semi-passive
• Tax efficiency: Poor
• Special perk: Lots of tax deductions, eg: mortgage interest, repair costs, etc.

I started collecting rent in 2012 from my Saskatchewan farmland.

But the income quickly stagnated. I had difficulty increasing the rent because I didn’t live in the province. My tenant was only paying me $1,000 a month. 🙁 I had no leverage negotiating with him since he knows the area better than me. I was frustrated knowing I was collecting below market rent.

So I decided to make a change.

I sold my farmland in late 2019 to purchase a condo around Vancouver BC. Both the old farm and new condo were valued at ~$450,000. But it was easier for me to negotiate a higher rent in the city.

So my rental income shot up from $1,000 per month to $1,800. Nice!

Then last fall I moved from my old condo into a house with my wife. I rented out my old pad instead of selling it. This added $1700 a month to my rental income, which brought the total up to $3,500 per month. Woot!

Finally, at the beginning of this year, I fixed up the basement of my house and rented it for $1,750 a month. With this latest addition, I now bring in $5,250 a month from 3 rental units.

Wow! 😀 That’s $63,000 a year!

Luckily there’s a lot of rental expenses such as mortgage interest, property tax, and maintenance costs to offset the rental income for tax purposes.

The importance of choosing quality tenants

My wife and I manage all the properties ourselves, so the rental income is not completely passive.
Similar to screening stocks, we screen tenants very carefully and only accept the best qualified candidates.
After the initial screening process it’s been a very hands off experience.
We haven’t ran into any issues with our tenants yet. #knockonwood. 😉

Here’s a bank statement showing rent deposits from all 3 properties. The rent from my old condo ($1,700) is split into 3 payments because the 3 tenants living there want to pay separately.

Thank goodness for e-Transfer so I don’t have to deal with paper cheques. 🙂

Options income = $8,400

• Income type: Active
• Tax efficiency: Decent
• Special perk: Incredibly fun 😀

I started trading options in April this year.

It began when I realized I had about $300,000 worth of stocks sitting in my margin trading account.
What a privileged position to be in. 🙂 Why not leverage this money to generate extra returns with low risk?
Otherwise I would just have idle capital not doing anything.

My main strategy is to earn option premiums from selling puts and calls. I want to earn at least $700 a month. This works out to $8,400 a year – which is 3% of my non-registered portfolio. So far it appears things are going better than expected. 🙂

Options income is treated as capital gains for tax purposes as long as it’s not my main source of income.

Options trading is the only investment income that is active. But it takes me about 5 hours a month to research and trade so it’s certainly time well spent. 🙂

The main takeaway

In summary, I researched different assets to expand my knowledge-base and comfort zone.
Then I identified where I have the greatest edge and familiarity, and concentrated on those areas.
I developed an investment plan. Put that plan to action. And I adjust it as needed. 😀

It’s not complicated. But it does take some focus, sacrifice, commitment, and luck. 😉

It won’t be quick, but it will be worth it

If you are just starting out and want to build up a strong, perennial stream of investment income, here are some tips to consider:

1. Begin with dividend stocks. This has the lowest barrier to entry and will keep you motivated. 🙂
2. Save up for a down payment and buy a property in a growing city. You can rent it out or live in it yourself.
3. Consider learning to sell options for income once you have built up a $100K liquid portfolio.
4. Find ways to hedge against long term inflation. Own companies in the following sectors: energy, utilities, consumer staples, healthcare, commodities.
5. Discover what your natural aptitudes are. If you play games where you have the aptitudes and other people don’t, you’re way more likely to win that game.
   ➡For example, I have a natural affinity towards picking dividend growth stocks, and so far I’ve had reasonable success trading options. So I will continue to focus on these aspects of my investments. However, as mentioned earlier I’m not very good at analyzing the credit risk of small businesses, so I backed away from private lending. Your natural skills and aptitudes could be completely different than mine. The point is to figure out what kind of investor you would be good at. And then prioritize accordingly.
6. Lastly, continue to seek knowledge and build your investment empire until you reach FI and beyond. Always be curious.

Of course there are exceptions and nuances around these tips. But you get the general idea.

It won’t make you rich over night. But at least it will start you on the path to financial freedom, and you can personalize the journey as you go.

Do you have any investment income? Leave a comment if you’d like to share. 🙂

______________________________________
Random Useless Fact:

30 minutes of dancing burns about 200 calories.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

In today’s post I’ll share my finances and investment performance over the last 3 months. 🙂
My liquid net worth does not include my home or rental properties.

