What are the top 10 Commandments of Options Trading Strategies

Options Trading/Strategies

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This blog is about the top 10 Commandments of Options Trading Strategies.

Options trading is a complex and often risky business. However, by following some simple rules, options traders can increase their chances of success while minimizing their losses.

Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options’ variables. Call options, simply known as calls, give the buyer a right to buy a particular stock at that option’s strike price. Conversely, put options, simply known as puts, give the buyer the right to sell a particular stock at the option’s strike price. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. A very straightforward strategy might simply be the buying or selling of a single option; however, option strategies often refer to a combination of simultaneous buying and or selling of options.

Options strategies allow traders to profit from movements in the underlying assets based on market sentiment (i.e., bullish, bearish or neutral). In the case of neutral strategies, they can be further classified into those that are bullish on volatility, measured by the lowercase Greek letter sigma (σ), and those that are bearish on volatility. Traders can also profit off time decay, measured by the uppercase Greek letter theta (Θ), when the stock market has low volatility. The option positions used can be long and/or short positions in calls and puts.

Below are the 10 Commandments of Options Trading:

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  1. Do your homework. Before entering into any options trade, make sure you understand the underlying security, as well as the risks and rewards associated with the trade.
  2. Have a plan. Options trading is not a get-rich-quick scheme. Carefully craft a plan that takes into account your investment goals, risk tolerance, and time horizon.
  3. Use stop-loss orders. A stop-loss order is an order to sell an asset when it reaches a certain price point—the point at which the loss on the trade would become too great to bear. By using stop-loss orders, options traders can limit their losses on any given trade.
  4. Let winners run. Once an options trade is profitable, resist the urge to take profits too early. Instead, let the trade run its course and reap the full rewards of a successful trade.
  5. Cut losers short. On the other hand, when an options trade is going against you, don’t be afraid to exit the position and take your losses. Trying to “fight” the market will only lead to further losses.
  6. Manage your risk exposure. One of the most important aspects of successful options trading is managing risk exposure. Make sure you don’t have too much of your portfolio invested in any one security or sector. Diversification is key to mitigating risk in options trading (or any kind of investing).
  7. Use limit orders. A limit order is an order to buy or sell an asset at a specific price—the price at which you are willing to enter into the trade. By using limit orders, options traders can better control their risk exposure and avoid getting caught up in volatile markets.

8 . Be patient . Patience is a virtue in all aspects of life, but it’s especially important in options trading . Don’t enter into trades just because you’re feeling antsy—wait for opportunities that meet your investment criteria . And once you’ve entered into a trade , resist the urge to “trade emotionally” and instead let your original analysis play out . Over-trading is one of the biggest mistakes options traders can make .

9 . Stay disciplined. Like patience, discipline is also key to success in options trading . Once you’ve developed a sound investment strategy , stick to it ! Don’t let emotions influence your trades — if anything , emotion should be kept out of trading altogether . The best way to do this is by developing a clear set of rules that you always follow when making trades . If you can do this , you’ll be well on your way to success as an options trader.

10. Have realistic expectations . Finally, it’s important to have realistic expectations when trading options . Remember : there are no guaranteed winners in options trading ! Every trade involves some degree of risk, so don’t expect to win every single time. If you approach each trade with reasonable expectations and focus on long-term success, however, you’ll be well on your way to becoming a successful options trader


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What are the top 10 Commandments of Options Trading Strategies

Furthermore:

  • Thou shall always take 100% daily gains or 200% all time gains.
  • Do not fall into temptation and buy during the first 30 minutes of market open. (Selling positions is still permitted)
  • Thou shall not buy calls on green days.
  • Thou shall not buy puts on red days.
  • Avoid greed and do not buy consecutive options on 1 company.
  • Give thyself at least 3 weeks time to play the option.
  • End your suffering and sell if down 50% all time on an option play.
  • Avoid gluttony and do not day trade options. (Swing trades allowed)
  • Be fruitful, multiply earnings and sell covered calls if holding any.
  • Celebrate and binge drink after big gains (or losses)
  • Off topic, but relevant – You absolutely need to be doing a 401k or IRA as well as investing in crypto: 401ks and IRAs offer fantastic tax advantages that straight investing does not. Also if you have an employer who matches you are leaving money on the table by not taking advantage of that. It’s foolish. Crypto is great and should definitely be in your portfolio but it should not be your whole portfolio.
    Sources:
    1- WallStreetBets
    2- Wikipedia

Options trading can be complex and risky business, but by following some simple rules traders can increase their chances of success while minimizing losses

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    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

