A self-made millionaire says he doesn't believe in index funds — and explains why he doesn't see options as higher risk

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3 days ago

Jason Brown rebuilt his wealth through options trading after early investment losses.
Brown's skepticism of traditional investing led him to focus on self-directed options.
He emphasizes understanding options to mitigate risk and protect financial assets.
Jason Brown built wealth his own way.
After a disappointing early experience handing over his money to professionals — he took $2,000 worth of high school graduation money to the bank to invest and, two years later, his account had dropped to $700 — he decided if he was going to lose money, at least it would be on his own terms.
As a college student, he started buying stocks and grew his modest savings to six figures before losing it all on one trade. After selling his car, moving back home, and taking a job at Verizon selling cellphones, he started trading again — this time, with a set of investing principles that would prevent him from going broke again.
Brown, 43, gradually rebuilt his portfolio and hit the seven-figure mark by trading options. Business Insider confirmed his net worth by reviewing an account summary that shows his 2024 investment activity.
An option is a type of financial contract giving you the right, but not the obligation, to buy or sell an asset at a specific price before a specific date. Options are generally more complex than traditional investing, such as buying and holding stocks or index funds, but Brown's adamant that traditional investing doesn't cut it.
"I don't really believe in index funds," he told BI.
He became skeptical after digging into his 401(k) plan when he worked for Verizon. Specifically, he looked at the fund his 401(k) money was invested in. It was comprised of about five major companies like Apple and Google that he knew and trusted, but "the rest of it was junk," he said. "That's when I was like, I want to move it over to a self-directed IRA, and I just want to pick these five companies. Why are they forcing me to buy all this other stuff?"
Index fund investing has helped many regular investors build wealth, but for Brown, who prefers to be more hands-on with his investments, options trading made more sense.
'Options are not risky. The way people use them is risky.'
Brown, who trades full-time, runs a financial education company, and is the author of "Five-Year Millionaire," believes there is a lot of misunderstanding around options trading.
"When people don't understand options, they'll say, 'That's risky what he's doing.' The reality is, it's risky not knowing how to use options," he said.
Stock options can be compared to renters' or car insurance, depending on whether you're buying or selling options and whether you're using calls or puts.
For example, buying a put is like buying car insurance. You pay a premium (the cost of the put), and hope nothing bad happens (the stock doesn't crash), but if it does, you're protected: You can sell the stock at the agreed-upon price (the strike price), just like insurance would reimburse you if your car gets totaled.
"If options are so risky, then stop paying your homeowner's insurance or your car insurance, because that's what you're doing every month when you cut a check: You are buying a put option to protect yourself in case something happens," said Brown. "Why don't we buy protection for our investment accounts when a COVID-19 happens, when an '08 real estate market crash happens, when a tariffs situation happens, and the market tanks?"
Options can require careful timing and market-watching, and Brown knows he won't make money on every trade.
"You cannot be right on every trade," he said, which is why he has a robust emergency fund, multiple revenue streams, and follows investing principles, including: Know your "I'm wrong level."
When he lost everything in his early 20s, he never considered his "I'm wrong level," he explained. "I only thought, 'What would happen if this goes right? I'm getting a condo.' I never stopped to think, 'If I'm wrong, I'll lose it all and I have to move back home.'"
Now, he knows exactly when he needs to cut his losses and shut down a trade.
"Options are not risky. The way people use them is risky," said Brown. "You can use them to gamble and treat it like a casino, or you can use them to protect some of your most valuable assets — protect your accounts and grow your accounts."
Read the original article on Business Insider