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I have $7k in a brokerage account that's currently in a CD ladder that I set up. The ladder is making about 1% APY but I'm looking to up the yield as well as the risk.

Ideally, I'd like to have either a few sectorized ETFs (or some index funds). OR buy 100 shares of a few stocks and write call options on them to generate some steady income.

I'd rate my investment experience at 7/10 with some decent experience with buying call options. I also have access to advanced investment tools through my brokerage firm (Fidelity Active Trader Pro).

  • How old are you, what is the goal for this money? – quid Feb 13 '17 at 18:41
  • 23, savings - moderate growth – Fueled By Coffee Feb 13 '17 at 19:31
  • What's your investment horizon or when do you want to use the money? – quid Feb 13 '17 at 19:34
  • The investment horizon would be 5 years – Fueled By Coffee Feb 13 '17 at 19:46
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You don't really have a lot of money, and that isn't a criticism as much as that you are limited to diversification. For example, I would estimate you can only have one or two stocks for a buy-write scheme. Secondly you may be only to buy one fund with a high minimum investment, and a second fund with a smaller minimum investment. Thirdly there is not a whole lot of money to make a large difference.

One options might be to look at iShares since your are with Fidelity. Trading those are commission free and the minimum investment is one share. They offer many sector funds.

Since you were in a CD ladder you might be looking for stability of principle. If so you can look at USMV and PFF. If you can tolerate a little more volatility DGRO.

Having said that you seem interested in doing some buy-writes. Why not mix and match? Pick a stock, like INTC (for example not a recommendation), and buy-write with half the money and some combination of iShares for the rest.

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An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)

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You may want to look into robo-investors like Wealthfront and Betterment. There are many others, just search for "robo investor".

  • I actually have a separate roboadvisor account. I actually figured out my strategy between 4 separate sector ETFs. Thanks for the input! – Fueled By Coffee Feb 15 '17 at 2:01
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When you are starting out using a balanced fund can be quite advantageous. A balanced fund is represents a diversified portfolio in single fund. The primary advantage of using a balanced fund is that with it being a single fund it is easier to meet the initial investment minimum.

Later once you have enough to transition to a portfolio of diversified funds you would sell the fund and buy the portfolio. With a custom portfolio, you will be better able to target your risk level and you might also be able to use lower cost funds.

The other item to check is do any of the funds that you might be interested in for the diversified portfolio have lower initial investment option if you can commit to adding money on a specified basis (assuming that you are able to). Also there might be an ETF version of a mutual fund and for those the initial investment amount is just the share price. The one thing to be aware of is make sure that you can buy enough shares that you can rebalance (holding a single share makes it hard to sell some gain when rebalancing).

I would stay away from individual stocks until you have a much larger portfolio, assuming that you want to invest with a diversified portfolio. The reason being that it takes a lot more money to create a diversified portfolio out of individual stocks since you have to buy whole shares. With a mutual fund or ETF, your underlying ownership of can be fractional with no issue as each fund share is going to map into a fraction of the various companies held and with mutual funds you can buy fractional shares of the fund itself.

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  • Low cost ETFs” - There are ETFs that will let you gain some exposure to each of these. They are fairly low cost, so they don’t become a drag on your portfolio returns. I would recommend Vanguard ETFs. I am a big fan.
  • However, if there is one thing I have learnt from trading in the best firms, it’s that risk management plan comes first. As boring as it sounds, you need to decide at what loss levels you will bail out. That is much more important than diversification.
  • Services like portfolio rebalancing, optimal tax allocation algorithm do add a lot in performance.
  • Later on, as the amount you invest grows, I would suggest that you look into strategy diversification rather than asset class diversification. There is no point to allocating to all asset classes all the time. You'd do better to invest in a portfolio that allocates to various strategies (like Global Macro, Risk Parity, Momentum, Daily Fractional Rebalancing) according to changing market conditions.

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