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  • Not FI, but being on that path has allowed me to pull back from work to spend more time with my young kids
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    I’m 35 currently. Income is $120k in a low cost of living area, and I’d like to be able to continue this income into retirement (basically not miss a step). Assets: 401k - roughly $400k, maxing with full 10% employer match. Rental house - roughly $150k equity, or $2200/month income (if occupied). HSA - roughly $5k, contributing $250/month Cash/Emergency Fund - roughly $10k, contributing $1k/month Debts: Owe $200k on primary house at 0% interest Owe $90k on rental house at 4% interest Owe $30k on car note (5% interest) Child support - $1.1k/month for next 6 years I know I’m in a good place, but I’m just wondering if I should be doing anything differently. After maxing my 401k my options seem hazy. Max the HSA? Pay off the higher interest car? Just wanted to gather opinions. Thanks! submitted by /u/PlasticCraken [link] [comments]

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    by /u/AutoModerator (Financial Independence / Retire Early) on May 27, 2024 at 9:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

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    This is your safe place for questions on financial careers, homework problems and finance in general. No question in the finance domain is unwelcome. Replies are expected to be constructive and civil. Any questions about your personal finances belong in r/PersonalFinance, and career-seekers are encouraged to also visit r/FinancialCareers. submitted by /u/AutoModerator [link] [comments]

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    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

  • Hit $1M net worth!
    by /u/excellentmissnomer (Financial Independence / Retire Early) on May 26, 2024 at 2:10 am

