Most long-term investors are content with making 10% a year, on average. They hope to do this for decades. Then, they’ll retire and enjoy their money.
Sounds easy enough… But there are a few problems with this dream.
One problem is most people simply don’t have enough income to save for retirement. And even if they do, expenses can weigh on it.
Many financial advisers advise saving 10% of your income for retirement. That’s great advice. But it’s tough to do when you’re young, when saving and investing have the biggest impact. You might be buying a house and starting a family. These expenses don’t generally allow for large savings.
That’s OK. Many believe it’s more important to ensure the kids are cared for now than to worry about cutting back for retirement savings.
There are always more urgent demands for income than retirement. Expenses of a family don’t decrease as kids get older. Many families find that they can’t start saving aggressively for retirement until the kids are out of college. By then, they may be in their 40s and reluctant to take large risks with their investments.
But a nice retirement is still possible. If you make $75,000 a year at 45 and save 10% of that for retirement each year, you could accumulate about $850,000 by the time you’re 67. That assumes your income grows 3% a year and your account value grows at 10% a year.
You have what looks like a lot of money. You retire. Now your financial adviser tells you it’s alright to withdraw 4% of your account every year. That withdrawal rate helps ensure you don’t outlive your money.
And now, you realize the shortfall. You did as much as you could to prepare for retirement. Yet your investments are only paying you about $2,800 a month. With Social Security, maybe a little over $5,000 a month. That might be enough for retirement, but not enough for the retirement of your dreams.
It almost seems that standard financial advice is wrong. I believe that it is.
I’m especially certain that focusing only on the long term is a mistake. Short-term investing should be a part of everyone’s retirement planning.
Short-Term Strategies Allow You to Dream Big
My favorite short-term strategy is an opening range breakout (ORB) trade. The name describes the rules.
We define the opening range of the SPDR S&P 500 and Invesco QQQ Trust. I use the first 15 minutes of trading to do that. The high and the low from that time (the opening range) are then used to define the breakout level. We do this each morning at 9:46 a.m. Eastern time in my Trade Room.
After that, we set alerts with our brokers. If prices break out, the alerts trigger and we place the trade. Trades are always closed within two hours. That’s a short-term strategy.
Over the past three months, this strategy has delivered gains every month.
Gains in options can be difficult to think about. We close more than a quarter of our trades with a 50% gain. The options generally cost less than $200 so that might be $100.
I look at gains over time. I would also like to acknowledge that you need to dedicate capital to the strategy. For example, if you buy a stock, you dedicate the purchase price to that strategy.
With options, determining the capital is a little different. I like to be conservative. That means I set aside enough to withstand a losing streak. If I don’t do that, I could run out of money and not benefit from the potential gains.
Then, I think in terms of contract. One contract is the unit of trading in options. As I noted, the average contract we trade costs less than $200. It’s about $170.
To trade one contract, I think it’s safe to dedicate $2,000 to this strategy. Over the past three months, gains totaled $1,495. That’s a 75% return on capital.
In the worst month, we made $250 trading per contract. That’s 12.5%.
This is the kind of strategy that can generate 10% per month, a return that could allow you to dream big about retirement.
ORB is just one of many different strategies we use in the Trade Room. Matt Clark, Money & Markets chief research analyst and my Trade Room partner, reviews signals each morning on a recently introduced strategy based on Ichimoku Clouds that are doing even better.
The end goal of short-term trading is the same as long-term investing — to make money. But while long-term investing makes it possible to be comfortable, short-term trading gives you the chance to achieve your dreams.
Our Trade Room has something for everyone. It provides different short-term strategies to choose from that can help you achieve higher returns to level up your retirement. And I’m constantly looking for ways to innovate our strategies so that we’re maximizing our profit potential.
To learn more about the Trade Room and how to access it, click here.
Regards,
Conquering Risk & Investing Smart
I’m going to be straight with you. I can’t make myself care about the stock market today.
I’m in San Sebastián, a little beach town in the Spanish Basque Country and one of Ernest Hemingway’s favorite old haunts.
It’s also about an hour away from Pamplona, the home of the San Fermín fiesta, with its famous running of the bulls.
(From NBC News.)
Hemingway would typically recuperate from the excesses of San Fermín by convalescing in San Sebastián … and generally continuing his drunken debauchery. Indulging in more of the “hair of the dog” that bit you, I suppose.
Alas, I won’t be running with the bulls this year. That was a “fiesta” from my 20s that I won’t be repeating in middle age, and I don’t want my two sons to get any ideas. But they’re enjoying the Basque Country, and my older son is competing in a soccer tournament here. I can’t complain.
You likely don’t care about my vacation, so I’ll circle this back to investing.
But first, a history lesson!
The Basque Country is an anomaly. It was never conquered by the Romans, the Visigoths or the Spanish because, due to its mountainous terrain, it was simply too hard to defeat. Remember, the Castilian Spanish language is basically Latin (from the Romans) that was heavily influenced by Arabic.
The Basques speak a language with absolutely no similarities to Spanish because both of those would-be conquerors took one look at the Basque Country and said: “Not worth it.”
The return on the investment simply couldn’t justify the very real cost in blood and treasure it would take to conquer the place.
See, I told you I’d bring this around to investing.
Manage Your Risk With Short-Term Strategies
When you invest, your expected return and risk should be asymmetrical. Your upside should be disproportionately high relative to your downside. And this ultimately comes down to risk management.
And that is exactly what I like about Mike’s work. Mike has survived and thrived as a trader because he manages his risk.
In our current market, he sees short-term strategies as the best way to make a significant return on your investment while reducing the risk of volatility. As he said today, his Trade Room offers different short-term strategies — and you can choose what makes the most sense for you as an investor.
So go here to get started with Mike!
Regards,