My liquid net worth progress – April to June

It has been an amazing quarter for most asset classes. The TSX hit 20,000 points for the first time ever. Here’s a summary of my liquid net worth changes.

Liquid Assets:
Cash = $22,000 (+$1,000)
Canadian stocks & bonds = $349,000 (+40,000)
US stocks & bonds = $217,000 (+8,000)
Retirement = $225,000 (+5,000)
P2P lending = $26,000
Mortgage funds = $44,000 (+2,000)
Total = $883,000

Liquid Liabilities:
Margin loan = $117,000 (-5000)
Total = $117,000

Liquid Net Worth = $766,000 (+$61,000) + 8.7%

All numbers are rounded to the nearest $1,000 and in $CDN at 0.81/USD

Half way through the year

My liquid net worth has grown by $120,000 so far this year. Wow. 🙂

My Interactive Brokers portfolio has returned 28% year to date.
For context, the TSX Composite index is up about 18%.

Inflation played a major role in my portfolio’s outperformance. I’ve previously blogged about how I have hedged against rising commodity and other hard asset prices in 2021. I’ve also made videos on the topic.

It looks like my actions are paying off. 🙂

*SPXTR = S&P 500 total return index
*EFA = MSCI developed market index (Excludes US and Canada)
*VT = Vanguard total world stock index

Asset breakdown, events, and analysis

It’s incredible to see almost $900,000 of financial assets in my portfolio. I hope it will become $1 million by the end 2021.

All my investments continue to grow in value except for my peer to peer lending portfolio through Lending Loop. There were some write offs in May and the overall account was flat overall for the quarter, which is a bummer. I guess you can’t win them all. If I see other opportunities I will consider pulling some cash out of Lending Loop to fund a more lucrative investment.

My MICs have been surprisingly resilient throughout the last year. I thought low interest rates and mortgage payment deferrals would hurt these fixed income investments, but the mortgage funds (MICs) that I hold have all done relatively well, and at near all times highs.

Here’s a rough look at where my financial assets are held.

Looking ahead

In last quarter’s update I predicted we’re going to see higher asset prices in Q2, and higher inflation in goods and services.

For the third quarter I expect prices to level off. I think most of the stock market growth for the year has happened already.

But a major factor that can influence how stocks behave is the fixed income market. If bond yields decline, it will push more investors into the stock market and continue to drive prices up.

Anything is possible short term, but it’s also mostly noise in the short term. At the end of the day investors should be focused on buying great assets at relatively cheap prices, and plan to hold them for a long time. 🙂

______________________________________
Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

My third month of trading options

In June I received $955 in premiums from trading options. That’s more than what I made last month. Yay. 😀

Here are some key points from my options trades this month.

• I sold 13 options, 11 Puts and 2 Calls.
• I rolled my first call option. (highlighted below, CNQ)
• My total trading commission was $20.74.
• I’m continuing with the wheel strategy that I started last month.
• 11 options from previous months expired in June. All 11 expired worthless. 🙂

Here are the transaction details.

Proceeds – commissions = $955.49

Most of my options have the letter “P” at the end – for put options. By selling Puts, I have to be okay taking ownership of the stock at the predetermined strike price. For example, if Disney shares drop from $175 today to $135 by August 20, 2021, I have the obligation to buy it at $135/share.

I chose to trade these options because I already like the underlying stocks. Options allow me to potentially buy the shares cheaper than the market price today. 🙂 I don’t trade options of stocks that I don’t intend to own.

I did a roll-up-and-out on my Canadian Natural Resources (CNQ) covered calls. This means I closed my initial option and simultaneously opened another at a higher strike price with a later expiry date. The reason for the roll was because my option was expiring at the money with a strike price of $44. By rolling it to $45 and expiring next month I received a small gain (income) and get to keep my shares, for now. 🙂

I don’t plan to roll CNQ again. At $45 I think CNQ.TO is over priced. My covered calls represent 200 shares. I currently own 630 shares.

If you’ve been following me for awhile you probably remember I purchased CNQ.TO at $15/share last year. If the stock price grows to $45/share, I will happily take some profits off the table. No regrets.

Total income from option premiums

Altogether I have made $2,500 trading options since April. I originally aimed to make $750 a month in my first year of trading options. It looks like I am doing okay. 🙂

Warren Buffett once said, “never test the depth of the river with both of your feet.” That’s why I’ve only been using simple and conservative options strategies such as selling Puts with very low Delta. But now that I have some experience writing options, I feel like I can take on some more risk.

