Portfolio Update: February 2025

We are already well underway into the new year, and it's been rife with changes to our country's economics. There are more changes coming, with likely shifts in tax structure and trade policy.

Through it all, we must make it our goal to focus on the factors we can control. If the market does well, then our long positions will benefit. If the market does poorly, then we should bargain-hunt opportunities to pick up shares while they're cheap. Or, even more simply, just average down into indexed ETFs.

2025 Plan: I expect to trade options more often this year. I expect higher volatility in 2025, based largely on changes to economic policy. I expect that we will go back to the days of tweets moving the market 2-3% on a dime. We have already seen some evidence of this with the on/off tariffs, and will probably see it again in March with the pending government shutdown.

"Volatility" does not have to mean "bear market." However, I do expect a bumpy ride where VIX stays higher than it was in 20234. Higher VIX means more opportunities to trade in and out of short strangles, which are my bread and butter.

Merrill Edge Account

I have been slowly withdrawing from this account in order to fund my retirement accounts (taking gains and dividends out of the Merrill account to fund my i401(k), instead of reinvesting in the taxable account). Still, this portfolio is the largest individual portion of my net worth.

QQQM: The lower-expense cousin of QQQ. Traditionally, tech giants have outperformed other sectors over the long run. There are more concentrated tech ETFs, like VGT. QQQM is less top-heavy in terms of concentration (ie QQQM doesn't have 45% of its holdings in just FANG). QQQM therefore acts mostly as a slightly more volatile version of SPY.

VIG, SCHD: Both of these dividend ETFs are popular among dividend investors, but not yield chasers. Chasing >5% dividends on instruments like QYLD is a losing proposition, since these ETFs do not allow space for price increases; they generally underperform SPY except in the flattest markets. VIG and SCHD do not use covered calls to generate yield, and while their yields are not huge, they experience more capital appreciation than higher-yield instruments.

AAPL: I bought AAPL years ago, and if I sell now, I'll have to pay a lot of capital gains tax. Diversification would probably be wise, but I do not believe that diversifying away from AAPL is going to cover the at least $14,000 I'd owe in taxes for selling. I'm stuck riding this wave. So far, AAPL hasn't given me a compelling reason to sell, eat the tax, and diversify.

ET, KO, PRU: These are all dividend stocks that I bought during the 2020 crash. My dividend yield is quite high on some of them, with ET at about 16%. These positions show the influence of buying quality companies on the dip. My only regret is that I didn't buy as many shares as I should have.

SPY short strangle: After using covered calls and cash secured puts (the wheel) for many years, I started using shorts strangles in 2023 and haven't looked back since.

The strategy works well when you enter positions under the right circumstances. The goal is to sell volatility.

When VIX spikes to at least 18, preferably 20, I'll sell short strangles on SPY. I sell 0.16 delta strikes, which is one standard deviation (a 16% chance that the contract will expire ITM). I sell expirations between 45-60 days away. For doing so, I generally collect about $600-$700/strangle.

Currently, I've got 3x 3/21 SPY $535/620 short strangles open with a $731 premium collected on each. I always aim to close at 50% gain, which often happens as soon as VIX decreases adequately, to about 15.

My position collected $2,200 premium; the current gain is about $640 out of the needed $1,100 to close. Although VIX has dropped, SPY is still a little too high for a close, so I will sit on this longer, and preferably SPY will drop into the $590s.

 In January, I closed 2x SPY short strangles for about $750 total gain. Sometimes, like this case, both sides end up closing green. Sometimes, only one side will close green while the other is still in the red. This does not have any negative impact on taxes, since the loss is deductible from the gain.

Dividend

Almost all of my dividend positions pay quarterly, so there is not a consistent monthly payout.

 If there are no changes to the dividend payouts, then I should expect about $8,388 in dividend this year. This is lower than if I just had my entire position in SPY.

My dividends are lower than S&P ETFs because I am concentrated in QQQM, which pays a lower dividend due to its tech concentration. My SCHD, VIG, and individual dividend stocks bring my portfolio to just slightly under the S&P's yield rate.

I am no longer reinvesting dividends and capital gains into this taxable account, but instead funneling the money to retirement accounts in order to reduce my taxes. When my retirement accounts have been maximally funded, I typically add to dividend ETFs from there.

Fidelity

As I shuffle money from taxable accounts to retirement accounts, it mostly winds up in Fidelity, where I have my i401(k).

99% of my portfolio is just S&P ETFs. The remaining 1% is COWZ (focuses on high cash-flowing companies with a lot of S&P crossover), and cash.

Although there is nothing special about this portfolio's holdings, the account type is valuable. An i401(k) allows an additional avenue for self-employed people to fund their retirements beyond their IRA. Between an i401(k) and SEP, you can contribute 50% of your total earnings + $23,000 flat. This huge portion is immensely helpful for tax management.

I am contributing as much as is realistic, aiming to minimize my tax burden

The downside of funding retirement accounts is that you won't see the money for a while. In exchange for the tax deduction, you have to keep your Traditional deposits tied up until age 59 1/2; Roth contributions can be withdrawn at any time, but gains can only be withdrawn without a penalty at age 59 1/2. There are some exceptions to take withdrawals early (like hardship or fire-time homebuyers), but the additional contributions often need to be paid back into the plan with interest.

Next Moves

In 2025, I plan to sustain my short strangles approach. It rarely misses.

Beyond that, I'll continue shuttling dividends and gains from my Merrill Edge taxable account to retirement accounts for myself and my family. Saving on taxes is +EV.

If I do hit the absolute maximum contributions, the remainder of my deposits will go to Merrill Edge and spend on VIG shares.