    My (29F) husband (29M) & I recently hit $1 million net worth. He introduced me to FIRE when we met in college -- after mapping out what we wanted in life (recognizing this could always change), we each ranked financial stability quite high & so switched degrees from English (me) & psychology (him) to finance & computer science, respectively. We live in a MCOL area & have no kiddos so have been able to save fairly aggressively without much in the way of lifestyle constraints. I've been tracking our net worth since May 2019, when I noticed we'd hit ~$100k in assets (~$80k net worth at the time). (The 2017-2018 NW values below are therefore estimates.) Our progression is below. Something I found interesting: If you sum our household income from 2017 to YTD 2024, we've earned $1,399,343 cumulatively, such that our net worth today of ~$1M is ~72% of the gross income we've earned since college. I don't know what our cumulative tax bill over that time horizon has been, but it's neat to me that via the power of investing in low-cost index funds, we've in essence managed to "save" the equivalent of ~100% of our post-tax income over the years. Year 29M Income 29F Income Household Income Net Worth 2017 41,721 5,876 47,597 ~ -40,000? 2018 70,824 39,215 110,039 ~50,000? 2019 91,691 72,736 164,427 152,914 2020 48,434 85,028 133,462 268,412 2021 74,861 130,368 205,229 446,628 2022 131,881 161,332 293,313 548,641 2023 159,237 176,979 327,216 843,980 YTD '24 57,750 44,250 102,000 1,009,087 Some explanation of the above figures: - 2017: Husband graduated college. I made a whole $5,000 working a summer internship. - 2018: I graduated college & started working full-time in June. - 2019: Husband was working towards a master's degree -- given demanding subject matter, he dropped to part time in the back quarter of the year. - 2020: Husband quit his job partway through the year to pursue master's degree full-time. - 2021: Husband graduated with master's degree & started new full-time job in May. - 2022-2023: Both worked full-time. - YTD '24: My compensation entails a significant bonus at year-end so his YTD '24 income is higher than mine. Our NW break-down if of interest: - ~$14k cash - ~$140k taxable brokerage - ~$509k 401ks - ~$133k IRAs - ~$41k HSAs - ~$183k home equity My husband still has ~$11k in student loans -- we paid off anything with a >4% rate & are making minimum payments on the rest. We took $125k out of our taxable brokerage last year to make a down payment on our first home -- we are on an accelerated 13 year amortization schedule (to get a better rate) so have already chunked down a good portion of principal on our loan in addition to home appreciation. Next goal is to replenish that taxable brokerage account (maximizing all tax advantaged retirement accounts first, of course). Socking away ~$1k a week there, and will seek to save my whole bonus at year-end as well. I'd love to be at $1 million "liquid" (without consideration for home equity) this time next year, if we can swing it! I love reading everyone's updates in this community. As others have commented, a million isn't what it used to be, but I find considerable psychological peace in having this foundation in place to hopefully lend us greater freedom & flexibility throughout the rest of our lives. EDIT: Being a relative Reddit noob, I now see why people do these edits! I was out for a gals' day & came home to discover my husband has been defending our honor on Reddit all day (lol). I have to say I'm a bit flattered at the skepticism -- I tend to always think we could be saving more (comparison is the thief of joy, as many have observed, and I feel like I see so many others doing better than us on the various FIRE subreddits -- earning more, saving more, reducing expenses more, etc.), so to have various folks convey that our net worth is improbable or impossible lends a moderate sense of pride at what we've accomplished. My husband has spent more time in the comments seeking to mathematically validate the ability for X dollar value in contributions to compound to Y net worth over Z time horizon -- but the comment that resonated the most with me indicated that what I've communicated doesn't help as others seek to craft similar trajectories, so I wanted to fix that here. Some lessons learned on how we got here & some added detail on the journey: My husband wanted to move to a VHCOL city early in our marriage & I'm really glad we stayed in the Midwest. From my admittedly limited sample size, from what I've seen you can still earn very good money in the Midwest & the cost of living is a pittance compared to Cali, NYC, etc. We have both maxed out our 401ks every year that we've worked since college. As noted in the comments, I benefit from an 8% match applied to my payroll contributions AND year-end bonus. When I talk to recruiters, I use $190k in my head as my current compensation because while I technically made $177k last year, the ~$13k my employer contributes to my 401k each year is clearly meaningful over time & not all companies offer as strong of a match. My company switched 401k providers last year so I unfortunately can't look up the full contribution history since 2018 but my cumulative contribution in both 2022 & 2023 (employer + employee) was ~$36k / year. While I indicated no significant lifestyle constraints, my husband and I both tend to be very frugal, which I don't think I sufficiently conveyed. Our rent before buying a home never exceeded $840 / month (including utilities), which you can see put our housing costs at ~3% of our gross income in 2022. We were absolutely shoveling money into the market at this time. We also drive old used cars -- my parents very wonderfully got me my first car when I was 20 ($5k used car) that I drove until last year, when we bought another used car. My husband now drives my old car. I really think sacrificing on housing is the key lever that allowed us to super-size our savings (again just noting that I've often felt guilty for not saving MORE, so the fact I'm here trying to justify the net worth we've accrued is funny to me). We live in an area I designated MCOL because I most typically see our COL estimated at 1.03x-1.1x the national average. That said, there is a wide discrepancy in how you can choose to live here: I knew a new college grad at my company paying almost 5x what we paid in rent to live in his own luxury apartment downtown, versus our little apartment 15 minutes from downtown. Certainly if we had chosen to live in a nicer place or closer to downtown, we would have rent more typical of our MCOL area. I agree with what someone said that our rent from 2017-2023 more resembled a LCOL locale, but that was very intentional (& candidly the source of tension in our marriage because the area around our apartment was a dump & my husband very understandably wanted to move for years -- but we were saving so much! 😉 Maybe something helpful here with respect to how quickly we paid off student loan debt in 2018 is that I won $15k across various finance competitions my senior year of college and used all the proceeds to pay off debt. I saw some skepticism re taking our net worth from -$40k in 2017 to something in the $50k range in 2018. Around this time I think we also got ~$5k cumulative in various wedding gifts (we eloped but our family still sent us money bc they're sweet), also applied to student loan debt. As I write this, I think an overarching theme is that I am a firm believer in keeping the BIG life expenses small & not sweating the little stuff. Some of the major life costs we either skipped (wedding) or minimized (housing, cars) allowed us to be there for our family (flying cross-country last minute for an unexpected funeral) or ourselves (date nights!) when we wanted to without thinking twice. I just finished reading The Psychology of Money & I enjoyed Housel's commentary around the fact that "wealth is what you don't see." I don't think anyone looks at us in our beat-up cars & thrift store clothing & thinks for an instant that we have saved what we have -- and I'm very happy with that. I don't know if this is helpful or not -- but I do love reading others' musings so thought I'd share as well if useful even to one person. Wishing you all much success & fulfillment in your lives -- and a rip-roaring bull market the day you retire. submitted by /u/excellentmissnomer [link] [comments]

  • The Fed probably won't be delivering any interest rate cuts this summer
    by /u/Lucullan (Financial news and views) on May 26, 2024 at 1:43 am

    submitted by /u/Lucullan [link] [comments]

  • Anyone consider moving to avoid real estate capital gains tax?
    by /u/bmaguire14 (Financial Independence / Retire Early) on May 25, 2024 at 9:55 pm

    This may be more theoretical than practical, but it occurred to me that one should change their primary residence if/when it appreciates to the point that your capital gain will exceed the $250k/$500k exclusion. In my particular instance, I've owned my home for 13 years and the capital gain would currently exceed the exclusion limits. Considering that my home will likely to continue to appreciate from here, and I will need to now pay gains tax on ALL capital gains from here, wouldn't I be better off selling it today and buying a similar house down the street? That way the gains tax exemption would reset, so when I wanted to truly move in 10 years from now I likely won't have to pay ANY more capital gains than I need to pay today. Of course, I would have incurred an extra set of transaction costs (agents, staging, movers, etc.), which isn't inconsequential, but presumably would be lower than the tax bill 10 years from now. Anyone actually done this or at least considered this? Anyone think they might raise the exclusion limit? Researching this, that limit was set in 1997 (!) and was never indexed to even CPI inflation much less shelter inflation. [Edit: Thank you to the couple people that posted meaningful comments making good points. My conclusion is that I could POTENTIALLY save $100k in taxes TEN YEARS FROM NOW when I sell the new home, but I would likely incur around $75,000 in transaction costs TODAY. Considering the fact that if I invested $75,000 today in a 10-year treasury bond yielding 3.5% after taxes (4.5% pre-tax) then the $75,000 today is worth $105,000 in ten years, which makes it a bad tradeoff (not to mention the inconvenience of moving) ] submitted by /u/bmaguire14 [link] [comments]