So moving forward I would like to try selling a LEAP, which is an option that has 1 year or longer to expiration. The premiums can be very attractive, often $1,000 per contract for some stocks. But there’s a lot of downside risk as well. So I have to choose the underlying carefully. 😉

My other investments such as Bitcoin haven’t performed very well lately.
But when things don’t always go the way I want, it’s nice to know I have options. 😎

______________________________________
Random Useless Fact:

Having the internet at our fingertips is both a blessing and a curse.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Saying farewell to my old scooter

In 2017 I purchased a used scooter for $1,200. It was cheap to run and I thought I could use it to get dates. 😎

It probably worked, because now I’m married. 🙂 Since I live in the suburbs and no longer need a second vehicle, I sold my scooter earlier this year for $1,300. I used all the proceeds to buy some investment-grade wine that will hopefully appreciate in value over time. 🍷

In this post I’ll share how I prepared and sold my vehicle quickly.

How to sell a used vehicle

Preparation

• Do some research and decide on a listing price.
  Before you sell your vehicle, look up its value on Edmunds or Kelley Blue Book, and check your local Craigslist and Kijiji postings for what price similar models are asking for. Set your price above the current market value, but still within reason. For example, I thought the market price for my scooter was $1300, so I listed mine for $1500 to make room for price negotiation.
  .
• Make it presentable.
  Give your vehicle a good wash and vacuum. Remove any junk that may have accumulated over the years. If you have a more expensive vehicle, consider giving it a professional detail. It’s not a bad idea to also take it in for servicing.
  .
• Take some high quality photos.
  Photograph your vehicle parked in a nice location just before sunset for great results. Aim to get at least 10 quality shots of your vehicle. Don’t forget to take pictures of the interior, trunk, and odometer. Appealing photos build confidence in the buyer’s mind so your ad will get more attention. This is how I made my Derbi scooter stand out from the others.
  .
  

I used a Canon M50 with the basic kit lens to take the photos. If you don’t already have a camera you can ask your amateur photography friend for a favour. And smartphone cameras have gotten much better over time. If you have an iPhone 12 or Pixel 5 you can get some excellent images with good angle and lighting.

Listing the vehicle for sale

• Post your ad online. 
  Use sites such as Craigslist, Autotrader, or Kijiji. Present your vehicle’s best features. Consider who would be interested to buy it. For example, I described my scooter as easy to ride for beginners, fuel efficient, cheap to maintain, and ideal for urban mobility.
  .
  I also mentioned the scratches on the plastic. It’s better to be upfront about the vehicle’s condition in the ad to minimize surprises for potential buyers. Don’t forget to give a reason for why you’re selling the vehicle, or buyers may assume there’s something wrong with it.
  .
  Price your vehicle 10% to 20% above what you think the fair market value is so you have some room to negotiate.
  .
• Show your vehicle to interested buyers.
  This can be done around your home. But if you’re not comfortable giving strangers your address you can agree to meet at a mall or coffee shop. Join them for a test drive and answer any questions they may have. If asked “What’s your best price?” I like to respond with, “I think my asking price is fair. But I’m open to any serious offers.” If they give you an offer resist any impulse to sell right away. Tell them you’ll consider their price and get back to them.
  .
• Close the deal.
  After receiving multiple offers you should have a pretty good idea what your vehicle can go for. You can decide to continue showing more people, or negotiate with an offer that’s already on the table. I got 5 different offers in the first 2 days of posting the ad. It ranged from $1000 to $1300. I felt like $1300 was a good deal for me. So I called that person and we got the deal done. 🙂 That’s basically how to sell your vehicle privately. Don’t forget to cancel your insurance afterwards.

The ownership transfer process varies depending on where you live. In B.C. the seller has to give the buyer the vehicle registration, and a transfer document which you can grab at any auto insurance broker.

Getting around town

I still think scooters, (motor or electric) are great alternatives to cars for urban living.

Exploring different ways to get around can be a fun and exciting way to discover new things about your city. The right mode for you will depend on where you live, and what type of experience you want to have.

Tune in next week for my new options trading update. 🙂

__________________________________
Random Useless Fact:

People had pets as early as 11,000 years ago.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

The new face of wealth

Move over Elon Musk and Jeff Bezos. There’s a new top dog in down. And his name is Bernard. 🙂

With an estimated net worth of $193 billion, the LVMH chief has been recently crowned by Forbes as the wealthiest person in the world.

