Do you think the "yield trap" in these funds is primarily a design flaw in the products themselves, or is it more of a behavioral issue where investors treat a tactical tool like a long-term retirement account? :)
I’ve subscribed and would be happy to support each other.
The key is choosing a fund that has the momentum to sustain the dividend. The only exception is when you are trying to achieve return on investment as quickly as possible (the return on investment strategy comes with its own risks).
With Yield Max, for example, you see that CHPY's NAV has increased over time despite paying a 30-50% dividend. MINY, however, has declined in NAV since inception. Chip stocks have more momentum than precious metal miner stocks do. That is why CHPY has done better than MINY and other Yield Max funds with a 25%+ yield.
So, you have to pick an underlying that works well with the mechanics of a fund. An ETF with a more aggressive option writing strategy (for example, closer to the money or selling on more of the portfolio) will require more momentum to maintain NAV than a fund that has a more modest distribution like SOXY.
Do you think the "yield trap" in these funds is primarily a design flaw in the products themselves, or is it more of a behavioral issue where investors treat a tactical tool like a long-term retirement account? :)
I’ve subscribed and would be happy to support each other.
Jorrit
The key is choosing a fund that has the momentum to sustain the dividend. The only exception is when you are trying to achieve return on investment as quickly as possible (the return on investment strategy comes with its own risks).
With Yield Max, for example, you see that CHPY's NAV has increased over time despite paying a 30-50% dividend. MINY, however, has declined in NAV since inception. Chip stocks have more momentum than precious metal miner stocks do. That is why CHPY has done better than MINY and other Yield Max funds with a 25%+ yield.
So, you have to pick an underlying that works well with the mechanics of a fund. An ETF with a more aggressive option writing strategy (for example, closer to the money or selling on more of the portfolio) will require more momentum to maintain NAV than a fund that has a more modest distribution like SOXY.
I hope that is helpful. Thanks for subscribing!