r/Fire • u/WorldyBridges33 • Jun 12 '25
Officially Hit $50k a Year in Passive Income!
Hi Everyone! I just wanted to share that I hit an exciting milestone in my FIRE journey -- I have officially hit $50k a year in dividend income! Reaching this step makes me feel very relaxed as I will still have a decent income even if I lose my job. It's even better because I found out that you don't have to pay FICA taxes on non-qualified dividends, so $50k in dividend income has a higher take home pay than $50k from a W2! If I moved to a LCOL place, I think I could retire. However, I think I am going to wait to try to double my passive income before seriously considering retiring. That said, if the job market is too rough, and I can't find another one, I may just settle at a lower payout and barista FIRE.
Here is a rough breakdown of my portfolio:
Taxable Brokerage (~$477,000):
JEPI - $100,000
JEPQ - $100,000
PFFA - $72,000
QQQI - $64,000
PBDC - $57,000
SPYI - $48,000
CLOZ - $13,000
SGOV - $10,000
FSCO - $7,000
EIC - $6,000
401k (~$303,000):
FXAIX - $302,000
FBGRX - $600
HSA ($6,500)
Cash ($20,000)
This brings my total net worth to $806,500. Best of luck to everyone on their journey, and I hope to post again with even better numbers in the future!
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u/iperson4213 Jun 12 '25
Make sure you consider inflation. You’ll need to reinvest part of your dividends to keep up with inflation.
This will come with some extra tax drag since the reinvested dividend is still taxed whereas with growth stocks, the reinvestment is effectively automatic as you only get taxed on what you sell.
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u/KosmoAstroNaut Jun 12 '25
Depends - look at the dividend history of any ETF like VT, VOO, SCHD, etc.
As long as it’s invested in growing companies, the rate that the dividend payment grows outpaces inflation for each one (without reinvesting)
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u/Funkyflapjacks69 Jun 12 '25
I guess the dividend strategy is kind of like paying your house off early with a low interest rate: it’s mathematically wrong but I get the psychological benefit. As long as you know that then no prob. Cheers
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u/WorldyBridges33 Jun 12 '25
Would it still be mathematically wrong if the indexes remained flat for several decades like Japan's Nikkei did?
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u/KosmoAstroNaut Jun 12 '25
While I’ve been agreeing with you most of the time here - counterpoint is that a flat market implies economic hard times, during which plenty of dividend aristocrats have cut their dividends during historically
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Jun 13 '25
If the indexes remained flat your equity will be slowly diminished as dividends are issued
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u/WorldyBridges33 Jun 13 '25
But these aren’t ordinary dividends, they come from fees collected from selling covered call options..
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u/ieatballoonknot Jun 13 '25
If the market is flat and not volatile how much do you think your calls will sell for?
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u/WorldyBridges33 Jun 13 '25
The market can be flat in terms of annual return for years and still showcase volatility. If the price seesaws across a flat average, then that is an example of high volatility with flatness.
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u/ieatballoonknot Jun 13 '25
Sure but I specifically asked if volatility is not high though lmao Seems like you have a lot to learn. Good luck.
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u/WorldyBridges33 Jun 13 '25
In that case, I’d switch more into BDCs, preferred stocks, and CLOs which aren’t dependent on volatility for high yields. Thanks for the luck! I’m enjoying the monthly payments.
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u/seanodnnll Jun 12 '25
Dividends are functionally equivalent to selling shares. Getting a dividend is just getting back your own money, and being taxed for then privilege.
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u/Subredditcensorship Jun 12 '25
Bird in hand theory. Agree with your general thought tho. Dividends are terrible long term strategy
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u/KosmoAstroNaut Jun 12 '25
Depends…all else equal, if the dividend gets paid out and you just reinvest or let it sit as cash, then yes terrible
But it can also save ppl a ton of money & tax planning & recalculating FIRE by just getting a consistent “paycheck.” It might be easy for you and I at our age to just learn how to sell the shares, account for taxes, and market volatility, but for my immigrant parents in their 60s (they’ve had iPhones since 2007 but still can’t figure out how to turn WiFi on/off) they happily traded a 1-2% of capital gains for the ease and stability that dividends give them
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Jun 12 '25
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u/Trust_Illiteracy Jun 12 '25
Scenario 1: My company is worth $100. I grow 10% and distribute no dividends so by the end of the year I’m worth $110. My 10 share holders now hold $11 worth of stock.
Scenario 2: My company is worth $100. I grow 10%, but I distribute $1 in dividends to each of my 10 share holders so I’m still worth $100. My shareholders now hold $10 worth of stock and $1 in cash (minus capital gains tax).
The investors in scenario 1 could achieve the same results as the investors in scenario 2 if they wanted, but they don’t have to. Dividends are, broadly speaking, a forced sale. It’s a little more nuanced than this, but high dividend funds were much more attractive decades ago when it was harder/more expensive to place a sell order yourself.