Bernard Jean Étienne Arnault is a 72 year old French investor, and chairman of LVMH Moët Hennessy – Louis Vuitton SE, which is the world’s largest luxury goods company. His stock (LVMUY) soared after vaccine announcements in November of last year. And the company reported a 34% jump in revenue this year.

LVMH owns over 70 luxury brands in fashion, cosmetics, jewelry, and wines/liquor. You may have heard about some of its brands such as Hermès, Dior, Tiffany & Co, De Beers, Louis Vuitton, Céline, Marc Jacobs, Guerlain, Hennessy, Dom Pérignon, and my wife’s favorite store, Sephora.

LVMH’s stock price doubled from a year ago, outperforming the S&P 500 index. For full disclosure I own LVMUY shares in my retirement account. I also own Tesla and Amazon shares.

Strong entrepreneurs create the most wealth

Here’s a simple strategy I use to help me pick which stocks to buy.

I simply look at what the wealthiest people in the world are investing in. And not surprisingly, in most cases they are heavily invested in the companies that they’ve created. That’s why I’m primarily a buy and hold investor, especially when it comes to LVMUY, AMZN, TSLA, MSFT, FB, etc.

These incredibly talented entrepreneurs who started their companies are literally the richest people in the world for a reason. They are masters at creating value, and therefore wealth. They come up with the business plan, run the companies, and investors like you and I can simply go along for the ride by becoming part owners of their businesses.

This is why I’m a capitalist. I’m fundamentally a lazy person. But I can leverage the hard work and success of other people for my own benefit. 🙂

The road to becoming a billionaire

Most billionaires on the Forbes list achieved their financial gains by starting companies and working hard. But there’s a way to almost guarantee anyone can build a 10 figure portfolio. All you need is a tax advantaged account and a willing spouse.

Both the Roth IRA in the United States, and the TFSA in Canada are excellent tools to create tax free investment gains. In either case you can invest $6,000 into your account today. Let it grow tax free, and eventually take the money out tax free and penalty free. Certain restrictions apply but that’s the basic premise.

Using the Tax Free Savings Account, (TFSA) if you and your partner started contributing today, and max out your contribution room each year, you would be millionaires in just 25 years. 🙂

But how long would it take to accumulate one billion dollars?

That’s what I break down in my latest video on how to become a billionaire using the TFSA. In case you missed it, click here to watch it on YouTube or see below.

Double check your TFSA has a successor holder

If you have a spouse it’s really important to name him or her as your TFSA successor holder rather than just a beneficiary. I talk about this in the video. The difference is subtle, but the impact can be huge.

In simple terms, a beneficiary would get your money when you pass away in one lump sum and the tax free growth status ends there.

But a successor holder would just take over your TFSA with no tax implications. The transition is much easier. If your spouse makes a withdrawal he or she would get that contribution room back the next year. 🙂

How do you designate someone to be your beneficiary or successor holder? Usually there’s just a form you fill out.

For example, my TFSA is with TD bank. So I would go to TD’s forms and application page, and download and print the TFSA designation form.

Here’s an example if I choose the Successor Holder option. The Branch Number can be found on the My Accounts home page in EasyWeb.

.

And then mail the completed form to the following address:

Client Transfer Services
3500 Steeles Avenue East
Tower 2, 2nd Floor
Markham, ON
L3R 0X1

That’s pretty much it. 🙂

__________________________________
Random Useless Fact:

It’s becoming harder to keep up with the rising cost of living.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

How negative real rates distort everything

Normally a mortgage is a liability. And bonds are a low risk, low return asset.
However when real interest rates are negative you can throw these conventional concepts out the window. 😛

The graph below shows the difference between a government bond yield and inflation (CPI.)
The economy experiences negative real rates when the line falls below zero.

When this happens fixed income investment returns can’t keep up with inflation.
This has overwhelming consequences for everyone.

When a mortgage you owe becomes your asset

The current inflation rate is over 3%. But mortgage rates are still sub 2% for a floating rate loan.

This means if you buy a house with a mortgage today you get paid a real return on the money you borrowed.

Simply put, the cost you pay to service that mortgage is less than the value you get from inflation eroding away your mortgage balance. Thanks to negative interest rates holding a mortgage produces wealth, net of inflation.

Real estate tends to be a terrific store of value. So you can generate returns from both your property and your debt, which creates a double compound growth effect. 🙂

Ben Bernanke, who used to chair the Federal Reserve, still maintains a mortgage despite being a multi-millionaire who can pay it off any time he wants. If you’re ever confused about what to do with your money just look at what the people who designed the financial system are doing with theirs.

