Can you use put options to protect your IRA?

I’m Keith DeGreen and this is your Investors Minute.

A “put” is an option to sell a security at a fixed price. It’s a bit like an insurance policy. The value of a put increases if, say, your exchange-traded fund – ETF — declines in price.

Federal Law prohibits your use of protective puts inside your IRA.

However, in your IRA you may invest in partnerships or funds that use puts. You’re just not allowed to do it directly yourself.

Fortunately, there’s at least one ETF mutual fund that uses put options — the Swan Defined Risk Institutional fund – ticker SDRIX — with a 17-year 9.2% average annual return. They’ve never lost more than 5% in any year – including in 2008.

It’s not right for everyone, but it’s been a useful component in our balanced ETF allocations.

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