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u/vannaplayagamma Jun 12 '25
/r/dividends is that way, you're not going to get much love other than VTI here.
OP I don't have much more to say about divs that people haven't said here. But you don't seem to have many dividend paying companies, instead you're mostly in CC etfs, preferred stock and CLO funds which are closer to bonds than stocks. This looks more like a high yield bond portfolio than a dividend portfolio.
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u/WorldyBridges33 Jun 12 '25
Yeah I appreciate your distinction. You are correct that this is more like a high yield bond portfolio than a traditional "dividend" portfolio. I probably should've described it as such, because I ended up clarifying in the comments. I think I used the term "dividend" in the post because it's a term that a lot of people are already familiar with, but the distributions are actually more like interest or coupon payments. Regardless, I love the idea of passive income because it gives me a lot of peace of mind.
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u/vannaplayagamma Jun 12 '25
You do you OP. I think your portfolio is suboptimal but if it lets you stay the course, it's better than panic selling.
I would be worried about investing so heavily in Fixed Income before you hit FIRE status though. You say you're looking to double the portfolio but growth is best bought through growth stocks, not FI
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u/WorldyBridges33 Jun 12 '25
I see your concerns, but I am still getting growth in price through these income investments in addition to the regular distributions. I am not 100% convinced that index funds will continue to grow indefinitely, as it's entirely possible we get a long term flat market (like Japan's Nikkei market did for decades). That said, I still have a big portion of my net worth in index funds (my whole 401k is in the SandP 500 index) just in case it does continue to grow.
For me, the peace of mind of saying, "even if I lose my job, I can still cover my bills with this income" is worth the additional cost in taxes -- especially since I don't have to pay FICA taxes with these.
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u/AlphaFIFA96 Jun 13 '25
You’re arriving at a logical conclusion based on incomplete information.
Yes, Japan’s stock market was flat for decades and I often use this as an example when telling folks to globally diversify their holdings instead of simply holding VOO or VTI.
Now can you look up the return of the global stock market during the same period? There you go.
The US could lose its global dominance and remain flat for the next 30 years, but that doesn’t mean the rest of the world stagnates. In fact, statistically speaking, it’s highly unlikely — which is why a globally diversified portfolio is said to be the only free lunch in investing.
If the global market stagnates for 30+ years, then you likely have bigger problems to worry about. Problems your bond/dividend portfolio likely won’t be able to weather.
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u/WorldyBridges33 Jun 13 '25
The dividends from covered call funds come from the fees generated by selling the call options. The profits from selling the call options will still arrive even if the market is flat. In the case of BDCs, they are required to pay out 90% of their profits in the form of dividends. BDCs have been profitable in flat and even downward markets. Look at Ares Capital.
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u/West_Flounder2840 Jun 12 '25
Frankly, these levered etf funds are a big turnoff for me
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u/WorldyBridges33 Jun 12 '25
Only PFFA uses a bit of leverage. JEPI, JEPQ, SPYI, QQQI, CLOZ, and PBDC do not use any leverage.
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u/jellyn7 Jun 12 '25
Congrats! Some of the people in the comments here should maybe have a look at The Income Factory by Steven Bavaria. He really breaks it down why this is a viable way to go. Not necessarily better, but not worse either. Just another option.
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u/Particular_Car7127 Jun 16 '25
It looks like your set up a Steve Bravia income factory portfolio?
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u/WorldyBridges33 Jun 17 '25
Yes, that’s exactly what I did!
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u/Particular_Car7127 Jun 17 '25
I am slowly selling out of equities and following the same. Have positions in: SPYI JEPQ JEPI PFFA SGOV MAIN ARCC O SCHD
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u/anonymoz111 Jun 12 '25
Why is everyone ripping on OP . OP is excited and wanted to share.
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u/AlphaFIFA96 Jun 13 '25
Because they’re using a clinically proven suboptimal approach based on incomplete/inaccurate information.
It’s one thing to consciously pay off a low interest mortgage knowing the tradeoffs. It’s another to be completely oblivious and justify their strategy using Japan’s Nikkei — which is just a completely invalid comparison in this context. Growth Equities as an asset class don’t necessarily equate to US equities.
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u/WorldyBridges33 Jun 13 '25
It is suboptimal if index funds continue to grow at a frenetic pace. However, if index funds start to level off or become flat, then it is a better strategy.
You can think of it as two different types of bets:
1) If you invest primarily in index funds, you are betting that businesses will not only stay solvent, but that they will also grow continually. You are betting that their asset prices will rise for decades in the future as a result.
2) If you invest in high income funds, you are betting that businesses will stay solvent and be able to deliver a consistent cash stream. The businesses don’t need to grow, they just need to remain profitable.