When a margin loan becomes an asset

The stock broker I use (IBKR) offers credit at 1.56% interest rate. Again, investors can get paid to borrow.

I have over $100,000 of margin debt. I used the money to buy dividend growth stocks. The dividend income I receive is more than enough to cover the interest of the margin loan. Additionally I may benefit from capital appreciation as stocks tend to outperform inflation over time. 🙂

When a bond becomes a liability

In Canada the popular bond ETF (XBB.TO) has not produced any price appreciation over the last 5 years. In the United States, the Vanguard Total Bond market ETF (BND) also experienced virtually no capital appreciation.

But that’s normal, right? Fixed income investors buy bonds for the yield and stability, not capital growth.

True. Except both ETFs are yielding below the inflation rate. This means the distributions to unit holders can’t even keep up with the rising cost of living. 🙁

Why is this significant? Because it means typical bond funds today will actually be a drag on a portfolio. So anyone who has a traditional 60/40 balanced portfolio should really reconsider their asset allocation.😦

That 40% bond allocation is dragging down the returns on the rest of their portfolio – slowly eating away at the investor’s wealth. This effectively makes bonds liabilities, not assets.

That doesn’t necessarily mean bonds are bad. They can still be used for strategic positioning. But investors should understand all the risks before committing.

How did we get here? 

Debts today behave like assets. And fixed income investments lose value like liabilities. This is the reality of negative real interest rates – when economic growth is slow and inflation is high.

But this was no accident. Policy makers purposefully engineered this situation.

Why? Because it allows the government to get paid to borrow and spend. It’s an expedient scheme that doesn’t require fiscal responsibility. Governments can borrow money today and pay it back later when that money is worth less.

Related video: Island economics | What causes inflation.

Fortunately regular folks can also exploit this opportunity. I have blogged about this for years. When you take out a bank loan you are literally creating new credit – similar to how central banks create money. And the loan you take out today will pay you a positive return when adjusted for inflation.

Accumulate debt when rates are low. Pay down debt when rates rise. As Einstein once said, “the measure of intelligence is the ability to change.” So continue to pursue your financial goals. But stay flexible in your approach to take advantage of new opportunities in the shifting economic landscape. 😉

___________________________________
Random Useless Fact:

The median checking account balance for U.S. households is $3,400.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

My second month of trading options

In May I received $820 in premiums from trading options. That’s $100 more than what I made in April. Yay. 🙂

Here are some key points from my options trading this month.

• I sold 10 options – 8 Puts and 2 Calls.
• I bought 1 option to close my previously sold TD Call at $90 strike.
• My total trading commission was $14.48.
• It took around 5 hours total to research and execute all the trades.
• I kept the expiration dates between 2 to 6 weeks out.
• I started to perform the wheel strategy. More on this below.
• 6 options expired in May. All 6 expired worthless. 🙂

Here are the transaction details. The $2700 Amazon Put was my most profitable trade with a $215 premium.

Proceeds – commissions = $820.03

Rolling with the wheel

In the previous month I didn’t really have a plan. I just wanted to sell Puts and make some quick money. That worked out okay. But I can probably do better with an actual strategy.

So this month I started to implement a trading tactic called The Wheel. It contains 3 parts.

1. You start by selling Put options to generate income. Most of these should expire worthless.
2. If any options are assigned you sell Call options above the cost basis on the assigned stocks.
3. If those stocks get called away, you make a profit from buying the stock low and selling high. 🙂

Since you can make money in 3 different ways this is also known as the triple income strategy.

Where I learned about the wheel

I recently came across this thread on the WSB subreddit. The internet is a great place to find investment ideas. This particular reddit post received 3,800 upvotes so it must be a legit strategy, right? 😉

Apparently the wheel is an improved buy and hold strategy that will outperform the S&P 500 index. At least that’s what the post claims. This sounds interesting to me as I’m all about making higher investment returns.

I’m at the stage of my investment journey where a little active management can have a meaningful financial impact. Soon I will have $1 million of liquid assets. If I can give my portfolio some TLC and add an extra 1% to my returns, that’s an additional $10,000 of value!

Moving forward

Instead of using the wheel on index funds only, I plan to use it on individual stocks as well. Looking ahead at next month (June) I expect to earn another $800 or so in option premiums.

I will continue to sell Puts using strike prices at 2 standard deviations out of the money. That basically means my options will have a 95% probability to expire worthless, which is the ideal situation for me.

