Congratulations, you took profit. You’re already ahead of most traders who, due to hope/greed/missing brain cells, overtrade and blow up their accounts time and time again. Too often, I see one of our admins make a banger of a callout that goes up 50%+, and members say something like, “not selling till 100%+, all or nothing,” and then end up with nothing. So, congratulations to you. Before you go put 100% of your account into another trade, consider these 6 things you can do with your trading profits to secure long-term wealth.
Before I go on, I’d like to mention that at Max Options Trading, we want you to secure the bag and grow your trading account so that you can be wealthy. Max didn’t become a millionaire by overleveraging his account. Since he made his first million, he’s been able to reinvest his money into businesses, real estate, and, you guessed it, more stocks & options. We care so much that Max included an entire module in his course. Take the “What Happens After Taking Profit: Payment Plans, Reinvesting, Taxes From A Full-Time Trader” class as soon as possible.
Let’s talk about what to do now that you have profits without further ado.
1) Create A Payment Plan
The first step to creating a suitable payment plan is to decide how much you want to pay yourself each day, week, or month. A daily, weekly, or monthly payment goal will also help you become a better trader because you know that you can cash out once you hit your goal. By trading to your goal, you won’t overtrade.
Max’s payment plan looks something like this. We know that Max (or Booty if you ask him) coined the phrase, “$200 a day keeps the day jobs away“. Each day Max aims to make $200 in profit. $200 per day equals $50,000 per year, which is comfortable for his lifestyle. Once he hits that goal, he usually STOPS trading for the day.
Max will transfer $900 to $1,000 to his checking account to live off of each week. At around $3,600 per month, Max can pay his bills, have some spending cash, and put a little into savings.
Your payment plan should match your lifestyle and needs, so put some thought into it. If you need help, take a coaching session.
2) Save For Taxes
Gains from trading are taxable. Don’t worry, we don’t like Uncle Sam either, but we’d rather not go to jail.
So, what tax rate should you be saving for? Depends on how much you make in income each year.
“Those who have lower incomes, generally $45,000 or less, may not owe the IRS anything, as their capital gains rate will be 0%. People who make more, however, may want to see where they stack up against the next threshold — individuals who have AGI of $80,000 or more may be subject to a 15% capital gains tax rate.
The highest earners, generally those who make more than $440,000 annually, may be subject to a 20% capital gains rate, plus a 3.8% net investment income tax.” – CNBC.com
So, add some profit to your savings account or a super safe index fund for tax time.
3) Pay Off Your Debts & Stock Up Your Emergency Fund
Before jumping into the following two sections, let’s talk about being smart enough to pay off those who you owe and create a safety net.
Paying off your debts is almost always the best way to secure long-term wealth. Generally, wealthy people don’t have massive, high-interest debts hanging over their heads.
Additionally, most traders have people who depend on them, so creating a nice emergency fund to fall back on if hard times come is smart. Opening a high-yield savings account and stocking it with enough money to cover 3-6 months of expenses will give you peace of mind in an emergency. Stock your emergency fund based on your risk tolerance and how many dependents you have. I personally have 3 months of cash stocked up to cover my wife and me. When I have kids, I’ll likely increase that.
4) Open A Retirement Fund
We love trading options and stocks. If you do it right, you can make a lot of money in a short time. It’s wise to open up a retirement fund to secure long-term wealth.
Types Of Retirement Funds
There are 15 different types of retirement funds on IRS.gov. As a trader, you will be choosing between 2-5 depending on your work situation. For our purposes, we’re only going to talk about the two types of retirement funds available to almost everyone. The Traditional & Roth IRAs.
Which IRA To Choose?
We recommend that you start by opening and maxing out your Roth IRA before considering a Traditional IRA. A Roth IRA gets maxed out at $6,000 per year for investors under 50. It’s perfect for investors who plan to be in a higher tax bracket when they retire than they are now. Generally, your investment will grow 10-20% per year, and you don’t have to lift a finger if you don’t want to.
My personal Roth IRA has grown 16.10% in the last 3 years, and all I do is add more money and let Vanguard’s Target Date Fund do the rest.
Once you’ve maxed your Roth IRA for the year, consider a back-door Roth IRA or contributing to a Traditional IRA.
Which Broker Should I Use?
Two of our favorite online brokers offer a Roth IRA, so if you use one of them, you can open up a Roth IRA easily and start contributing without moving money out of your account. Alternatively, I like Vanguard. Vanguard is simple, reliable, and has excellent customer support. They offer high-return Target Date Funds that automatically change your stock to bond ratio over time to provide strong returns early and safe returns as you get closer to retirement age.
5) Reinvest In Safer Stocks
One of Max’s favorite ways to secure his profits is to reinvest in other places that are less risky than options. Max says, “you should reinvest in dividend stocks, fundamental stocks, growth stocks, and real estate.” By building a balanced portfolio, you set yourself for long-term wealth.
Max’s current portfolio has a mix of dividend stocks like T and VZ, long-term index ETFs like SPY, a few high-risk, high-reward stocks like SPCE, a condo or two, and two businesses. These investments equal high passive income to both secure and grow his wealth.
6) Invest In Yourself & Your Loved Ones
One thing traders often forget is to enjoy their newfound wealth. Even the wealthiest people think primarily about their loved ones and experiences when on their death beds. Few people die thinking about all of the money they stockpiled and did nothing fun with.
Once you have your bases covered, enjoy yourself. Don’t overdo it and throw yourself into debt (you should have a nice emergency fund if you got this far). Go get that new tech you’ve been wanting, buy your spouse that new pair of shoes, take your family on vacation, upgrade your trading station, buy a MOT hoodie, or have a nice meal. Treat yourself.