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We’ve compiled answers to common questions about our Integrated Options Portfolio (IOP) to help you better understand our approach. Browse the topics below to find detailed information. If you have additional questions or need personalized assistance, please feel free to contact us by phone or email. We’re here to provide the information you need and support you every step of the way.
Please note that while we strive to offer accurate and comprehensive information, the content here is for informational purposes only and should not be considered investment advice.
An Integrated Options Portfolio is a portfolio where the shares of stocks and stock funds are replaced with registered stock options on the same shares, but at a fraction of the cost.
The money that is left over is used to purchase conservative, fairly liquid, income producing assets (high quality, short term bonds, CD’s, dividend stocks, etc.).
Among other benefits, the potential results could be more money, less risk, increased diversification, more income, and more flexibility than holding the actual shares of stock. While this is what the IOP is designed to do, actual results could vary and be different including potential loss of principal.
Added interest, improved tax structure, lower fees and limited losses can all contribute to the performance of an IOP. Results will vary, but the risks and potential benefits are known and evaluated ahead of time.
Normally, the type and amount of the investment does not need to change, but a similar fund or stock from another company may fit better depending on many factors. Call us if you have a specific scenario. Remember, it’s not necessarily ‘what’ you own, it’s ‘how’ you own it.
We are confident in the value we bring to your portfolio and are passionate about improving its performance. If you do not feel like you are better off by having your investments managed by Desert Rose Capital Management, let us know and we will waive the fees in your account for the previous quarter.
Because of this satisfaction guarantee, your fees may range from $0 to 2% or somewhere in between depending on the size, complexity and customization of your portfolio.
While no one knows what the future could bring, our research shows that the IOP structure helps to lower the risk in down markets while providing similar benefits to a typical portfolio in rising markets. This research shows that, based on what we believe are conservative assumptions, our clients could potentially have up to a 5-6% withdrawal rate instead of a typical rate of 4% or less. This has the potential to increase your income by 50%. Our actual recommendations will be based on your specific circumstances and risk tolerances and every withdrawal program will be adjusted as necessary to future circumstances as they come about.
Every situation is unique. In some cases it is a terrible idea and in others it makes perfect sense. There are many choices available for the conservative portion of an IOP. Life insurance policies built specifically for an IOP can provide good stable growth similar to many bond funds, especially in today’s low interest rate environment. The total return with life insurance as a part of the IOP may also be greater if the other characteristics of a life insurance policy would enhance the overall financial plan. Considerations must be taken for tax planning, income protection in the case of a total disability, liability protection, income enhancement during retirement and, of course, a death benefit. One of the strengths of Desert Rose is that we will optimize the structure to you.
No. The creation of an IOP takes about the same time as designing a typical financial plan. Desert Rose Capital Management, Inc. does the heavy lifting. We analyze, develop and maintain the desired portfolios. Since the IOP strategy is designed to limit the overall risk, we believe you will be able to live your life with less anxiety than you would with a traditionally owned stock portfolio.
Desert Rose Capital Management manages the accounts. Portfolios are customized according to your individual circumstances, risk tolerances, market outlook, etc.
The IOP strategy is designed to be similar to or even outperform in favorable (bull) markets compared to a traditional portfolio. In bear markets, especially in extreme bear markets, your IOP account is designed to minimize risk and outperform a traditionally owned stock portfolio. Based on our research and experience, bear markets even have the potential to be beneficial for long-term investors.
One of the main purposes of structuring investments with an IOP is to significantly lower your current risk while maintaining, and in most cases, enhancing performance. We use options in very controlled, conservative ways that limit losses and reduce overall risk.
Options can be used in a wide variety of ways. Some people use options in an aggressive and risky manner. On the other hand, the IOP portfolio uses options in very controlled, conservative ways that limit losses and reduce overall risk. In fact, the IOP uses options in a manner that has far less downside than owning shares directly. One of the primary benefits of using an IOP is to reduce risk.
No longer than your current investment horizon. Long time horizons are normally a prerequisite when investing in stocks, because of their volatile nature. Short time horizons do not allow any serious corrections enough time to recover. The IOP can be adjusted for shorter time horizons to really reduce the possibility of a loss, which makes shorter time horizons more feasible. Every situation is evaluated independently, but this can open up more opportunities for shorter term pools of money to have better opportunities for growth. This is very beneficial, especially in today’s low interest rate environment.
With an IOP, you will normally have more flexibility and more availability of your capital. We are able to use tax advantaged fixed assets (like municipal bonds) and the currently low, long term capital gains rates on the options portion of the IOP to hold taxes to a minimum. This can allow the portfolio to perform in a taxable account similar to an equivalent direct-ownership portfolio held in a retirement account. When there are no real advantages to using retirement accounts, we don’t. A major advantage, when we’re able to keep the investments in a taxable account, is the ability to react to ever changing market conditions and life’s opportunities and challenges. Each situation is different. Consultation with your CPA is recommended.
Normally, the type and amount of the investment does not need to change, but a similar fund or stock from another company may fit better depending on many factors. Call us if you have a specific scenario. Remember, it’s not necessarily ‘what’ you own, it’s ‘how’ you own it.
An IOP may help lower your tax bill. When taxes are an issue, we work with your CPA and make adjustments to the IOP structure accordingly. The use of municipal bonds or other tax friendly vehicles and long term capital gains on options held for more than a year provide an effective after tax return that is often similar to owning the shares outright in a Roth IRA.
Although an IOP doesn’t have the tax free benefits of a Roth IRA—an IOP can be even better than a Roth IRA since an IOP does not have all the limitations and liquidity issues of a Roth IRA. For higher income and/or higher net worth individuals, an IOP must be considered.
Among the other benefits already mentioned, the peace of mind in knowing that your entire future isn’t constantly at risk to the whims of a fickle economy allows you to make better decisions. Having an IOP for your investments allows you to take advantage of volatile market swings, to protect your gains and/or lower the cost per share of your investments. Owning the same investments without an IOP does not allow you to do this.
Absolutely. All of the financial tools used in an IOP are highly regulated, transparent and well understood. In fact, over 300,000,000 option contracts representing over 30,000,000,000 shares are traded each month.
The “Integrated Options Portfolio” name originated with Desert Rose Capital Management. It is a vastly improved variation of a management technique that has been used in a similar form by institutions for years (when we say similar, it’s about like the similarities between pancake batter and flour paste…the ingredients are similar, but the outcome is very different.) The previous institutional methods were never very practical for the individual until just a few years ago due to high costs, poor liquidity, the lack of availability of certain financial instruments (ETF’s and LEAP’s) and the lack of the right technology to manage such a structure. Today, those concerns are no longer an issue, but these processes are virtually unknown among even the best money managers. Most advisors are simply not familiar with the advantages of this method for investing.
Good question. We believe that most investors should. Please spread the word.
We will be happy to give you a side-by-side comparison of what your current investments could do if they were managed by Desert Rose Capital Management, Inc.
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Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in loss.
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