What up, IIN-siders?
As we’re fast approaching the holiday season, one must reflect on the past year and wonder where did the time go? As I get older, the days, weeks, months and years move quicker. When I was young, summer felt like it lasted an eternity. Now that I’m older, summer’s over in the blink of an eye.
What I take away from this is to retire as soon as I can so that I can enjoy what time I have left. Ya know, like I used to during summers when I was younger.
I’ve found that when we’re traveling and doing all kinds of crazy things, time moves slower for me. Carmela notices it too. It’s almost like our perception of time is based on how much we’re experiencing. Maybe we’re weird, but we feel like the steady drone of the rat race makes time fly by.
Since we’re only here for a limited time, I want to maximize the time I have left to the fullest. I’d think everyone wants that.
You Could Retire Right Now
In Episode 14 of our Roaming Returns Podcast we talked about a handful of places you could retire to right now for only $1,500 a month. We also explained that having a portfolio of anywhere between $120,000-$240,000, could generate that $1,500 in monthly dividends.
So why not live in one of these places and do makes you happy?
Places You Can Invest That Money
Last month’s newsletter showed you 3 ETNs that could help you on your way. SLVO, USOI and GLDI are commodity based ETNs (silver, crude oil and gold respectively). With these you don’t have to physically hold the commodities, but can instead profit from the work of the advisors, higher ups or whatever you want to call them.
This month, we’re going to look at the somewhat risky but very lucrative area of YieldMax™ ETFs.
Now I should start by saying I have never been a huge fan of ETFs. I don’t like them, never have liked them and probably never will like them. But I do like what Yield Max is doing and I’ll address why.
I should also point out, never ever invest money you can’t afford to lose. These may be some of the riskiest investments we have ever discussed with you. But if you use them strategically, they can be awesome.
So buckle up, because there are lots of tickers coming.
YieldMax™ ETFs
What Is YieldMax™?
The following is directly from the YieldMax™ website.
YieldMax™ ETFs was founded by ETF industry veterans with decades of experience in income-focused investments, options strategies, portfolio management, fund risk management, and fund operations. Our mission is to create innovative and unique ETFs that solve problems for investors of all types.
After doing a bit of research about these particular investments, I’ve concluded that they use a covered call strategy with a twist. YieldMax™ employs an actively managed strategy best described as a synthetic covered call.
How These ETFs Generate Income
The predominant driver of potential income for a covered call strategy comes from the selling of short-term, out-of-the-money calls. These calls are sold over a synthetic long stock position consisting of (i) a long at-the-money call and (ii) a short at-the-money put.
This combination of “long call and short put options” is known as a synthetic long stock position because it synthetically mimics the exposure of being long stock.
(Psst… good annuities work very similar to this. It’s how they can provide guaranteed payouts over the term you lock into.)
The primary driver of the potential monthly income of a YieldMax™ ETF is the amount of premium earned selling the short-term, out-of-the-money calls. In turn, the premium generated by these sales is materially impacted by the implied volatility (IV) of the options being sold.
And Implied Volatility Is…
Investopedia defines “implied volatility” as follows:
Implied volatility represents the expected volatility of a stock over the life of the option. As expectations change, option premiums react appropriately. Implied volatility is directly influenced by the supply and demand of the underlying options and by the market’s expectation of the share price’s direction. As expectations rise, or as the demand for an option increases, implied volatility will rise. Options that have high levels of implied volatility will result in high-priced option premiums.
In Plan Speak
What this all means when you look at the data and research (I may be wrong here as I am by no means an expert in options trading) is that YieldMax™ uses the popularity and volatility of certain investments to make money.
They make money by selling out of the money calls. And you as a shareholder share a portion of their profits.
Sorry for all the technical talk, but I wanted to be as transparent as possible, as these are riskier investments.
What I like about these ETFs is that they give you a way to make money each month from investments that you wouldn’t normally own in your portfolio as an income investor.
Tesla, Apple, Nvidia, Amazon, Facebook, Google, Coinbase and Disney are great growth stocks, but have undesirable dividends… if any at all. Investing in growth stocks is a completely different strategy than investing in high dividend-paying companies like we do.
These ETFs are sort of like SLVO, GLDI and USOI from last month. They give us a way to invest and profit monthly from assets that wouldn’t normally meet our criteria.
How YieldMax™ Reduces Risk Exposure
Each YieldMax™ ETF holds 90%+ of their total holdings in United States Treasuries as well as 1-2% in cash. This means that 8-9% of the total return or loss is from the options they hold in each ETF.
The ETF holds out of the money options on the company they represent in the ticker title (I.E. Tesla, Apple, Microsoft etc.) For example the Tesla ETF, TSLY holds out of the money options on Tesla as well as treasuries and cash. This holds true for each ETF.
Below is the complete list of all YieldMax™ ETFs at the current time of this writing. I’ve provided the ticker, the stock they represent, as well as the current monthly distribution amount and current annual yield.
There are 4 new ETFs that have not yet had a distribution listed at the bottom.
My YieldMax™ ETF Strategy
How I would recommend utilizing these ETFs is kind of complex, but worth it. Obviously, I wouldn’t rely on these for your consistent monthly income needs since they have variable rates. Additionally, they aren’t stocks with growth targets, so don’t expect their value to increase over time.
Since they’re risky (they could always go to zero), I do not recommend investing more than 5% of your total portfolio in this type of asset. And they’re very volatile, so those with a weak stomach should stay away.
But otherwise…
Use Them Like A Paycheck
YieldMax™ ETFs pay substantial dividends on a monthly basis. If you have their DRIP turned off, you get cash that can be used just like a normal paycheck contribution. Use it to buy more shares of quality undervalued assets that are already in your portfolio.
This will help expedite the growth of your reliable income stream from dividend investing.
Keep Track Of How Much You Invested And Earned
I keep a running tab of how much I invested in each YieldMax™ ETF and how much I’ve collected from them in payouts. The objective is to collect more than you spent. That way if they go belly up, you aren’t out any money.
By the end of next year at the current yields, I should have close to 85% of my initial investments in these YieldMax™ ETFs paid back in dividends. That money is being allocated into other dividend stocks without ever touching the initial principle that I put in the YieldMax™ ETFs.
Once you get all of your money back, these just become free cash cows. If this doesn’t make sense, please email me and I’ll try to help you make sense of it all.
Synchronize DRIP With Each Represented Company
I like to turn the DRIP off on months when YieldMax™ ETF’s corresponding/represented company has a really good return, and I turn the DRIP on when the company is oversold.
For example, Tesla had an awful October because of inventory concerns as well as margin concerns. So after seeing this data, I turned the DRIP on for TSLY this month because TSLY is down like 5% for the month.
Conversely, Coinbase had a pretty good month because of the potential Bitcoin ETF being approved by the SEC paving the way for mainstream cryptocurrency acceptance. So CONY would have the DRIP turned off this month.
Which One To Invest In
With these investments I would stick to what you like best, whether it’s Amazon, Google, Facebook or whatever.
To date the least volatile of the bunch are JPMO, MSFO and NVDY. I picked 4 when I started investing in them just in case one underperformed.
With that, I bid adieu to you my loyal readers. I hope November is awesome and that you have an amazing Thanksgiving holiday. Stay warm and stay sane, HA!
Keep on, keeping on.