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Friday, June 7, 2013 - 13:00

Make Up For A Late Start With 'Speed Investing'

Friday, June 07, 2013 1:00 PM

I have a friend named Tom who was fortunate enough to obtain a great-paying job out of college.

He worked for a few years, saved some money with the employer's retirement plan and slowly started climbing the corporate ladder. Tom lived in a one-bedroom apartment with reasonable rent and drove a sensible car. He went out to eat on occasion, but he mostly lived on home-cooked meals from his live-in girlfriend and soon-to-be wife.

Several months later, the couple was married in a small ceremony at a local country club. Tom's best man at the wedding was his best friend in high school named Steve. Tom had not seen Steve since college and was amazed by his apparent financial success.

Steve drove a new Porsche, lived in a large home in the posh part of town and wore designer clothing. The last Tom had heard about Steve was that Steve had landed a similarly well-paying job out of college. Intrigued by Steve's success, Tom asked him how he could afford to live in such grand style.

Steve explained that he had started a small business on the side and it had soon become his sole source of income, enabling him to quit his full-time job. "Wow," Tom thought, "I could do this also and live a grand lifestyle, just like Steve."

Several months later, Tom liquidated his retirement savings to buy a small local business. Soon, the business had enabled Tom and his new bride to move into a large home, buy a nice car and travel extensively. Tom was working less and making more than he ever imagined possible.

However, Tom no longer had an employer-sponsored retirement plan, and he was spending all his profits on his lifestyle rather than saving for the future.

Years later, Tom has several children, a huge mortgage and college tuition to worry about. Fortunately, his business continues to make a solid income -- but it all goes to supporting his extravagant lifestyle.

He woke up worried one night recently, knowing he doesn't have any savings or investments outside of his business. He is in his mid-40s and knows that if he doesn't do something -- and quickly -- he will never be able to retire from working on his business.

As you can imagine, by this time, the business has become more like a job than anything else. Tom can't wait to quit but simply cannot due to his overspending and lack of savings.

Is there any hope for Tom and the millions of people in middle age or nearing retirement in similar situations with very small or no investment portfolios?

Remember, it's not just people with low-paying jobs who have inadequate savings. Many successful doctors, lawyers and business people, with all the trappings of success, have failed to save enough for a comfortable retirement.

Obviously, traditional dividend reinvestment tactics and waiting for long-term stock market appreciation isn't going to work if you have a late start building an investment portfolio. A tactic I call Speed Investing is the perfect way to jump-start your stock market portfolio.

This method involves selling put option contracts on quality stocks. Generally, one put option is sold, providing instant income in the form of the premium received for the put -- but saddling you with the obligation to purchase 100 shares at the option's designated strike price.

Often, put options expire worthless, which means you get to keep the premium with no further obligation. However, sometimes you will be forced to purchase the stock at the predetermined price.

This is why the Speed Investing tactic is only used with quality stocks with long term performance histories. Owning these types of stocks is certainly not a bad thing.

This single tactic can quickly compound your gains in a relatively safe and consistent manner. That is as long as you are always prepared and ready to fulfill your obligation to purchase the underlying shares should it come to this.

What stocks makes sense to use this tactic with? In her Income Trader newsletter, StreetAuthority options expert Amber Barnhart provides the ideal stocks to work this Speed Investing strategy with. Here's an example of the recent performance:

Talk about great returns! Remember, we are only dealing with one put contract and 100 shares of stock. This strategy can be easily scaled larger to grow your portfolio rapidly.

Risks to Consider: Nothing is guaranteed in the stock market. Even time-honored tactics can fail in certain circumstances. Options are risky and should only be used by investors who understand the risk and are willing to embrace it.

Action to Take --> If you are getting a late start with building an investment portfolio, the Speed Investing tactic makes sense. It also makes sense if you have a substantial portfolio and wish to enhance your profits. The best case is that the put option expires worthless and you get to keep the premium. The worst case is that you are forced to buy the stock at the designated price. Both scenarios can be a win/win situation when the tactic is only used with quality stocks that you wouldn't mind owning at the put's strike price.

P.S. -- Amber Hestla-Barnhart is a former Military Intelligence Analyst with an eye for seeing what others miss. She now applies her unique training to the options world where she's uncovered a glitch that could be worth thousands of dollars per year to traders. To see her report and what she's uncovered, click here.

David Goodboy does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.