Here are some stocks/funds I’m currently looking at for potential option trades. I haven’t decides which ones I’ll go with yet as I’m still weighing my options, haha. 😀

• Autodesk (IV = 35)
• QQQ (IV = 18)
• ARKK (IV = 37)
• Mastercard (IV = 22)
• Visa (IV = 19)

IV is Implied Volatility, which describes how volatile the stock is. A high IV means the stock price is expected to fluctuate a lot. This translates into higher premiums for option sellers like myself.

That’s all for now. 🙂 In a future post I’ll explain how I screen my trades and demonstrate with some examples.

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Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

How to handle market volatility

When it comes to investing in risk assets market fluctuations is par for the course.

The 50% drop in Bitcoin’s price over the last couple of weeks is a stark reminder of just how quickly markets can move, lol.

But short term volatility shouldn’t matter if investors just keep 2 things in mind.

1. Develop a deep understanding of the investment, and how it fits in with your overall financial goals.
2. Have patience.

I discuss both points in depth in my latest video about Bitcoin’s sudden correction here.

Understanding what you’re investing in

Risk tolerance is unique. But most people can learn to take on higher risk which can help them make better returns in the long run. 🙂 One way to increase one’s tolerance for risk is to research and understand the investment to the best of one’s ability.

Doing so will lower the investor’s anxiety and give him or her more confidence when making decisions. After all, why invest in something if you don’t understand it? We choose our own cars, homes, furniture, smartphones, and dentists. We know what’s best for ourselves when it comes to making important decision in our lives. Investing should be no different. If we don’t trust or understand something, we shouldn’t buy it. The same standard should be applied when buying financial assets. 🙂 Remember that price is what you pay. Value is what you get.

Almost all your investment problems can be solved by adopting a long term mindset. In the short term selling your investment may save you from losing money. But the consequence of that is you may miss out on long term future gains. That’s why it’s generally better to set it and forget it.

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Random Useless Fact:

If you’re a top influencer you can bring your own cloud where ever you go.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Money is cheap and abundantly available

Why are real estate prices so high. Isn’t the economy still recovering? Yes. Millions have lost their jobs and many are still looking for work. But recessions don’t affect everyone equally.

The number of high income individuals is often underestimated. So in today’s post I’ll explain how people can afford to buy expensive homes.

Let’s look at where all the money is coming from, especially in hot markets like Vancouver and Toronto. 🙂

Record price doesn’t mean over priced

Local Vancouverites were shocked over the weekend when a house for sale that was listed for $3.5 million actually sold for $0.5 million above the asking price.

One baffled commentator noted, “It’s difficult to see how it can be ordinary people paying prices that most people wouldn’t earn in a lifetime.”

Another suggested, “this crisis is being funded by money laundering… It is time for governments to smarten up and investigate.”

It’s these kinds of comments that suggest to me there is a lack of understanding about the economy and our financial system.

Yes, it’s not cheap. But I think the price is completely justified because it’s a newly built house. Lumber prices are 4 times higher today than last year. If you purchase just an empty plot of land in the same area today, and build your own house on it, the total cost would be about $4 million, lol.

To understand how buyers are coming up with the money to buy expensive homes we have to understand that 1) credit is dirt cheap, and 2) a lot of people are simply loaded.

Something for everyone

The millennial couple who spent $4 million on the house above are moving back to Canada from the United States after selling their house in Seattle, WA, another high cost of living city. They are probably high income earners, and do not represent your typical wage earner.

Their purchase was only newsworthy because their situation is unique. In no way do their finances represent the typical Vancouverite. But for most households, housing is still quite affordable, as long as people understand that there are different tiers of affordability.

The average Joe and Jane

A couple making $50,000/year per person can comfortably afford to buy a home in the $550,000 range. That will get them a 1 bedroom condo in the city of Vancouver, or a larger place in an adjacent municipality.

The upper class

To get into the detached housing market where properties are $1 million and up, you would typically earn at least $200,000 a year.

In 2018, there were 41,310 individuals living in Vancouver who made $200,000 or more according to Statistics Canada. A lot of households in this income level have one or both earners working in the high tech industry for companies such as Amazon, Microsoft, Sony, or EA. As a landlord, I have screened and interviewed about 5 potential tenants who make over $150,000. The software engineering community is huge in Vancouver. 🙂

Every week Vancouver only gets about 200 new listings of detached houses. Even if 1% of those 41,310 people who earn over $200,000 are looking to buy a house, the demand will easily outstrip the supply in the market – keeping property prices elevated.