  • Copper price to rocket to $40,000 a tonne, says top trader Andurand
    by /u/jefferymr15 (Financial news and views) on May 25, 2024 at 7:56 pm

    submitted by /u/jefferymr15 [link] [comments]

  • Daily FI discussion thread - Saturday, May 25, 2024
    by /u/AutoModerator (Financial Independence / Retire Early) on May 25, 2024 at 9:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

  • The opportunity cost of investing until you reach 100k or saving for a downpayment:
    by /u/TehM0C (Financial Independence / Retire Early) on May 24, 2024 at 6:57 pm

    Hi all, I long wondered what the opportunity cost would be if you choose to save for a 20% down payment opposed to saving for your first $100k. I decided to do an analysis. $100k is likely the first milestone most people strive for. This is a raw analysis and probably does not consider all factors. I've longed believed that every young adult should do anything possible to get 100k invested as soon as possible. The compounding of 100k saved in your 20s will do most of the heavy lifting of compound interest into your 60s. However, I welcome feedback on how I can tweak the calculation to be fully comprehensive. What works for me may not work for you. Personal finance is personal. Your journey will certainly look different than mine and that's okay! For the first part of the analysis I researched the cities with the highest home price-to-income ratios and conversely the cities with the lowest. (Cities included in the highest: LA, San Jose, Long Beach, San Diego, New York, Miami, San Francisco, Oakland, Boston, Seattle, Portland, Denver, Tucson, DC, Austin. Cities with the lowest: Detroit, Cleveland, Memphis, Wichita, Oklahoma City, Baltimore, Tulsa, Indianapolis, Kansas City, Louisville, Philadelphia, Milwaukee, Columbus, Omaha, Chicago). I calculated the ' median home price ' by using these ratios * the median income in these cities. This may not be completely accurate, but I believe this is accurate enough for the sake of this post. For this analysis, the average time to reach 100k in investments in the cities with the highest income-to-home price ratio (assuming 20% savings rate of median household income in city & 8% rate of return) is 5.10 years. The average time to reach a 20% down payment for a home in these same cities is 7.55 years (assuming 3% return & the same 20% savings rate). Assuming you never contribute to your retirement after reaching 100k, you would have on average $1.381m invested at age 60 (if you started investing at age 22). If you decided to wait to invest for 100k AFTER obtaining a 20% down payment, you would have $761k at age 60. On average, the opportunity cost would cost you about 620k. The average time to reach 100k in investments with the lowest income-to-home prices (assuming the same variables as above) is 6.33 years. The average time to reach a down payment in these cities is 3.24 years! Again assuming you never touch your $100k again after reaching it, you will have $1.253m at age 60. If you saved for a down payment first and invested afterward, you would have $968k at age 60. The opportunity cost is much smaller in the cities with an average of 286k. It's no surprise that the 100k will grow less the longer it takes to get there but what do you think about this analysis? There are so many factors missing in this post. For example, home prices increase if you decide to wait. Interest rates increasing/decreasing, rate of return, etc. Let me know your thoughts! submitted by /u/TehM0C [link] [comments]

  • Understanding 401k rollover if it 'has roth money in it'
    by /u/AhsokaPegsAnakinsAss (Financial Independence / Retire Early) on May 24, 2024 at 6:27 pm

    Hey! I have 12k in an old 401k I was looking to rollover into my current company's 401k plan, rather than IRA, due to the backdoor contribution tax thing I read from another sub. I went to request the rollover 401k->401k, and found out it's all roth money. I thought roth money is in roth 401ks, but he clarified that it's a normal 401k with roth money in it. Assuming this effects how I should roll it over. What's the best method now? I currently have a company 401k with fidelity (no roth money), though they offer a roth 401k. I also have a maxxed roth IRA. thank you submitted by /u/AhsokaPegsAnakinsAss [link] [comments]

  • Deflation Never Happens, Except Right Now
    by /u/Well_Socialized (Financial news and views) on May 24, 2024 at 6:04 pm

    submitted by /u/Well_Socialized [link] [comments]

