• Frank Font

Forming A Game Plan

For the first two to three years, my focus is mainly going to be on adding funds to both the Roth IRA and the various trading accounts. The reason for having multiple trading accounts at the beginning would be to bypass PDT (Pattern Day Trading Rule). By having three separate small accounts of $5,000 I would be able to make 12 trades over five business days instead of the normal four. My calculated yearly expenses are $10,000 which would mean that with my current job I would be able to contribute about $14,000 towards an investing account. Of that $14,000, $6,000 would be used to max out my Roth IRA contributions, while the remaining amount would be split into three different brokerage accounts. That would mean that it would take me three years before I would be able to avoid PDT altogether by having $25,000 in one trading account.

Phase One

The first three years are what I would classify as the learning and funding stage. Over this time frame, I will focus on knowing the ins and outs of all forms of trading like futures and options. During work, I will listen to the 220 so episodes of Chat With Traders as a replacement to having a trading mentor. The trading that would be done during this period would consist of high probability trades that I enter only if my desired indicators show a buy signal. Besides trading, I would try to find a service that I can provide on weekends to supplement my trading income once I leave my current job. My goal with this would be to create an income source that allows me to cover my yearly expenses in addition to the $6,000 contribution to the Roth IRA. I would plan to work 52 out of the 54 weeks in the year for 8 hours each Sunday and Saturday which results in 832 hours. To make the necessary $16,000 I would need to earn $20/hour. That way I would be able to have about $2,100,000 in my Roth IRA by the age of 65 which I can withdraw tax-free.

Phase Two

During this phase, I should have no limits placed on the number of trades I can make. The purpose of this period is to significantly grow the account in a small amount of time. Given that I should have 3 years of trading experience by this time and now the major in and outs of the market I would focus on swing trades with options if all conditions were in my favor. I would emphasize risk management as I would not want to fall below PDT. My main strategy, however, will be today trade stocks that or volatile intraday. If I were to stick with a tight risk management strategy of only using 5 percent of my entire account and I can average to get a 0.5 percent return each trade for a profit of $62.5 per day, then per year, I would be looking at around $15,625. Within three years, I should be able to achieve an account value of $100,0000.

Phase Three

At the age of 30, I would resort to less risky strategies like covered calls. One post on Reddit stated that they sold covered calls on a stock like KO for a premium of about $0.27/contract at $4,700 for 100 shares. Considering that I would have a $100,000 account by this time I would be able to write 21 contracts. If I were to go off the assumption that none of the contracts would be called, the weekly profit would be $567. That would result in $29,400 per year which is an ROI of 26% after inflation. This may change as I learn more about the downsides of the strategy or the actual likelihood of success.

Outcome

The resulting amount in the investment portfolio would be $10,000,000 if the portfolio were to earn the predicted 26% over 20 years. At some point in this phase, I would have to hire an accountant to avoid some portion of the capital gains tax that would heavily cut into my yearly returns. Otherwise, I can withdraw $500,000 each year over 15 years while earning 5% and maintain the same starting amount. Then at 65, I would have the additional $2,000,000 from the Roth IRA. This scenario is unlikely as I would likely start to withdraw from the trading portfolio whenever necessary before I completely retiring.

Roadblocks

  • ·My most worrying concern is that we will soon have a downtrend in the coming years. Even though this would not affect long terms investments like those in the Roth IRA, it will make it much more difficult to reach the necessary $100,000. However, it would allow getting an understanding of what it is like to trade in all types of markets. Because I do not have a corporate job, I do not anticipate that I would lose my job.

  • ·Short-Term Capital Gains is another big issue as it would significantly cut into my returns when I start to join larger amounts of money. It could eat into my profits by as much as 37% if I were to start making returns of around $500,0000 or more.

0 views0 comments

Recent Posts

See All

If I cannot reach an average higher than the S&P over that period after five years of trading, I will focus on passive investments like ETFs. If I see that the returns have not progressed upwards over

I have started to diversify the total equity in the account between three or four different assets. I devote a portion of the account to selling poor man's covered calls, which could yield a return of

Before elaborating on my plan itself, I would like to layout my current and future situation. I want to supply the trading account for five years, but I will contribute funds over ten years if that is