The wealthy

Finally, you have the 1 percenters. These are the ultra high income professionals and entrepreneurs. Many doctors and lawyers making $400,000+ fall into this category. They can easily obtain a mortgage for $2 million because they have reliable incomes. It’s these people who are buying those really expensive homes in Vancouver.

A $3.6 million house in West Vancouver was recently sold to a doctor. Vancouver Coastal Health alone overseas 2,500+ physicians. The average physician makes $347,000 a year. And if they specialize they could make even more. For example, anesthesiologists who don’t have to be on call, earn $437,000 a year on average according to the Canadian Institute for Health Information.

The provincial government spends over $20 billion on health care each year. This amount will likely increase over time as an aging population will require more health services. This will create jobs for new physicians who will probably push up housing prices even more.

The bank of mom and dad

A lot of home buyers are millennials like myself. And parents are a common source of funding for them. Boomers are the wealthiest cohort in the country. And many are choosing to help their adult children with home ownership. My wife and I even received a small loan from parents to help us buy a house in the suburbs last year. 🙂

The total value of mortgage-free holdings in Metro Vancouver sits at $373 billion today, mostly held by people between 55 to 74 years old. That’s a lot of latent equity just waiting to be put into use. And because real estate is often leveraged 5x, the amount of purchasing power this could potentially create is absolutely enormous. 😬

Over the next 5 years, roughly $1 trillion of wealth will transfer from Canadian baby boomers to their children, according to Strategic Insight. This will be the largest intergenerational wealth transfer the country has ever seen.

High income earners are funding the real estate boom

Let’s say a couple buys a $5 million house in a wealthy neighbourhood.

One earns $400,000 a year as a doctor.

The other is an engineer making $100,000 a year.

They have a $1 million down payment, and borrow the remaining $4 million. Their monthly mortgage payment is $14,000. But they can afford it because their combined take home pay is $30,000 a month. 🙂

There are lots of people legitimately earning very high incomes. They often have large savings from previous investments they can draw from, and many can access financial help from family.

Banks are readily approving their mortgages, and the owners can easily afford the carrying cost of the debt.

I’m not saying there is no money laundering, foreign investments, or questionable activities in the real estate market. But if you look at the data, it makes sense that most of the money going into real estate purchases today are from the highly paid local population. 🙂

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Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

When consumption > production

One day you’ve run out of coconuts to trade. So you offer your friends IOUs instead so they can redeem a real coconut once you’ve gathered more. 🙂

This works for awhile. You create more and more IOUs out of thin air. The island is your oyster. But you can’t live beyond your means forever. There are consequences to owing people money (or coconuts in this case.) Sooner or later the chickens come home to roost.

Eventually your friends begin to doubt your ability to gather and pay back all the coconuts you owe them. They can no longer keep palm and carry on. They start to complain and lose faith in you and your IOUs.

You have to back up your paper promises with actual work and productivity. Otherwise your IOUs become less valuable and people will not want to accept them anymore.

Parallels to the US economy

The US has been consuming more from other countries than selling back to them. The government is also spending beyond its means. These deficits are funded by debt.

Unemployment is still stubbornly high. One problem is that employers can’t seem to find workers because job seekers would rather stay home and collect financial aid than work at a menial job. Most people prefer leisure over work.

Every time there’s an economic crisis, government assistance programs grow. In the 1960s only 5% of personal incomes came from the government. Today, government transfers make up 25% of people’s personal incomes.

The increasing reliance on government support is disturbing, especially since the government doesn’t even have this money to give out in the first place, lol. The current $2 trillion stimulus package is funded 100% by government bonds (debt).

In my latest finance video I explain the island story more clearly, and also suggest investing globally in emerging markets. You can click here to watch the video on YouTube, or see below.

Nobody ever went broke from diversifying so if you have nearly all your stocks in North America, it may be prudent to consider investing in some up and coming economies. 🙂

Just like in the island allegory, productivity contributes to the value of money. Running a budget deficit feels good in the moment. But there are negative long term consequences to spending beyond one’s means and not being productive.

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Random Useless Fact:

Viscachas are rodents that constantly look tired.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

How I Make Money Trading Options

Financial independence is all about having options. 🙂 And that’s the topic of today’s post. I’ll explain what they are, and how I plan to make the most of my new options income strategy.

In April I made over $700 trading options. My goal is to continue writing options every month, and collect the option premiums as income.