  • Looking for advice for where I am at financially and where I need to be
    by /u/Detroitsaab (Financial Independence / Retire Early) on May 24, 2024 at 5:11 pm

    I'm 32M (married) living in a average cost of living city (Metro Detroit Area) with about 450k net worth. Annual salary is $114k. Wife makes about 30-40k a year. I also have a sole-prop business which had $60k in sales last year (about 50% profit) that I run out of my basement. Been working in the engineering field since 2015 starting around $80k salary and moving my way up since then. Currently in a indefinite contract position with limited benefits and currently looking to move to a direct hire (preferably at a automotive OEM) to gain much better benefits. My goal with this post is any feedback or suggestions to improve my situation. My current numbers are as follows: • $7.5k Roth IRA • $184k 401k • $12.5k HSA • $3k stocks • $21k in savings • House is a unique situation, use to be owned by my grandparents, transferred to my mother and am privately purchasing from her making monthly payments. • House valued around 330k • Owe her still around 130k on it at 0% interest, $1200 monthly payments • Business is a toy resale business has an inventory cost of $115k • Own 3 cars total (2 paid off, one owes $5k) I'm trying to figure out my next steps to improving. I currently deposit 10% of my salary to my 401k, I will randomly contribute to my Roth IRA and deposit $220 a week into my HSA. I invest most of my time into my business along with a large percentage of my disposable income. My hobby also aligns with my business and also includes my 3rd car as an automotive enthusiast. We do eat out a lot which hits my monthly income but am working on reducing that spending. Monthly take home from paycheck is about 6k a month and I would say about 5k is expenses. My thoughts has been to continue to invest in my business as it is growing (60k in sales last year, probably going to be around 70-80k this year but is hard to tell) as well as invest more into some ETF’s through my stocks (Robinhood) as I am seeing decent growth over the last year or two. For the house we are comfortable in it but may want to build a barndo eventually further out of the city, which will be a huge expense but would be our forever home. My long term goals are to retire from my engineering career hopefully in the next 10-15 years (or sooner) after my business grows enough to support my family. I have a fear that I might not be far enough along at 32yo where I currently am at. Any other ideas on where I should put my money or anything specific I should be doing to improve my situation or if I might be a bit behind or anything of that nature? submitted by /u/Detroitsaab [link] [comments]

  • What's a good tax planning strategy for FIRE w/ spouse still working?
    by /u/CP_615 (Financial Independence / Retire Early) on May 24, 2024 at 4:39 pm

    Hi Everyone, should I change any of my contributions for future tax planning? My goal is to FIRE at 48 but my wife will likely still be working with moderate salary ($65k/year). I'm only contributing to my 401k at the moment and my loose plan is to do Roth conversions when I FIRE. Between my wife's income, selling my employers stock when I leave, and Roth conversions, it looks like that could be a high taxable income. Would it be best to max out my Roth IRA contributions and then put the remainder to 401k? Other ideas? My employer also offers Roth 401k. I am 32m, married, no kids. Combined Gross Income $140k. Current Expenses: $40k (just me, not combined) Current Investments: Traditional IRA: $15k (rollover from previous employer) Roth IRA: $67k HSA: $2k (I no longer qualify to contribute) 401k: $81k Employer Stock: $8k By age 48, given current contributions and 7% gains, I’m projecting assets to be: Traditional IRA: $41k Roth IRA: $185k HSA: $6k 401k: $959k Employer Stock: $227k (this is a rough guess) Estimated Net Worth = $1.4M I’m loosely planning for $50k post-FI annual expenses @ 3.5% SWR. submitted by /u/CP_615 [link] [comments]

  • My Second Major Update: Nearly 10 years in, and my, how things can change!
    by /u/NewJobPFThrowaway (Financial Independence / Retire Early) on May 24, 2024 at 2:23 pm

