Investing $100 a Month in QYLD…How Much Would You Have? | Summary and Q&A

TL;DR

The QLD Covered Call ETF offers a 12% dividend yield, but investors often overlook the risks involved. This analysis compares the returns of investing $100 monthly in the QLD ETF to other dividend stocks and even non-dividend stocks like Tesla.

Key Insights

• 💐 The QLD Covered Call ETF utilizes a covered call strategy, selling call options against stocks in the NASDAQ 100 index to generate cash flow.
• ↩️ Reinvesting dividends in the QLD ETF may result in minimal overall returns due to taxes and underperformance.
• 😘 Investing in other dividend stocks, such as Realty Income, can offer higher returns even with a lower dividend yield because of qualified tax treatment.
• 💐 It is possible to achieve the same cash flow as the QLD ETF by investing in growth stocks and selling shares annually to meet the desired dividend payment.
• ✋ Investors should consider the tax implications and overall performance before choosing high-yield monthly ETFs like QLD.
• 🏋️ Dividend stocks and growth stocks both have their place in a portfolio, and investors should weigh the options based on their financial goals and risk tolerance.
• 🚕 Utilizing tax-deferred retirement accounts can help minimize the tax impact of dividend investments.

Transcript

the qld covered call ATF is hugely popular for its 12 dividend yield consistent monthly cash flow but how much are you really making off that investment how much would you have investing a hundred dollars a month over five years reinvesting the dividends or just taking that cash flow it is an important question that most investors just don't think ... Read More

Questions & Answers

Q: How does the QLD ETF employ a covered call strategy?

The QLD ETF buys the 100 stocks in the NASDAQ 100 index, mainly large technology companies, and sells call options against them to generate cash flow and offset risk.

Q: Why does the QLD ETF underperform the NASDAQ tech stocks?

By using the covered call strategy, the QLD ETF misses out on potential gains if the NASDAQ stocks surge. It sold the right to buy shares at a lower price, limiting its participation in market increases.

Q: How do taxes affect the returns of investing in the QLD ETF?

The dividends received from the QLD ETF are taxed at regular income tax rates instead of qualified tax rates. This can result in significantly higher taxes compared to other dividend stocks.

Q: Can one achieve a higher total return by investing in growth stocks like Tesla?

Yes, by investing in growth stocks and selling shares annually to match the desired dividend payment, investors can potentially achieve higher total returns due to capital gains and lower tax rates on long-term investments.

Summary & Key Takeaways

• The QLD ETF uses a covered call strategy on the NASDAQ 100 index, primarily investing in large technology companies and selling call options against them.

• Reinvesting dividends in the QLD ETF over five years may result in minimal returns due to taxes and underperformance compared to other dividend stocks like Realty Income.

• Investing in Realty Income, a popular monthly dividend stock, yields higher returns even with a lower dividend yield, mainly because of the preferential tax treatment of dividends.

• It is possible to achieve the same level of cash flow as the QLD ETF by investing in growth stocks like Tesla and selling shares annually to meet the desired dividend payment.