The Beginners Guide TO TRADING INSIDE IRA'S
We will cover 4 key points:
1. How to set up your retirement account to short markets inside your IRA's
2. The Three Bucket Concept for trading inside your IRA's.
3. What instruments should you consider trading.
4. What are options and how you can earn out sized returns regardless of market direction inside IRA's?
How To Setup Your Retirement Account to Make Money When Markets Go Down?
Markets don't always trend upwards as we have seen over the last few weeks. Those who have looked at their 401K's or retirement accounts that are long-biased equities will notice they are down slightly YTD or flat. Most people let alone financial advisers (I should know being a former IAR) don't utilize short strategies where they can make money when markets go down. This is missed opportunity because investors will typically just watch their portfolios fluctuate with the markets in a passive mode never really taking advantage and protecting the downsides.
Why is that?
This simple reason is perceived time and complexity. Most individual investors have a difficult time even finding and picking winning stocks let alone learning to trade underlying options on that stock where more variables are in play. This includes financial advisers who honestly don't have the time to go through each client's portfolio and setup options hedges or outright directional trades because the time consumption vs. opening new accounts is not worth it.
So what is the first step in getting your account setup on the back end to make money when markets go down? Get an options approval agreement with your broker!
For those of you that want a step by step process on how to do this read our previous article titled: How To Get Options Approval In Your Retirement Account.
The Tree Bucket Concept For Trading In Your IRA's
As a former Financial Advisor, we all have heard the term the younger you are, the more risk-prone you should be. Then, as you get older you should start to shift from equities to more conservative investments such as bonds as to not see your portfolio returns fluctuate as much. But what if there was a better way than the standard 60/40 model for investing?
Say for example our blue collar investor has 100K sitting inside a retirement account that he/she is looking to build a portfolio from scratch.
First bucket: They could take 50% of the proceeds and invest in low-cost index funds, ETF's or strong mega-cap companies that pay out a decent dividend. This could be their core holdings that they hold and rebalance every 6 months or so.
Second Bucket: They can invest in more low volatility conservative strategies such as the purchase of low duration bond ETFs which yield a few percentage points annually depending on the bond environment.
Third Bucket: This is where you would keep say 25% of the 100K in cash and take small options trades monthly maybe risking 1K tops on a few high-momentum stocks which have big moves regularly. This not only allows for you to take positions in stocks that are going up and down (thus hedging out some of your long exposure in your first bucket) but, as we have shown time-and-time again options can have big returns if you know what you're doing. And the greatest thing about this bucket is you take 2-3 options trades a month that can last a few days to a few weeks and then it goes back to cashing waiting again to be redeployed.
What Instruments Should You Look To Trade?
I did a short tutorial on finding ETF's that have options available to trade and comparing their costs and liquidity compared to the thousands that exist out there. This video below will help you with free tools online in helping you screen and find the right instruments to trade when you're starting out as a beginner.
Options is a powerful asset class for those who don't have large retirement nest eggs where they can allocate thousands of shares to their favorite companies but can forecast stock moves on a short period of time putting down significantly less margin over buying 10's of thousands of dollars worth of stock. We have countless videos on our Youtube page showing returns we have made in real time which shows exactly how options traders can do a lot better than the buy & hold crowd provided they're patient in their trading.
We have one of our students who in February & March made a total close to $50K trading in his retirement account taking a few options trades in FANG related stocks and other liquid stocks while still maintaining his 40-hour workweek career.
If you wanted to listen in and see how its possible from a student just a year ago knew very little on the markets and now manages his own retirement accounts using the bucket strategy, we encourage you to sign up for this event where he will tell his story and talk about the methods we employ here at Landshark Education.
Register For The Saturday Webinar on IRA Trading Here