When adopting conservative
options strategies (my favorites are listed below), you have an excellent
opportunity to accumulate wealth over an extended period of time – due to the
ability to compound earnings. “Compound
interest is the eighth wonder of the world” is a quotation (often attributed to
Albert Einstein, but I’ve seen no proof) that describes something unknown to
most youngsters. In my opinion, this
idea ought to be a mandatory part of every high school and college curriculum.
If at all possible, you must
consider saving money at early as possible to reach that goal of financial independence. You may want money for retirement or other long-term savings goals, such
as paying for college for your children – even if they are not yet born! The longer you wait to get started
(even five years makes a huge difference), the less benefit you gain from the
power of compounding.
In the US, a Roth IRA
provides the best savings program because all profits accumulate tax free, assuming you make no withdrawals before age 59 1/2.
A traditional IRA allows you to invest prior
to paying taxes, and saves cash now. But, taxes must be paid on withdrawal – the more you earn, the higher your taxes. Opt for the Roth IRA if possible.
Regardless of how you save,
if you have the ability to manage your own account (sadly not possible with
most of today’s 401k plans), then adopting one, or more, of my favorite option strategies increases your chances of earning profits year after year. And reinvesting those profits allows you to see the magic of compounding for yourself.
call writing and cash-secured naked
put selling are equivalent
methods. They are the most risky of the
methods outlined here, but represent an improvement over the traditional buy
and hold methodology.
condors and double diagonals involve both call and put credit spreads and
are ideal for investors who want to be market-neutral (neither bullish nor
Not all brokers allow their
customers to adopt all strategies in retirement accounts, but you should be able
to find one who allows you to use your favorite method(s).