Sunday, January 11, 2009

Covered Call Returns Outperform in 2008

I've received all the Dec statements for my retirement accounts and calculated my mark-to-market returns for 2008. The picture isn't pretty. 2008 was the worst decline in portfolio value I've suffered in the 20+ years I've been investing. Even worse than 2002 after the dot-com bust. Here are the results from all four of my retirement portfolios:

Covered Call Portfolio: -20.88%
Employer 401K Portfolio: -26.60%
Closed-End Fund Portfolio: -31.23%
Vanguard Index Fund Portfolio: -38.66%

As you can see, my Covered Call Portfolio outperformed all of the other portfolios. The worst performing portfolio was my Vanguard Index Fund Portfolio, which had outperformed the others from 2005-2007.

From an income generation perspective, my covered call portfolio also outperformed the other portfolios (I don't have income data for my 401K). Here are the results:

Covered Call Portfolio: 7.20%
Closed-End Fund Portfolio: 4.62%
Vanguard Index Fund Portfolio: 4.45%

This is further proof that an actively managed covered call portfolio can outperform a diversified portfolio of low cost index funds during a bear market, in addition to producing more income.