    I realized earlier this month that my Reddit account is now 10 years old, which means that I've been on my FI journey for about 10 years now, as this account's creation was somewhat inspired by the start of a new job and the financial questions that arose from finally making enough money to start seriously thinking about early retirement. My last update post was about five years ago, so it felt reasonable to make another. Especially so, since things have changed so much since the last one. Put shortly, I've fallen victim to lifestyle inflation. I'd phrase it moreso that I'm "Building the life that I want", and realizing that life includes far more travel and more expensive experiences and things than I'd expected I'd wanted earlier in my life. However, many of my priorities have not changed. Travel and gifting have stayed at the top of my list of discretionary expenses, and while my income has somewhat stagnated and my savings rate dropped, I've still ensured that I'm at least able to max out all of my tax-advantaged savings avenues. Another thing that I'll mention is that my partner, who I referenced in my two previous posts, is no longer in the picture, so the numbers described in this post are mine alone. We amicably divorced during the height of the COVID pandemic - a period of time that was incredibly difficult for both of us, made doubly so by how difficult it was to safely spend time with friends and family, all of whom were incredibly important support structures for us. Fortunately for both of us, the financial impacts of the divorce (both then and now) were kept to a bare minimum. Category 2014 Value 2019 Value 2024 Value Income $110,000 $225,000 $265,000 Expenses $50,000 $66,000 $90,000+ FI Target $1.5 mil $2.0 mil ¯\_(ツ)_/¯ ($2.5 mil, give or take?) FI Savings $20,000 $750,000 $1.4 mil Examples of my Retirement Spreadsheets Net Worth and Invested Savings Graphs Income The income numbers provided are inclusive of salary/bonus/stock grants, but because of the variability of bonus/stock values, they are more of an estimate than an exact number. My income has risen over the past five years, but compared to inflation, it has barely moved at all. As I described in my previous post, I've reached a plateau in my career and am rather comfortable with my income staying flat against inflation. Expenses In the past five years, I've purchased and moved into my dream home, and spent far more on travel and other experiences than I had ever expected I would. The only categories where spending has dropped are "stuff" related - possessions, consumables, groceries. This is due to both me already owning everything I want to own (almost), as well as me prioritizing the things that are important to me (experiences) over possessions. Also, when I eat at home, I eat cheap. A few of these categories are suffixed with "ish" - I don't really keep a strict budget or a strict eye on my spending anymore, so these are largely estimates. The last thing I'll mention here is the category called "Gifting". I'm not doing a great job of defining this clearly right now. This is largely due to laziness and a lower motivation towards tracking this all, but is also partially due to the variability of it. Many of these are one-off items - I gave one friend a car, I paid off another's debt, etc. Some of them are more fixed: I contribute to 529s for some of my younger relatives. This category is rather large and nebulous right now, but I expect it to become better-defined as I get closer to retirement. This category isn't included in my "expenses" above (aside from being the "+"), and is largely why I haven't set a fixed FI Target yet. I had one year where the gifting number had exceeded $60k, but on average, it's probably closer to about $2-3k/month. This is a category that I expect will shrink considerably once I do retire, but I'd love to be fortunate enough to continue this somewhat. Category 2019 Value 2024 Value Mortgage $1770 $3100 Utilities $800 $800 Vehicles $350 $400 Hobbies $400 $500ish Experiences $--- $600ish Stuff $1400 $800ish Travel $700 $1200ish Gifting $--- ¯\_(ツ)_/¯ (a lot) FI Savings About half of the growth over the past five years has been a result of market movements, and the other half from new investments. My income hasn't really increased, but my spending has - I am now saving very little beyond my tax-advantaged buckets: 401k/BDR/MBDR/HSA makes up about $80,000 in savings each year, and that's largely the bulk of what I reliably save every year. There's another $20k or so each year that ends up in various accounts (brokerage/stock/bank) that I've been rather lazy with tracking. You may ask yourself why my investments don't appear to be doing as well over the last five years as they should've, given the market. Well, part of that is because of the new house (which required me to cash out much of my invested stock), and part of it is just dumb bad luck. Take a look at my Invested net worth graph at the end of 2020. During the roughly 3-month period where I had a large sum of money out of the market from selling off my old house and making the down payment on the new one, look at how much my 401k and IRA (which were untouched) grew! Holding that $250k or so in cash for that short period cost me over $25k in lost gains, which would've compounded over the last four years. Furthermore, you can see from the full net worth graph that a larger percentage of my net worth was tied up in my home equity in 2021 than in 2020. I don't count my home equity as part of my FI savings, so moving cash from investments into a mortgage caused a drop in my overall FI savings. Mental Health This is a section I'm adding, because well, to be honest, nearly every challenge I've encountered in the past five years has been largely due to my own mental health struggles. I'd rate my mental health "pretty good, all things considered" right now, but that's still nowhere near optimal. I frequently think of the dimensions of my mental health in the following measures: Mood, Stress, Focus, and Gratitude. These are all interconnected in many ways, but they tend to be the largest drivers of my overall well-being as well as that of my relationships, both personal and occupational. I feel the categories are rather self-explanatory with the exception of "Gratitude". This measure describes my outlook toward the people and world around me. A low measure here would be "feeling like a Grinch/Scrooge" and a high measure would be "feeling like Tiny Tim/Cindy Lou Who". I've included this section because I think it's incredibly relevant - if I don't like my life, odds are that retiring isn't going to improve things much (though it will likely improve my stress considerably, I don't expect the other values to really change. In fact, it's possible I'll end up losing both focus and gratitude if I don't have something challenging to put my mind to!) I'm rating each category 0 through 10, where 0 is where I'm unable to function and need to do something about it, and 10 is effectively an asymptotically unachievable ideal. For any of these, 5 is what I consider "normal", which is likely only a valid measure for me specifically. My "5" for stress might be someone else's regular Monday, while their "5" for stress might leave me near a nervous breakdown. For these, I would consider my mental health "good" if all of these are around a 6, but higher is always better (and lower is always worse). Mood Rating: 4/10 and somewhat stagnant Stress Rating: 6/10 but dropping Focus Rating: 5/10 and hopefully(?) rising Gratitude Rating: 7.5/10 Obviously the big callout here is low mood, and it has been this way for a month or two now. My medication has felt less effective over the past few months and it's time for a change, but my doctor's office has been slammed lately and can't get me in for an appointment until July (I set the appointment a month ago!) Also worth noting, I've noticed that with work, my focus and stress tend to move opposite each other - as I get more stressed (as say, a deadline approaches), I get better at buckling down and focusing on the project. FI Plan More of the same, mostly. Not too much has changed here. My funds have tended to accumulate in tax-advantaged, because I haven't allowed myself to touch those, while I've allowed myself to raid my stock and brokerage accounts more often than I should've. Looking forward, I think my next few goals are to look towards rebuilding these, as they'll be necessary for some of my early withdrawals in retirement. It's also worth noting that while I said earlier that I currently live in my "dream house", it's entirely possible I may end up moving to a lower cost of living area (I already live in what I'd consider low-medium COL), or may end up renting this house out as I backpack across Asia, or something similar. But, what seems more likely is that I'll keep this house, figure out my actual plans for gifting, and fix a FI target number somewhere in the upper $2M, which will hopefully allow me to retire in my mid-40s. After all, I've had "mid-40s FI Target" in my flair for quite a while now. Though, come to think of that - it really should say "RE Target". Fixed. Goals (short-and-long-term) Hit my annual target of $100k added to investments by September Get my Advanced Open Water Diver certification in 2024 Travel across Northern Europe with family in 2025 Get my weight back into the "normal" range for my height (I gained 40 pounds in 2022 and haven't been able to shake it off) Watch a sunrise or sunset from the top of a mountain (definition of mountain is flexible) Start or join a club for a hobby (either a hobby I already practice or a new one - specifically a club that meets ~weekly, to expand my social circle) Conclusion Anyone have anything to add? I know I've written a lot. I've tried to use feedback from my previous posts to improve this one, and will continue to use your feedback to improve my next one. Odds are I'll still be around the Daily Discussion, but likely won't be posting another major update for another five years, by which point I'll hopefully be very close to my RE date! submitted by /u/NewJobPFThrowaway [link] [comments]

