Terry, You have it down perfectly. If I have a losing start of the year, I still allow myself the 10% with which I started the year. Which means I could lose 10% less the interest on the 90%. I never have, but my guess is that it is bound to happen some year if I live long enough. On the upside, I do plow the profits back into my total portfolio (which is 40% 90/10, 10% capital appreciation (mostly long stocks, closed end funds and futures) and 40% maximum income. Of course, the realized profits of all three portfolios is allocated to keep their proportions fairly well in line.
So, for example, lets' say halfway through the year I am up 30% on the 90/10 (12% for the entire portfolio), 20% on the cap app (2% for the whole portfolio), and 12% of the maximum income (6% for the total. That would be a total of 20%, and the 90/10 would get 40% of that, or an additional 8%. That means that my maximum allocation to long options would now be 10.8% of the starting amount in the 90/10.
In reality, I pretty much SWAG these things and don't work out the numbers exactly every time I realize a profit or loss. But practice works out close to theory in this case. |
