We all have different levels of risk tolerance. But how is that risk measured for complex investment strategies like covered calls? And how can you be sure it’s an accurate reflection of reality? For the first portion of today’s episode, we provide a detailed breakdown of everything you need to know about covered calls and why there is no perfect model for assessing risk-adjusted returns. We examine how incorrect measures of risk can make covered calls seem more attractive, what investors need to know about covered calls, and the fees, costs, and taxes you should be considering with these types of strategies. Next, we are joined by lifelong friends and colleagues Jonathan Hollow and Robin Powell to discuss their new book How to Fund the Life You Want: What everyone needs to know about savings, pensions and investments. They describe how their shared passion for financial education motivated them to write their book, before explaining how readers can best use the accompanying workbook to identify and reach their financial goals. Robin and Jonathan then go on to share their advice on day-to-day money management, finding a trustworthy advisor, and why it’s never too early to teach your child about money. Tune in for a detailed breakdown of covered calls and how to make informed decisions about your investments and finances!

https://youtu.be/QHwoMWLStIE

Key Points From This Episode:

An introduction to the concept of covered calls. (0:02:41)
The definition of covered calls, how risk can be measured incorrectly to make covered call strategies look more attractive, and why risk can never be destroyed. (0:04:22)
A breakdown of the assets involved in covered calls and why their yields can be misleading. (0:07:00)
Why there is no perfect model for assessing risk-adjusted returns and what can be learned from looking at investors through a behavioural lens. (0:16:19)
An overview of why fees, costs, and taxes are major considerations for these types of strategies. (0:20:15)
Introducing Robin Powell, Jonathan Hollow and their new book How to Fund the Life You Want. (0:25:08)
Jonathan and Robin’s long friendship, their shared interest in financial education, why they saw a need for their book, and how readers can get the most out of their workbook. (0:30:45)
Insight into the six rules that Robin and Jonathan outline in their book and the eight keywords that they set up for managing money day to day. (0:35:07)
Advice on how to keep up with finance news, including what you should pay attention to and what you can ignore. (0:40:37)
The importance of a day-to-day savings habit and suggestions on what kids should be taught about money. (0:43:20)
Advice on how to find a first-rate advisor based on your needs and what questions you need to be asking of them. (0:49:54)
How your financial advisor should act as your financial bodyguard and complement your weaknesses. (0:56:02)
Ben and Cameron share news about their next podcast appearances, Rational Reminder education courses for financial advisors, and upcoming meetups. (0:57:43)
Learn about the webinars that Ben and Cameron have been hosting and how you can sign up. (01:03:00)

Participate in our Community Discussion about this Episode:

https://community.rationalreminder.ca/t/episode-251-covered-calls-plus-robin-powell-and-jonathan-hollow-on-how-to-fund-the-life-you-want-discussion-thread/23304

Books From Today’s Episode:

How to Fund the Life You Want: What everyone needs to know about savings, pensions and investments — http://www.evidenceinvestor.com/book/

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.
Rational Reminder Website — https://rationalreminder.ca/

Shop Merch — https://shop.rationalreminder.ca/

Join the Community — https://community.rationalreminder.ca/

Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

Jonathan Hollow on Twitter — https://twitter.com/jphollow

Robin Powell on Twitter — https://twitter.com/RobinJPowell

Robin Powell on LinkedIn — https://www.linkedin.com/in/robinpowell/

Jonathan Hollow on LinkedIn — https://www.linkedin.com/in/jonathanhollow/

The Evidence-Based Investor — https://www.evidenceinvestor.com/

‘Fact and Fantasy in the Use of Options’ — https://www.tandfonline.com/doi/abs/10.2469/faj.v31.n4.36

‘The Returns and Risks of Alternative Put-Option Portfolio Investment Strategies’ — https://www.jstor.org/stable/2352854

‘Option Investing from a Risk-Return Perspective’ — https://www.pm-research.com/content/iijpormgmt/25/5/109

‘Covered Call Strategies: One Fact and Eight Myths’ — https://www.tandfonline.com/doi/abs/10.2469/faj.v70.n6.3

‘The Sharpe Ratio’ — https://www.pm-research.com/content/iijpormgmt/21/1/49

‘Downside risk’ — https://www.pm-research.com/content/iijpormgmt/17/4/27

‘The Dutch Triangle’ — https://www.pm-research.com/content/iijpormgmt/26/1/50

‘The Impact of Downside Risk on Risk-Adjusted Performance of Mutual Funds in the Euronext Markets’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=277352

‘Is Covered Call Investing Wise? Evaluating the Strategy using Risk-Adjusted Performance Measures’ — https://www.worldscientific.com/doi/abs/10.1142/9789812565457_0011

‘Behavioral Aspects of the Design and Marketing of Financial Products’ — https://www.jstor.org/stable/3665864

‘The “Superior Performance” of Covered Calls on the S&P 500: Rethinking an Anomaly’ — https://www.pm-research.com/content/iijderiv/27/2/50

‘Portfolio Performance Manipulation and Manipulation-proof Performance Measures’ — https://academic.oup.com/rfs/article-abstract/20/5/1503/1592381?redirectedFrom=fulltext

‘Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2938146

‘Retail Trading in Options and the Rise of the Big Three Wholesalers’ — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4065019

About The Author

Cameron Passmore

Cameron Passmore has been a leading advocate for evidence-based, systemic investing for over 20 years in the Ottawa area. Today, Cameron and his team serve a broad range of affluent clients across Canada.