The Simplest Retirement Account Setup I Could Make... for an "investment challenged" spouse.
So, you've got a spouse who's not that tech savvy, gets the glazed over look when you start to say the word "roll over," and then goes positively cataleptic when you start saying the words "dollar cost averaging in," "covered call," "risk premium," and "short delta hedge." Ugh. How can I possibly set up their IRA so that if I croak off tomorrow and they can't manage a covered short strangle or covered call or short delta hedge they can mostly "get by" with just leaving the account alone, because that is what they are best at from a portfolio management standpoint.
Here are the things I was looking for out of this setup:
(a) Simplicity. A small number of instruments makes the account seem less daunting than were I to have them in a large number of stocks, each of which would presumably have to be managed over time. ("Geez, honey, there are only four instruments in there. If you can't manage those, there literally is no hope for you.")
(b) Dividend Generation/Cash Flow. I was really looking for three things here: "decent" cash flow (i.e., dividend yield), regularity of distributions, and regularity in the size of distributions.
(c) Broad Market Exposure, But Not So Broad As to Be Complicated. The most granular I wanted to get with this was broad market. There is a vast array of sector exchange-traded funds that I personally tap into on occasion from energy (XLE) to country (EWZ) to individual commodity instruments ... . (Okay, I'm getting that "glazed eyeball" look again here).
(d) Instruments That Would Emulate What I Would Do Manually (To a Certain Extent). My personal, basic IRA approach over time is to sell risk premium (i.e., short puts) in broad market (IWM, QQQ, SPY) to emulate dollar cost averaging into the broad market without being in the actual stock the vast majority of the time, occasionally taking on shares via assignment, and then proceeding to sell call against (i.e., covered call). I would love to teach her to be able to do that, but there are only so many hours in the day. ("Explain to me exactly where the genes came from that allow my kid to do this, but ... you're confounded by the whole thing?").
Unfortunately, there isn't an exchange-traded fund that does this quite exactly (short put/acquire/cover), but there are covered call ETF's in broad market that do the work of managing broad market covered calls for you. Again, I'm looking for a setup that kinda sorta does what I do, but without having my "investment challenged" spouse put in the leg work and without humping across the learning curve which for some appears to be steeper than others.
So, here are the four (count them) four instruments that we settled on (although if you wanted to make it simpler, you could probably just be in XYLD and call it a day):
QYLD (Nasdaq Covered Call ETF): 11.82% Yield
RYLD (Russell 2000 Covered Call ETF): 13.17% Yield
XYLD (S&P Covered Call ETF): 12.93% Yield
TLTW (20+ Maturity Treasuries Covered Call ETF): 19.09% Yield
After opening an IRA (stop already with the glazed looks), we rolled the 401(k) over into the account and then proceeded to dollar cost average into these funds over time. For example, if they had a total of $100,000, and you wanted to dollar cost average them week over a 52-week period, you'd take the total amount ($100,000), divide it by 52 weeks, and then divide it by 4 (four funds, you know) to get $481. $481 of QYLD would be 28 shares (rounded down to the nearest share); $481 of RYLD, 27 shares; $481 of XYLD, 12 shares, so each week you'd enter orders to pick up those amounts of shares until you're maximal deployed.
In our particular case, we've passed on dollar cost averaging into TLTW for the time being, since (unless you've lived under some kind of rock), being long treasuries or bonds in this environment, well, hasn't been bueno. However, it might be nearing a point at which we might start looking at picking some of those up, depending on when we get to some kind of certainty as to the "terminal rate," which could be in this neighborhood. Additionally, most brokers will allow you to set up automatic reinvestment of the dividends for these, so that you can set the whole thing on kind of an autopilot after you get to deployment of all your capital, although you will want to potentially pop the account open from time to time to look at potentially rebalancing.
Is it perfect? No. Is it exactly my approach? No. Does it work for them? (I'm not sure she can answer that question, except to the extent that she is elated when the dividends just kind of magically dump into the account each month, because literally it's kind of "magical" for her).
