5% return without risking principal

I was attracted to RingPlus because of frugal living. Anyway - there was a time when CD's gave rates as high as 6%. Now they are closer to a dismal 1%. These days is it possible to get a 5% return without risking your principal?


Try an S&P 500 Index Fund.

He wants risk free which that is certainly not. There is no magic 5% guaranteed rate that defies the market. At least not something that isn't severely constrained with requirements eg a rewards checking account - 4.59% being the highest rate.

If you own a house with a mortgage with a high interest rate - paying that down is as good as it gets for a guaranteed rate.

*** No is correct---one could possibly get close to 3 or 4 % with a long term CD, say 5 years, but that's about it. I remember when CD rates were 15% and above with concomitant mortgage rates. ". Six-month CD rates hit their all-time high of 17.98 percent in August of 1981; they bottomed out at 0.29 percent in January of 2010, and have now spent more than two years under 1 percent. Double-digit interest rates may sound good to people with CDs, savings, and money market accounts, but the flip side of those high bank rates is that it made mortgages much more expensive. Mortgage rates peaked at 18.45 percent in October of 1981." Those were the days my friend and we thought they would never end. But they did.:ohmy:

I think I found a relatively safe way using covered calls. S&P500 supposedly gives 7% over the long run, BXM does a little better in down markets while BXY does better than S&P in up markets. I am planning to buy stock and protect myself using covered calls, should the price of the stock go down. For those wanting to know what a covered call is, the video below explains it really well. But first I would need to master a textbook on Options and another text on basic investments. I seriously believe most knowledge is just two good textbooks away - a basic good textbook and an advanced good textbook. For the basic text, I plan to use Bodie-Kane-Marcus book on Investments used at NYU and for the advanced text I plan to study McMillan's Options as a Strategic Investment used at Northwestern. Trading Covered Calls to Generate Income - YouTube

I'm assuming that the source of your funds will be the $50k that you're able to borrow-- so loan costs will have to be considered in the investment.

Investing is risky even when you already have the money. Please be careful if you're planning to invest borrowed money.

Yes Chelle, it will be off the $50K I will be borrowing. Desperate times call for desperate measures. I will of course first master every word of the textbook on basic investments and later the Options textbook. I will solve all problems in the Options textbook and check their solutions. Then I will invest dummy $100,000 in simulated money and see how I fare in real markets. And only then will I expose myself to the stock market. It is gambling but like I wrote, desperate times of medical crisis call for desperate measures.

A few comments:

First, covered call writing is well-established and proven strategy for generating income from an existing portfolio

Second, it requires management, involves some complex tax issues, and entails highly variable returns.

Third, it does not provide great protection against downturns in the market.

Fourth, over long periods it is very likely to underperform buy-and-hold as a strategy.

Fifth, it is not a prudent strategy to undertake will borrowed funds or with any principal amount that is likely to be needed at short notice.

Sixth, it is not suitable for everyone as it can require realizing losses and being able to ignore the emotional impact of such actions.

As far as the McMillan text is concerned it is a great classic but rather dated. There are easier tools available today. One useful resource is the CBOE.


The returns, including reinvested dividends, from the S&P, using the Vanguard flagship VFINX fund as a proxy, have been around 11% since 1976.

There are many calculators on the web to determine returns for specific periods. Here is one:

At the present time, the “Fear Index” (VIX) is at historic lows which means options premia are very low. That has implications for the suitability of the strategy in the near term.

In the context of the earlier discussion in this thread, covered call writing is certainly not an indicated approach.

Thanks Oldbooks1 for your comments. You seem to know quite a bit about this field. What kind of background do you have in this area?

It might be fun to have a different thread where people share a little about their background but let's not derail this thread any further.

Instead, let's rephrase the title to make it easier to answer the question you are asking. The real question you are asking is:

How can I make a rate of return that substantially exceeds the expected rate of inflation with no principal risk?

The short answer is you cannot. The long answer is that there are countless Ph.D. dissertations that explain not merely how that has never been possible at any point in human history and why it never will be.

Everybody here is saying the same thing but just expressing it in different terms.

Covered call writing is an excellent strategy but it is completely wrong for what you are trying to accomplish.

You can test this yourself in the following way:

  1. see if any bank or credit union in the United States would lend funds for that purpose

  2. see if any broker would approve covered writing if the facts of the case were stated on the account application

  3. create a spreadsheet and work out how it would be possible to avoid account liquidation if you initiated the strategy while the VIX is at 10 and it returned to a more normal level of 18 or so quickly. If you convince yourself that is possible, then simulate what would happen if the VIX spiked to 25 or more and stayed there for at least one year.

  4. backtest covered call writing from the pre-Great Recession level and see where the account value would be today it the method were used properly throughout and interest were paid on borrowed funds. (there are tools to do just that available online)

  5. be sure you can explain why volatility skew is potentially lethal for a covered call writing strategy.

  6. check out a few online trading forums and see what the experience of others has been.

The only "risk free" as in some insurance against inflation, is TIPS.

With CD, if inflation goes above your CD return (less taxes), you are actually losing money.

Neither of which would give you a guaranteed 5% return for obvious reasons.