How To Invest In A Low Interest Rate Environment

The ten year yield is making crazy record low yields ($TNX) this morning…

Here’s what I have been doing whether we are in a super low interest rate environment or not but this is especially powerful I think during such periods…

When it comes to trading, my pal @Fibline likes to say, “keep it simple stupid.”

I think of long term investing the same way and its so simple and so classic that I think many gloss it over in search of more complex strategies that are too smart by half.

I buy the best dividend stocks or ETF baskets of them like $SDY and $XLU.

This is my execution strategy which I usually tweet in real time as I add, reduce and sell premium:

1. I follow closely the stocks and ETFs I want and track fundamentals, price and near dated options pricing daily.

At present, I have been and remain long in some form in retirement and children’s accounts $SDY, $XLU, $GIS, $INTC, $COST, $KRE, $COP and $XOM.

2. Every year there are usually 2 or 3 corrections whether we are in a bull market or not. We have been having one recently as the $SPX gave up 8% or so between April 3 and May 19.

When these corrections occur, I buy the stock or sell near dated out or near money puts. I sometimes do this in partials as well during smaller pull backs depending on the dynamics of the specific name.

I am playing for the long term in these accounts and am happy to miss opportunities but earn yield if the stocks close above the strike price at expiration as I know there will be more opportunities to buy during the next correction.

3. When the market rallies or the specific names I am in do, I sell call premium. Again, if the stock gets called I don’t really care as I know there will be another opportunity soon either in the name or somewhere else.

I also sometimes only sell calls in portions of the position, usually a third to half.

4. I do this gradually across my positions and am never fully invested much less on margin.

5. As you can see from the list of stocks, I do this with high quality names or ETFs which diffuse single name risk a bit.

My guess is that sometime before I retire or my kids reach adulthood, interests rates will rise and may even overshoot. Because I am handling these positions in this way and never get fully invested, I am not too worried about it but could lighten this strategy in favor of another one although I don’t think so.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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