Book Review > A Low Risk Income Strategy for All Economic Conditions

Author: MCDONALD, Christine Publisher: Christine McDonald ISBN: E Book
Location: Price: Reviewed by: Clare Mullen

“I have been applying this income strategy in our SMSF since 2008 and have maintained a consistent return of greater than 10% in the past 3 financial years. Even during the GFC (FY2009), this strategy managed to produce a 13.7% return that financial year.” –Christine McDonald (p3) -

Who wouldn’t want to generate 10% income from their Self Managed Super Fund (SMSF) using a ‘low risk’ method? Author Christine McDonald openly details her personal successes using this strategy through a variety of stock market stages – a bear (falling) market (FY2009), a bull (rising) market (FY2010), then a sideways (flat) market (FY2011).

So what is this strategy? Known as ‘Options Trading’, it is a method to generate income by agreeing to buy or sell shares in the future at agreed prices, using existing stocks as collateral for these agreements. As McDonald summarises on p10:

“This income strategy is based on having an investment portfolio comprising of cash and blue chip Australian stocks. What I do differently from most other income investors is that I use exchange traded options to generate additional income from our portfolio on top of the interest and dividends that we receive.”

McDonald encourages the reader to be ‘…open to new concepts…’ (p3), as Options Trading requires some learning & practice. This short introductory book of 20 pages uses a variety of styles and examples to explain concepts, leaving the technical terms to the second half of the book. The use of conversation bubbles, payoff diagrams and specific examples all help to demonstrate the concepts. McDonald tried an analogy of using options-style contracts to buy and sell houses, although I found this analogy difficult to understand as we don’t use this method in daily life.

Examples in the e-book don’t seem to include brokerage + GST costs, which simplify the examples, but be aware that these costs will reduce your profits slightly.

The ‘Frequently Asked Questions’ (FAQs) on page 19 are frank and include answers to ‘How much income can I expect from this strategy?’ as well as difficulties in implementing this strategy. You don’t need a SMSF to do options trading, but McDonald suggests minimum capital of $30,000.

More impressive is the follow on detail at the associated website  with its layered approach to education at cost. This includes:

-          A weekly blog on a sample trading portfolio which details the trades that have been done and how they are going

-          Training videos

-           Training videos plus mentoring program –available via either 3 months or 1 year of access.

I have been doing Options Trading since 2010, and have used a few different ways to learn this investment technique – a 3 hour seminar, one simple and one complicated book, one year of playing an on-line game, and two years of doing live trading. The best learning has come from live trading – losing real money really hurts and you remember the lesson! I am still learning 2+years into options trading, but in my short experience, the 10+% pa yield suggested is achievable - irrespective of the state of the market (up/sideways/down).

I would recommend McDonald’s e-book as a short (free!) entrée into the world of income generation through Options Trading, with details on ‘Next Steps’ if you want to learn more.