The Futures Dividend: 10% Yield and 9% CAGR?

Sept. 30, 2024

Something strange has happened to me, and it’s getting worse.

I’ve come to absolutely hate drawdowns.

No, you don’t understand.

I hate them. 

It might be tennis’ fault.

When I’ve given a lesson, I’ve always promised that any strokes we work on will work right away.

They won’t work after six months of practice. They won’t eventually.

They’ll work now. 

And they do.

Because good, universal fundamentals always work. When was the last time eating right and working out didn’t work? When was the last time being on time and being nice turned into failure?

Certain stuff always works.

So why isn’t that the case with investing?

Sure, zealots say that buying-and-holding an index fund is the equivalent. But, of course, that’s not true.

Buying-and-holding an index fund–without Dollar Cost Averaging (DCA)–from 2000-2013 would lose money:

Teaching someone a forehand and not having the forehand go in for over a decade is not exactly good coaching.

So that’s not it.

What is it?

Dividends.

If we buy a stock that doesn’t stop paying a dividend, or, better yet, buy an ETF that definitely won’t stop paying a dividend, we’re getting much closer.

If we don’t needlessly stress about the day-to-day fluctuations, here are the facts.

Dividends always come though. If we own an asset that pays us, we start winning from the moment we buy it.

The only way to lose is not to buy.

But there’s a problem with that, too.

Who wants to own Johnson & Johnson for years and only make pennies?

That doesn’t move the needle.

So we need to think outside the box. We want our money and we want it now.

We don’t want to wait until the system’s &%$#! drawdown finally ends and we don’t want measly Dividend Aristocrat dividend payouts.

Is there a solution?

Absolutely.

I’ve found at least three of them.

Here’s one.

What if we take a Futures strategy…but don’t trade it like a Futures strategy.

What if we take a 10% dividend (from our starting amount), and pay ourselves that amount each year. No matter what.

If we start with $20,000, then we get $2,000 a year forever. Unless we decide to up our trade size or decide to take more.

What would that look like? Let’s examine.

We’ll use the system from the August 16th Newsletter. Here are the details once again:

The ES Daily RSI Pullback Foundational System (@ES)

• For Longs, price must be above the 210-day moving average
• For Longs, price must close into Oversold (length 2, OS 18)
• For Long exit, price must close into Overbought (length 2, OB 78)
• For Shorts, price must be below the 210-day moving average
• For Shorts, price must close into Overbought (length 2, OB 95)
• For Short exit, price must close into Oversold (length 2, OS 25)
• Emergency stop: $5500 per contract

And we’ll start with just 1 contract and we won’t change it until we double our account. Here is the annual breakdown:

We started with $20k and changed our trade size to 1.5 contracts (1 regular contract and 5 micros) when our account doubled. We moved to 2 contracts when it doubled again.

Very conservative.

What did we get?

We got our $2,000 every year for almost thirty years and running.

Oh, and our account went from $20k to $219k.

That’s a 10% initial yield (with a constant payout) and CAGR of 9.35% a year.

Yes, there were losing years–like there are with EVERY index fund.

But we always got paid.

We were always moving forward.

This is much more interesting than waiting for anemic dividend stocks or systems to get their butts out of drawdowns.

More to come.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.