  • Actual FAFSA financial aid results for a FIRE'd household (2024 edition)
    by /u/Zphr (Financial Independence / Retire Early) on May 24, 2024 at 1:25 pm

    TL,DR: The new FAFSA implementation under the FAFSA Simplification Act was a total shitshow due to government incompetence and other factors, but the actual formulas and process eventually worked out as I anticipated based on my reading of the law. Our second eldest got maximum aid awards from all FAFSA schools and our eldest will get another year of maximum aid from the school he is already attending. The new AGI-FPL test worked as the law said it would, which reduced the FAFSA to some basic demographic entries and a handful of financial questions about our 1040. Having an AGI lower than 175% FPL on our tax return yielded an SAI of -1,500, an automatic maximum aid award, and the removal of all income and asset questions from the form. The entire FAFSA process took just a few minutes total and required no prep or documentation on my part. This is a second-year update to my post last year on our experience with FAFSA as a FIRE'd household. If you want to know more detail about our overall finances, our funding plans for college, the morality/politics/legality of FIRE folks using FAFSA, or anything beyond just the straight-up numbers or application experience, then please look at last year's FAFSA posts (links at bottom of this post for the lazy) in my account profile. I included a lot more information/commentary in those posts and there was plenty of good debate/explanation in the comments. I put up variants last year in the three different FI subs I primarily inhabit and the commentary for each was varied and might be of interest. We can obviously talk about these topics in the comments here too, but I wanted to keep this actual post tighter since it's just an update and a lot of those conversations already happened in detail with last year's threads and are unchanged one year later. Although the FAFSA itself has had many highly publicized problems this year our experience was uneventful, minus the months of unexpected delays as they fixed broken production systems so that they could actually process all of the applications. Our natural AGI is under the 175% FPL line established by the FAFSA Simplification Act for maximum Pell Grant awards, so once I finished what little information the application wanted the site automatically assigned maximum aid to our kids, gave them an SAI of -1,500, and terminated without asking or allowing for any income or asset questions/verification. It seems that FAFSA now does the direct pull of financial data from the IRS in the moments before opening the questions to you, so the whole process took around three minutes from start to finish and was mostly a dozen or so demographic questions, most of which were simple things like marriage status, state of residency, and such. There was a single page with a handful of simple questions about possible modifications to our 1040 data, like TIRA rollovers, but none of those applied to us. This highly abbreviated process was pretty much exactly what the law suggests should happen, though I expected there to at least be the option to enter in detailed financial data on a voluntary basis. However, those sections were not made available to us as being under the AGI-FPL line skips the vast majority of the full FAFSA application. In terms of actual aid awards, our daughter ended up being really interested in only three schools, all of which are public universities in our state of Texas that rely exclusively on FAFSA for aid determination. Results for all of them were fairly similar overall, except for institutional grants/waivers, as might be expected given that they are all in-state public schools. Federal Pell grant - $7,395, maximum federal eligibility Texas state TEXAS (it's an acronym) grant - $5,000 to $6,500 University institutional grants/waivers - $6,000 to $14,000 Federal workstudy - Up to $5,000, maximum federal eligibility, optional. Federal subsidized loans - Up to $3,500, maximum federal eligibility, optional. Federal unsubsidized loans - Up to $2,000, maximum federal eligibility, optional. Merit scholarships/grants - Variable, not listing these since they aren't FAFSA-driven. Cost of attendance at all three schools is somewhat similar, with tuition/fees ranging from $11,000 to $14,000 and additional costs (room/board/personal/insurance/transportation) ranging from $14,000 to $20,000, depending largely on housing and food choices. Around $6,000 of the additional costs are for non-school items like health insurance, personal spending, transportation, supplies/tech, and so forth. We are covering most/all of those for her by simply continuing/reallocating the normal spending we already do for her as a household member, so paying those costs will not cause any change in our routine withdrawals/spending. The net result for our daughter was effectively a full ride at all three schools, inclusive in some variants of some moderate use of workstudy or loans, owing to things like different housing and food options. The ultimate result is that our being FIRE'd did not interfere with our kids being able to go to very nice colleges for minimal cost/free due to the way financial aid law works in the US. This results primarily from our spending being naturally low and under the 175% AGI/FPL line. We do not manage our AGI, with all dollars we spend/withdraw adding to our AGI, and a FAFSA is required for high school graduation in Texas, as well as being required for many/most merit scholarships. Although the process was different and simpler this year, the result is effectively the same as we had last year when the old FAFSA rules were in place without the AGI/FPL rule. For people with modest AGIs, natural or engineered, the FAFSA works similarly to how the ACA works, with lean and lightly regular spenders getting subsidies large enough to cover the entire cost in many cases. Unless folks live in a state that doesn't require FAFSA for high school graduation and want to deny their kids the ability to compete for merit scholarships, then these are the sort of results that many FIRE'd households will likely be looking at, particularly given how many people plan on managing AGI for tax optimization (both normal income tax and ACA tax subsidies). 2023 FAFSA post links: https://reddit.com/r/financialindependence/comments/11m3r2n/actual_2023_fafsa_financial_aid_results_from_a/ https://reddit.com/r/Fire/comments/11m3s83/actual_2023_fafsa_financial_aid_results_from_a/ https://reddit.com/r/leanfire/comments/11m3sui/actual_2023_fafsa_financial_aid_results_from_a/ submitted by /u/Zphr [link] [comments]

  • Daily FI discussion thread - Friday, May 24, 2024
    by /u/AutoModerator (Financial Independence / Retire Early) on May 24, 2024 at 9:02 am

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. submitted by /u/AutoModerator [link] [comments]

  • Using margin to deal with sequence of return risk
    by /u/Basic-Arachnid9233 (Financial Independence / Retire Early) on May 24, 2024 at 6:49 am

    Hi everyone, I was wondering whether there were any resources to discuss using margin to deal with sequence of return risk? Given how important the first 10 years of early retirement are in long term performance, to me it seems like the following idea might have merit. IE if there is a downturn some time during first 10 years of retirement, borrow margin against portfolio so not to deplete capital, and then once markets return to expected levels you sell the capital back. Given rates would be lower during market downturn, it would be cheaper although one would still have to reduce living expenses adjusted for costs of the margin. It seems like paying the 2-5% is more worthwhile rather than selling if the market is down a certain X% for the moment of the downturn. No margin call risk due to only doing it at the beginning of the life of the portfolio and small amounts relative to portfolio. Does this make any sense? submitted by /u/Basic-Arachnid9233 [link] [comments]

  • Jane Street Avoids Disclosing Secrets to Millennium in Dispute
    by /u/bloomberg (Financial news and views) on May 24, 2024 at 5:17 am

    submitted by /u/bloomberg [link] [comments]

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