In investing, as in life, the small things add up over time, compounding to much larger differences in the long run. In today’s article, I’ll go over three ways to get the most out of your investments and explain how each can save (or make) you real money.
Before we get into the details, here’s my favorite visual to demonstrate the power of small gains (or losses) over time.
Improving 1% each day for a year leads to ~3700% gain. Conversely, 1% decline each day over the course of a year leads to a 97% loss. Let’s find those 1% improvements.
Expense Ratio Gaps
This one is very simple, but if you take a quick look into what you hold, it can save you thousands of dollars over the course of your investment lifetime. As an example, let’s look at SPY vs. VOO, two S&P 500 ETFs.
As you can see from this table, investing in SPY, which tracks the same index as VOO, costs you. At shorter time horizons, the gap is minimal. But as that annual fee gap compounds, the effects do as well.
This effect can cost you well over $100k if your starting balance is higher as well, and this table is understated as it assumes no continued investments are made each year. If we assume that we invest $10k a year, look what happens.
This doesn’t just apply to broader market ETFs, and this is a scenario where AI tools (ChatGPT & Claude) can be super helpful. If you want exposure to gold, for example, you might search and find GLD as the first ticker.
If you were to choose GLD over GLDM, you’re paying 4x the expense ratio for the same underlying gold exposure. And if you want to get even deeper into the weeds, GLDM has slightly outperformed GLD over a one-year period, delivering 32.93% returns vs. 32.54% for GLD.
So anytime you consider investing in an ETF, just take a look at the expense ratios of other ETFs to see if you’re getting the best deal for similar exposure profiles. It may not make a major difference over a short time horizon, but over time it adds up. You can ask ChatGPT or Claude for similar ways to play a trade that cost less in annual fees, but express the same idea.
Tax Lots and Minimizing Your Tax Bill
Let’s imagine you’ve bought a stock at three different times, and at three different prices.
3 years ago, you bought 100 shares at $50 per share (Lot A)
2 years ago, you bought 100 shares at $120 per share (Lot B)
6 months ago, you bought 100 shares at $130 per share (Lot C)
With the stock now trading at $150, selling any of these 100 share lots brings in $15,000. But, depending on which lot you sell, you are realizing different levels and types of capital gains. Here’s how selling each lot would differ in federal tax amounts:
Selling Lot B gives you the same $15,000 in cash today, but produces $1,050 less in taxes for you to pay. Most times, it pays to wait until you’ve held your investment for over a year and select the highest purchase price lot to minimize capital gains tax.
I think most people are familiar with tax loss harvesting, but the basic idea is that you sell an investment at a loss, and use that loss to offset some amount of capital gains you would otherwise need to pay. As an example:
Selling Options to Get Into and Out of an Investment
I’ve saved this for last because I view it as my favorite method listed here, but it’s also the most complicated & controversial. I will attempt to make this as simple as possible but it’s important that I state: options are much more complicated than stocks and you should fully understand how they work before using them in your portfolio.
I think the only way to explain this method is through an example, so here goes.
Imagine you want to buy Robinhood ($HOOD) at $115/share. Let’s say you have strong conviction it’s a great company and you are willing to buy and hold it, with $115/share being your cost basis.
To enter into a position in $HOOD, you could either:
Buy stock
Buy a call option
Sell a cash-secured put
Selling a cash-secured put means agreeing to buy 100 shares of Robinhood at $115 per share if assigned, while setting aside enough cash to make that purchase. Assignment can happen before or at expiration.
In return for signing this contract, you receive a premium, aka cash today. Let’s take a look at the options chain to illustrate this more clearly.
In this example, you’re agreeing to buy 100 shares of Robinhood at $115 per share if assigned on the put, which expires April 16, 2027.
So why do this over just buying stock?
If you sell this option, you receive $2,135 upfront and reserve enough cash to buy the shares if assigned. If Robinhood finishes below $115 at expiration, you should generally expect assignment, although it can happen earlier. The premium makes your effective purchase cost $93.65 per share before fees.
