How do I use my Forex Managed Accounts as both Growth funds and as a Passive income source?
I have noticed that people either have no goal or no strategy or at best use the old “buy and hold” strategy when investing in Managed Accounts or ANY type of higher yield growth fund. I do not advise this. I do not even advise this in ANY type of investment.
Let’s get into what I do advise :)
First, you must have a goal. Second, you must design a strategy to achieve that goal. If you just want a place to put your money that will be safe, that is a goal, and you can design a strategy around that (bury it), but what I am going to use as an example goal for this managed accounts strategy is “Accelerated Growth” and “Passive Income”.
First of all I have an advantage over some in that I have a traders mind set, I think “Buy and Hold” strategies are deadly to someone who wants to make money by investing. A friend of mine went to Florida to start flipping houses, I told him we were sitting on a huge bubble, I showed him charts, told him to take 1/10th of the money he was going to buy houses with and buy PUT options on a Housing index, or spread some PUT options across a few of the biggest lending companies. Nope, he bought 3 houses. He renovated them and lost 1/4 of his money in 1 year, I told him to “sell, run, anything, it’s only going to get worse”. He held on, he is down 4/5ths of his equity now, he is renting them for less than his mortgage payments. Why did he do this? Because his Dad was his strategic advisor, his dads logic was this: Buy Real Estate, hold, flip when you see profits. He based this on the idea that if you bought real estate and held it for 100 years NEVER has it ever gone down… 100 YEARS!! What the hell type of logic is this? What was the goal of this I asked, “To own Houses” Ah! Well he has 3 houses now. mission accomplished.
I on the other hand have the goal of turning a profit. If I see potential profits, I choose my entry point and I choose the levels to exit, both loosing and winning exits. I want to be in and out, I do not want to be subject to market swings or news spikes unless I know what it is going to do, and that is not all the time, thats for sure.
The Fantastic thing about managed accounts is that is EXACTLY what the manager is doing, he is in and out of the market, taking pieces he understands and staying flat (out of the market) when it is doing something that he does not understand. And in this way I only need to pick a winning manager and stick with him. So it is really the only passive income I can agree with, because it is actively getting in and out taking profits, only I am riding someones coat tails instead of doing the blood sweat and tears part.
Now for the Growth Funds plan of action and Managed Accounts strategies:
When I pick my managed accounts, I pick them with my goals in mind, I choose my entries and my exits, again both winning and losing exits.
SO lets use an fictional example to illustrate:
For this example my goals are:
- I want to create a passive income to supplement my current income (from working as a toilet cleaner) to spend more time working on my passion (face painting).
- All the while I am generating this passive income I want to be saving a lot of money to become comfortable (cushioned) enough to quit my job and take up my passion full time… And I only have $10,000.00 to do it with.
I start by choosing from the list of Forex Managed Accounts one that I like the look of, I find one that makes 100% per month on Average, it’s draw downs are 20% (Draw down is Peak to valley on a chart) The Manager takes 50% as a fee, So the Fund makes ME 50% per month and never dipped below 20% in his 6 month history, sounds good to me (everyone has there own tolerances and goals). (By the way as a side note, No PAMM Managed Account is very old, the technology was only developed 3 or 4 years ago, and many managers still don’t know what it is or it’s advantages over older managed Accounts methods. If you are looking for 5 years of history, you need to wait a couple years
- I put my “losing exit” at 50% because he would have to have changed something very drastic to lose this much, I do not want to get kicked out on a bad day, or in a regular draw down (you should set your losing exit bigger than the normal draw down but within your tolerances).
- I set my “winning exit” at 100% gains but I use special exit techniques. If he continued at 50% gains per month, at the end of the first month I would only have 25% of my initial deposit at risk ($100 + 50% = $150 – 50% = $75) Remember a draw down from any high point that equals 50% would kick me out. I have two types of winning exits I like to use for managed accounts:
- Take out my initial deposit and set up a regular withdrawal on targets met.
- Let it ride with the 50% stop.
If I use winning exit #1 I would take out my initial deposit of $10,000.00 in two months, I would take out 25% of the total account every time it made anther 100%. I would also take all my money out if the 50% stop was ever hit. Lets look at how this would work financially:
- Deposit 10k
- Managed Accounts reaches 20k
- Take out initial deposit -50% = 10k
- Managed Accounts reaches 20k
- withdraw 25% = 15k (5k income)
- Managed Accounts reaches 30k
- Withdraw 25% = 22.5k (7.5k income)
- Managed Accounts reaches 45k
- Withdraw 25% = $28,750 ($11,250 income)
- Managed Accounts reaches 57.5k
- Withdraw 25% = $43,125 ($14,375 income)
- Managed Accounts reaches $86,250 … At this point your trading account has 86 grand in it, your initial deposit is back in your pocket (10 grand) and you have made an income of 38.5k Not too shabby :)
You would continue this until your stop is hit, or until he stopped trading, or until you got bored :)
If you used winning exit #2 it would be essentially the same except accelerated: You just keep the initial deposit in the account. SO your 20 grand would become 40 before you took out 25% (10 grand) Personally if I really liked the managed account I would do it this way, I would leave my deposit for 4 months and pull out 10k, every time it reached 100% again I would take out 25%.
Winning Exit #1 is safer.
Winning Exit #2 creates 2 times the income and growth in the same amount of time.
I must also advise you do this with multiple Managed Accounts, splitting up your deposit, you never want all your eggs in one basket.
With each Managed Accounts Manager I use a different strategy, or at least a variation of, keeping in mind my end goal.
To learn more about managed accounts please check a couple of my other posts:
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