The Greatest Gift

It’s the busiest time of year. The holiday shopping and family gatherings — it’s enough to wear anyone out. As you read this, I’m probably sitting in my comfy chair, watching football and reflecting on my family…

Family is one of the main reasons I invest.

Sure, we all want a better life for ourselves. And that usually includes those around you: your spouse, your kids, etc.

Maybe I’m just getting older, but it sure feels like the cycles of change are coming faster and faster. What this world will be like in 10 years or 20 years, my old brain finds it harder and harder to imagine…

How will increased automation affect the job market? Kiosk ordering is already available at some McDonald’s. That means fewer cashiers. Now, granted, being a cashier at McDonald’s isn’t really a long-term career option. Still, some families depend on the extra income.

The bigger point is that automation has already changed the U.S. economy dramatically, and there’s a lot more to come.

How will climate change affect food production? I read an amazing Bloomberg article recently about lobster fishing in New England. Or rather, how there are basically no lobsters in Massachusetts anymore.

Indulge me a little. I know lobster is a boring topic, but it’s a significant change in our economy.

This is only the beginning…

Until 2000, Connecticut and Rhode Island accounted for about 15% of New England’s lobster harvest. Since 2010, they make up less than 2%. Maine now accounts for 85% of the lobsters caught in New England. It was about 50% 20 years ago.

It’s not that there aren’t as many lobsters. It’s that the lobsters are migrating north to find colder water as the ocean is getting warmer. So now, there’s an economic boom in mid- and northern Maine. But it may be over in another 10 to 20 years.

Five or six years ago, I thought relocating to Puerto Rico when my kids hit college was a pretty good idea. There aren’t many things I like more than snorkeling over a coral reef. My kids could easily visit, I wouldn’t have to buy shoes, and I’d get some sweet tax breaks.

But increasingly violent tropical storms and dying reefs have me rethinking that plan — damn it all.

The Greatest Gift

There’s not much that makes me feel better than knowing I’ve set my kids up for at least a little bit of financial security in this uncertain world.

Saving and investing are among the few ways we can give the greatest gift to our families and ourselves: security and choices in the future.

Recently, Jason and I got a fantastic video testimonial from one of our Wealth Advisory subscribers. Laurie sent us a quick 15-second video where she said that thanks to The Wealth Advisory, her investment portfolio is up by an amazing 45% this year and she’s looking at an early retirement!

Are you kidding me? Laurie’s excitement was radiating out of that video. You could feel it. I got a little verklempt when I thought about how Jason and I had a hand in helping Laurie make a better life for herself.

I’m not going to overstate our part. It was Laurie who made the commitment to save and invest. It’s Laurie who has, no doubt, made some sacrifices — like not taking that expensive vacation or buying that top-of-the-line car — to get what she wanted.

But I will tell you that nothing motivates me more to dig into quarterly financial reports than messages like Laurie’s.

Expectations and Reality

Now, as much as I love hearing success stories like Laurie’s, they also make me a little nervous…

Jason and I are good at what we do. That is, we’re good at analyzing and recommending great stocks that will make you money. But we’re not perfect, and there are things that we can’t control.

I’ve tried to be pretty candid with my concerns about the current market and economy. Interest rates are rising. The tariff issues are ongoing. China’s economy has been slowing, which has a big impact on the global economy. And we’ve likely seen the lion’s share of the tax cuts’ impact on corporate earnings.

Laurie said her investments are up 45% this year. That’s a fantastic performance.

And I don’t want to throw cold water on the whole thing. But it’s a simple fact that 45% a year is tough to repeat.

Stocks have been in correction mode since October 3. And the Wealth Advisory portfolio has taken a hit. We went from a 5% gain in Incyte Corporation to a 5% loss.

We took a small 10% gain in D.R. Horton when we had a solid 50% profit only a few months ago…

Risk happens fast. And we can all imagine what the Wealth Advisory portfolio would look like after a yearlong bear market.

Now, I’m not saying we’re about to have a yearlong bear market. And when we do eventually get into a bear market — because it will happen at some point — we’ll take actions to protect ourselves, and you. It’ll be a combination of selling stocks, selling covered call options, and buying inverse exchange-traded funds (ETFs).

My point is that we all need to keep our expectations in line. And I’m saying this as a reminder to Jason and me, too. After a 10-year bull market, it’s easy to think earnings do nothing but grow and stock prices do nothing but go higher. But the truth is, nothing lasts forever.

So, here are a few things, in no particular order, that you can do to make weathering a downturn a whole lot easier:

• Take profits on big runs. Always take some money when a stock makes a big run. We advised you to do this with both Pyxus International and Twilio. And make sure to take the opportunity to redeploy cash at lower levels.

• Keep some cash on hand. You never know when there will be an opportunity. And it stinks to not have the cash to take advantage of one whenever it comes along.

• Tax-loss selling to offset profits. So far this year, we’ve exited 16 positions in the Wealth Advisory portfolio. Ten of them were winners. There’s no reason to pay the full amount of capital gains taxes and leave losing positions with dim prospects in your portfolio.

• Start a Roth IRA. The Roth IRA is the single greatest gift to the individual investor ever. You can grow your money and compound dividends for decades — completely tax-free. Over time, this could mean your investments will be worth 20% to 40% more than if you’d paid capital gains and income taxes. Now, there are minimum amounts that you can contribute per year, which means this is a tool for the long term because it takes time for the contributions to add up. Still, if you don’t have one, start one. And if you can afford it, maybe start one with a small contribution for your kids, grandkids, nieces, or nephews.

• Reinvest dividends. One of the easiest ways to weather a serious correction or bear market is to have substantial long-term gains. We’ve gotten a 220% gain on Bank of America since we recommended it. But will we freak out and sell if it drops by 30% from here? No, we won’t. We’ll keep letting dividend reinvestment work for us by adding more shares at the lower price. And we’ll look to add some shares out of pocket.

• Get approved for covered call sales. Now, I know that a lot of people don’t “get” stock options. There’s lots of lingo involved, yes. But covered calls allow you to collect cash for simply agreeing to sell stock that you own. Worst case with selling covered calls is that you’ll miss out on an upside because you had to sell the stock. Clearly, this isn’t such a risk in a serious correction or bear market. And when stock prices are falling, you can quickly recoup 10% to 20% of a stock’s value with covered calls. Plus, you’re raising cash. Covered calls are allowed in IRA accounts. Check with your broker now to get approved so you’ll be ready to roll when the time is right.

Now, I’m not going to make a big deal about this, but we’ve got a Christmas special running for The Wealth Advisory, $49 for 12 months. Click here to learn more.

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.