Aloha!

I hope you all have been having a great week up to this point. To follow on to my last newsletter discussing my background, I wanted to ensure that everyone is taking advantage of the best way to maximize their returns for the long run. By now you have probably read the Peter Thiel article about how he turned his $2000 Roth IRA into $5 billion.

Peter Thiel Roth IRA Article

While he took advantage of some ridiculous pricing on founder shares the tax shelter portion is something that every single person should be doing, especially if you are young.

The main benefits and terms of a Roth IRA are;

• You can contribute regardless of age

• Max contribution of $6,000 per year (plus $1,000 “catch-up” if you are over 50)

• Can only contribute if you earn less than $140,000 or $208,000 if married and filing jointly

• You pay taxes on contributions now, but withdrawals during retirement are tax-free (day trader’s dream).

  • This is extremely important for younger investors early in their career when you are not making as much as you would expect later in life. You can turn your lower-taxed contributions into a huge return and not pay a dime later in life.

• Can claim up to $2,000 in tax credits ($4,000 if married and filing jointly)

• First-time homebuyers can withdraw $10,000 to buy, build or rebuild a home without penalty

How I utilize my Roth IRA

The first thing I do every month is contributing around $1,000 for both mine and my wife’s IRA to ensure it is maxed out every year. Do this before funding any brokerage account or YOLO trade you want to make. Trust me future you will only thank you as the account grows.

One often not talked about benefit within a Roth IRA at least on Etrade is you can use limited margin and can open almost all types of options within the account. I cannot tell you how good it feels to know I can make a day trade for 300% on a call or put and know I never have to pay a cent more since the contributions are taxed when you contribute (ala Peter Thiel). Ensure you check with your broker on what types of margin and/or option levels are available before you open to ensure you get the best account to meet your trading needs as some brokerages do not allow options with a Roth IRA.

50% of my Roth IRA is invested into Real Estate Investments Trusts (REITs), or strong dividend-paying stocks with dividend reinvestment turned on. The sheer power of compound growth is amazing over time.

For example, if you opened a Roth IRA and deposited $10,000 and added $580/month (maxing out your contributions) into dividend-paying stocks with an average yield of 6% in 20 years that would equate to $149,200 invested and a return of $288,099. This growth assumes the stock price stays flat so in most cases, your returns would be much higher.

The remaining 50% of my Roth IRA is split in half where I use 25% to invest in speculative stocks such as biotech companies with a promising pipeline or newly formed companies that have the potential to innovate or disrupt the market in the coming months or years. I usually add to these positions on dips as they present themselves and if I have high conviction continue to do so until a catalyst or share appreciation moves their stock price to a level I feel is overvalued and then I will trim or close the position.

The remaining 25% I use for options as a way to boost my account value or hedge against a potential market downturn. This includes opening premium collection options such as Iron Condors, Butterflies, or selling puts. If these positions are closed out as profitable I follow my rule of investing 25-50% of these profits into a position I already hold that is at a level I feel comfortable adding to. This allows me to not only grow my account balance, but also increase position sizes in companies I find attractive more often. This also stops me from trying to ladder up my option sizes quickly and helps to mitigate any potential loss I may have from a future options trade. Again at the end of the day, all that matters is your account balance line continues from the lower left to the upper right.

In a nutshell, that is how I utilize my Roth IRA to set up a stronger financial future for my family. Thanks for reading and please if you have any questions on this topic or suggestions for any future topics please reach out in the comments.

Thanks for reading and please feel free to follow me on Twitter @TradingAloha!

My personal preference for a brokerage is E-Trade and you can open an account here if interested.

Mahalo,

Zac

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The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any securities, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service.