An option is a contract to buy and sell 100 shares of a stock. The buyer of an option has the choice (or option) to trade a stock in the future at a pre-determined price. But this choice comes at a price. So the option’s buyer must pay the seller to have the privilege to exercise this option.

Here’s an example of an option I sold a couple of weeks ago on one of my favourite companies, Apple. 🍎 This is the transaction summary.

So to break down this put option, here’s what it means.

1. The option buyer paid me $209 for selling this option. Yay money. 🙂
2. Any time before July 16th this year, the buyer can choose to sell me 100 Apple shares at $115/share.

Apple stock is trading at $131 now. That’s 14% higher than the option’s strike price. There’s no way the option will be exercised today. Why sell their asset to me for $115, when they can sell it at a higher price on the open market for $131?

So between now and July 16th, if Apple shares fall below $115 there’s a chance the option will be exercised. That’s fine with me. If I can buy AAPL at a 14% discount from today’s price I’m happy. 🙂 And if AAPL continues to stay above $115/share, then the option will expire and nothing will happen.

My option results from April

Last month I earned $721 selling options. Woot! I sold mostly put options. But also wrote some covered calls.

One mistake I made was selling a TD call option without setting a limit price. I chose market price instead and got taken advantage of. I’ve marked it on the chart below with a sad face. I only received $2 in premiums. And the trade commission ate up 75% of my earnings, lol.

Total income made: $721 CAD

Overall I am quite pleased with the outcome. I spent about 6 hours on research and executing the trades. That works out to over $100/hour for my efforts. 🙂 My plan for this month (May) is to make another $700 or more from option premiums.

Why target $700/month? I currently have a $270,000 portfolio with my discount broker IB. From what I’ve researched, making a 3% yield using an options income strategy is safe and sustainable. $700 a month, or $8,400 a year roughly gets me to that 3% target.

Investment website Seeking Alpha even advocates consistently earning 10% a year from trading options. That would actually be fantastic, but it seems almost too good to be true doesn’t it?

I must refrain from being greedy, especially in the beginning. Biting off more than one can chew is precisely how so many novice option traders lose a lot of money.😮

You should learn to swim by slowly exposing yourself to deeper and deeper water. If you immediately dive right into the deep end then don’t be surprised if you can’t handle it. That’s why I will start off with a 3% annual target, track my progress, and then gradually tackle higher levels of uncertainty after I’ve gained some experience.

“Beware of unearned wisdom.”

-Psychiatrist Carl Jung

Jung probably meant this in a psycho-analytical context. But the analogy applies aptly to investing as well.

Making full use of my assets

The reason I started to trade options is to see if I can make some easy money. 🙂

Trading options allows me to leverage the dormant capital of my existing stocks. I can capitalize on my $270,000 portfolio by earning regular income via option premiums without investing any new money. In the rare case that I’m assigned a new stock, I can simply pay for it with a margin loan.

Most option contracts expire worthless, especially way out of the money contracts like the ones I’m selling. But even if a stock crosses the option’s strike price, I don’t have to get assigned the stock. For example if my put option is about to expire in 3 weeks and it falls in the money, I can place a buy to close order. This way, I may lose a bit of money, but I won’t be obligated to buy the underlying stock if the option is exercised. Although there are risks that come with trading options, there are ways to mitigate them. 🙂

More to come later

Once I become more comfortable selling puts and calls I plan to use more sophisticated options strategies such as spreads or butterflies. And I will eventually try to increase my options income to (5%) of my overall portfolio value. Along with dividends (3%) and long term capital appreciation (4%), it’s reasonable to expect a 12% annualized total portfolio return.

That’s my plan for now. I started last month. Let’s see how this plays out. If you have a large stock portfolio (over $100,000) maybe you can learn from my experience and consider generating some options income as well. 🙂 Just make sure to use a broker with reasonably low fees.

“I put two children through Harvard by trading options. Unfortunately, they were my broker’s children.”

-Journalist Jason Zweig

Going forward I’ll continue to post my trades, and explain my decision process. The purpose is to hold myself accountable, and to help you make better investment decisions with your own portfolio. 🙂 Do not mirror my trades unless you’ve done your own research. I am learning as well. 😅

Wisdom comes from experience. You might be given insight from someone with wisdom. But if you have not earned that wisdom, as Carl Jung would say, then you cannot fully put that information to practical use.

Anyway, I’ll give an update next month to share what I’ve learned. Thanks for reading!

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Random Useless Fact:

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