If you’re set on owning Robinhood anyway and would still want to hold it at $93, assignment gives you the shares you wanted. You also keep the $2,135 premium you received when you sold the put.
But what if Robinhood rallies and you’re never assigned? You keep the premium, but you don’t acquire the shares and could miss gains larger than the premium you collected. That’s one risk of selling a cash-secured put to get into a stock.
If you’re assigned, you keep the $2,135 premium you received and own the shares that you wanted to anyway. It helps lower your cost basis. If you can lower your cost basis, you can enhance your long-term returns.
Suppose Robinhood does really well over the next 5 years, delivering 20% annual returns from $115/share to about $286/share. That’s a great return on the shares. But, if you got assigned on that put, your effective cost basis would be $93.65. Consequently, your return wouldn’t be just 20%/year; it would be 25%/year. A pretty substantial step up.
But that’s not it, because you can enhance your returns on the other end as well. If you want to sell your shares you have two options:
Sell your shares normally
Sell a covered call
Selling a covered call means you’re agreeing to sell your shares at a predetermined price by a certain date in the future. It’s very similar to a put, except the risk manifests itself differently.
In return for selling a covered call, you receive a premium and your upside is capped. Let’s use Google as an example.
If you sold this call on Google, you’re agreeing to sell your 100 shares at $330/share by April 16, 2027. Your premium in return is $39.60/share or $3,960 per 100 shares.
This means that you start missing out on gains above $369.93 per share if Google goes above that before April 16, 2027.
This is why I mentioned these methods of selling options are controversial. The risks manifest themselves in unconventional ways. However, in my view, you have the discretion to take these risks, and if you have strong conviction in a stock, selling a cash-secured put makes sense. Similarly, if you are happy exiting a stock at a certain price, covered calls make sense to get out of a stock.
Coming back to the HOOD example, I’ll go through what the total return picture might look like if you sold a covered call to exit the position.
So we need to figure out how much we’d get paid to sell a covered call with HOOD trading at $286/share. If we assume we sold a similar call to the Google example I just showed, the ratio of premium/share price was 12%. You get $3,960 to sell Google at $330/share. Applying that same ratio (a massive oversimplification, I know) you would get $3,432 to sell a covered call at $286/share in HOOD.
This is way oversimplifying things, but I want to show you how much (roughly) you can enhance the annualized returns by selling options on the way in and out of a position.
So, earlier we went from a 20% annualized return to 25% annualized by selling a cash-secured put to get into the position. If we sell a covered call, that goes from 25% annualized to ~28%. In total, we get ~8% of difference per year by selling the options on the way in and out, with the stock’s return staying the same.
20% vs. 28% annualized is a big difference. A 20% annualized return doubles every 3.8 years. 28% doubles every 2.8.
Now the issue is this makes a lot of assumptions:
It assumes the stock will go below your cash-secured put’s strike price, and then go back up eventually (if the stock continues to go down, you’re still better off having sold the put rather than buying the shares outright)
It assumes the stock will go past your covered call strike, if it doesn’t you will still hold the shares (not a terrible outcome)
It assumes you have enough capital and discipline to sell these options and keep the position open when the unrealized profit and loss may be in the red.
Actionable Takeaways
For most readers, the first two sections are the easiest to put into practice. The last section, and the practice of selling options involves a level of complexity that is probably too much for most people who just want to passively grow their wealth over time.
To get immediate value from this article, I suggest uploading your portfolio to Claude or ChatGPT, and asking, “For each of my holdings, is there a cheaper fund with the same exposure, and how much would switching save me over 20 years?”
Additionally, if you’re interested in a bit more color on Robinhood, I wrote it up on Tuesday, 9/8/26, here:
Lastly, if you have the time & energy for it, I am a proponent of selling options, but you should know it will require more time from you. There are also unconventional risks that present themselves when using options. If you do decide to use them, I would recommend doing much more research.
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