In 1991 Billy and Akaisha Kaderli retired at the age
of 38. Now, into their 3rd decade of this
financially independent lifestyle, they invite you
to take advantage of their wisdom and experience.
As our long-time readers
know, we have had our portfolio on autopilot for most of our retirement.
Another body blow to our funds in 2008 served as a wakeup call; one of several
in only a few short years since the beginning of that decade. This last shock in
2008 forced me to look at other financial strategies.
I have been investing
since the early seventies and worked in the brokerage industry before retiring,
but nothing prepared me for what we have recently been going through. The
unwinding of a massive debt cycle - first by the public and now by governments -
completely changed my investing outlook. With the government and the Fed
regularly intervening in the markets only confirmed my beliefs that changes in
my financial approach needed to be made. Not to mention that I am getting older
and long term investing is getting shorter by the day.
ETF’s have created
Exchange traded funds,
or ETF’s as they are known, have given us user-friendly tools that in the past
were much more complicated for both the long and short side of the market. For
instance, now you can trade the S&P 500 in real time using the popular SPY (SPDR
S&P 500 ETF Trust ) for going long or SH (ProShares Short S&P500 ) on the
An extreme example
Let’s say that the
market moves up 10%, but then turns down the same amount. If you held your
position through this period, your net return is zero. However, if you were able
to get out at the top with a ten percent gain using SPY then buying SH (ProShares
Short S&P500) to make money on the downside, your net gain would be 20% - far
outperforming the index. Even if you just got out and stayed in cash during the
downside move, you would be much better off. ETF’s have created this opportunity
of trading in real time as compared to open ended mutual funds where, when you
bought or sold, you received the closing price of that day.
You can also leverage
positions by using 2-3 times index ETF’s. It works like this: If the S&P 500
goes up or down 1% you can gain 2-3% from the same move using SSO (ProShares
Ultra S&P500 ) or BGU (Direxion Daily Large Cap Bull 3x Shares ) on the long
side or SDS (ProShares UltraShort S&P500 ) for downside. Conversely your
investment will go down by as much if you are wrong. However, if you manage
these positions using stops or by monitoring them closely you can enhance your
Yeah, but how do you know the top and bottom?
First of all I am not
trying to day trade the market. However, there is some seasonality to the
markets that can be advantageous to your portfolio. The saying “sell in May and
go away” is a well known strategy. Basically you sell your equities in the
spring and buy them back in the fall. Now if you take advantage of the decline
in prices through the normally weak summer months using inverse ETF’s you’ve
added to your returns. Again, even if you only went to cash and protected your
gains you would be better off than to ride the market back down.
It doesn’t have to be
all or nothing
Because I am a
conservative investor and I know my risk tolerance, I do this approach with only
half of our portfolio. The other half remains invested in the event that the
market does not follow the “normal” script. In this way I participate in any
gains and limit my losses. Then, when I see opportunities, I use the inverse
ETF’s to hedge or protect my long positions zeroing out or gaining from the
market’s losses. I believe that capital preservation will be important for
surviving the coming years of a deleveraging economic cycle.
All of our trading is
done in our IRA accounts so as not to have a tax liability and
to eliminate the bookkeeping
headaches from any short term trading gains. In using the leveraged ETF’s, I
make sure that I either have a stop-loss in place or a firm mental stop of, say,
a few percentage points. These stops move in sync to protect the gains.
This is my plan and I'm
sticking to it.
About the Authors
Billy and Akaisha Kaderli are
recognized retirement experts and internationally published authors on topics of
finance and world travel. With the wealth of information they share on their
they have been helping people achieve their own retirement dreams since 1991.
They wrote the popular books,
The Adventurer’s Guide to Early Retirement and
Your Retirement Dream IS Possible.
information about financial independence and travel, visit our
Billy and Akaisha continue to journal and photograph their
Retire Early Lifestyle Blog
About Billy & Akaisha