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Clayton Rulli
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Has 14 years of investment experience. Holds Bachelors Degree in Business and minor in Economics. Holds special interest in options trading and hedging strategies utilizing options. The best way to contact Clay is here at SA messaging.
  • Protecting Your IRA's Gains: Sleeping Easy In 2014 0 comments
    Dec 2, 2013 11:47 AM | about stocks: SCHD

    With the close of a very successful 2013 right around the corner, it could be time to safeguard your holdings and lock in some profits you so valiantly earned this year. The closing of the year could be risky, as sometimes ETF's and money managers rebalance holdings or take advantage of tax advantages. Not only that, but 2014 is certainly a blank canvas in regards to Fed policy, and there are some that claim the market is due for a correction.

    So I ask, why be greedy? And no, I'm not proclaiming to "sell sell sell" your gloriously green holdings. I'm not even saying "take half off the table", as I think the market could continue running higher. You know what they say, don't fight the tape! All I'm simply saying is take a small part of your juicy and relatively abnormal gains you hopefully earned this year, and apply them towards guaranteeing a relatively risk averse 2014.

    Take your IRA for example. You probably have one or two dividend ETF's in there, right? For example, imagine you've owned 100 shares of the Schwab U.S. Dividend Equity ETF, (SCHD) for all of 2013; you'd be up say 20% year to date, or roughly $600 on your initial $3,000 investment, without dividends. This is a nice gain, but why risk losing it in 2014? Moreover, why sell out now and risk additional gains? A simple solution is buy a long term put option to "lock in" a large portion of that hard earned money. For example, take a look at the July 2014 option chain to the right.

    If you took only $100 of your $600 in gains from 2013, you could easily purchase the 33 strike for $100 or so, which would serve to offset a fall in SCHD in the case of near term correction. Also, it would cap your max loss @ $33/share through July. This means absolute worst case scenario, you would lose only about half your gains earned this year through July 2014 expiration or the next 231 days, even if the market totally tanked down to totally unimaginable black swan levels.

    The market is at all time highs, and what goes up must come down, eventually. With 2014 approaching and much mystery set regarding Fed policy, ask yourself one thing: how much is 231 nights of solid sleep worth to you?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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