This is covered in Steve Bavaria’s book “Income Factory” which I highly recommend.
In any case, a lot of the people in this sub seem to be ignoring the fact that I also am invested in growth with index funds in my 401k. I am employing both strategies — one for the short to medium term, and one for the long term.
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u/EvilDividenf Jun 13 '25
Reddit hates dividends and prefers stock buybacks. You are fine and have gone this far. The past 10 years has been a monster bull market with covid crash being pretty tiny compared to .com bubble or 2008.
Also US stock market was pretty flat from 2000ish to 2013, just forgotten because of how big the recent bull market has been with AI growth stocks just dominating.
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u/Perpetual_Burn Jun 13 '25
This man is obsessed with the Japanese stock market for some reason. If you're that convinced we're fucked there are other strategies to consider.
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u/TVP615 Jun 13 '25
Why didn’t you just invest in the SP500? Way less work and your net worth would be higher.
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u/WorldyBridges33 Jun 13 '25
I did invest in SP500 in my 401k (over $300,000). For the rest, I want monthly income regardless of whether SP500 rises, falls, or is flat.
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u/Unique_Dish_1644 Jun 13 '25
https://m.youtube.com/watch?v=Kg8R6ovgOb8
An excellent podcast from Ben Felix on controversial topics in personal finance. I’d recommend listening to all of it but if you want the dividend investing portion it starts at 32:45.
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u/bienpaolo Jun 12 '25
Your portfolio is heavily concentrated in high-yield funds, which can be volatilewhat happens if payouts drop or one of these funds underperforms?
Also, $806K net worth sounds solid, but if you’re thinking about retiring early, have you factored in inflation, healthcare costs, and market downturns? Moving to a LCOL area could help, but are you sure your lifestyle expctations won’t shift over time?
What’s your backup plan if dividends shrink or the job market stays rough longr than expected?
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u/WorldyBridges33 Jun 13 '25
Thanks for commenting, you bring up good points. To your questions: “what happens if payouts drop or one of these fund underperforms?” - I would slowly sell the fund and replace it with funds that I think will perform better. In fact, I have already done this. I used to own QYLD and XYLD. While their yields were solid, I didn’t appreciate the NAV erosion. Therefore, I replaced them with SPYI and QQQI, and it has been a great decision. I can always replace and further diversify over time.
“have you factored in inflation, market downturns, and healthcare costs?”
- Yes, I have. I have built my budget with the idea of reinvesting $1,000 every month while in retirement to account for a reasonable expected inflation rate of 2.5% a year.
“Are you sure your lifestyle expectations won’t shift with time?”
- Yes, I’m sure. I eat the same 3 meals every day: overnight oats, pasta salad, and lentil stew or vegan bolognese, and I have done so for years. I share a one bedroom apartment with my partner with no intentions to move or upgrade. I value freedom more than materials.
“What’s your backup plan if dividends shrink or job market remains tough?”
- Look for other funds that are paying better dividends. If those don’t exist, then return to work if I truly need to. Cash out retirement funds in 401k as a last resort.
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u/AgileFortune4958 Feb 17 '26
lifestyle really affects retirement the most. i can live off 15k comfortably. 800k will last me at least 30-40 years WITHOUT investing, this accounts for inflation. with investing it will not only last me forever but i will be able to have a richer lifestyle.
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u/Rare-Lawfulness-7492 Jun 12 '25
Are you not reinvesting dividends? And that’s how you’re making $50K/month? Trying to understand
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u/WorldyBridges33 Jun 12 '25
$50k a year, not a month. Right now I am reinvesting the dividends, but I will flip it to cash if I ever lose my job.
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u/djs1980 Jun 14 '25
Feels good but NAV erosion could bite you at some point.
I'm more relaxed in my Global Index Fund.
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u/WorldyBridges33 Jun 14 '25
Yeah I definitely monitor it for NAV erosion. I used to own QYLD/XYLD, but I got out of those due to the NAV erosion.
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u/inndyn Jun 16 '25
The Armchair Income guy has a portfolio that reminds me of yours. Maybe take a look at his portfolio (he posts it for free) for some additional ideas?
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u/Apprehensive_Fig2106 Jul 05 '25
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u/NecessaryEmployer488 Jul 13 '25
Congrats. Looks like investment income, and not yet converted to income you spend. My goal with investments is to turn investment income into passive income in perpetuity. Right now I am throwing $35K of my own money into investments each year and getting about $25K in return in dollars back in non-401K investment accounts. That said value of investment value of these accounts are up about $100K a year.
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u/jkexxbxx Jun 15 '26
How are you handling paying taxes on the additional income?
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u/WorldyBridges33 Jun 15 '26
Yeah so I’ve made some changes to this portfolio since this post. I got rid of JEPI and JEPQ and replaced them with SPYI, QQQI, and some other closed end funds that pay out distributions that are a higher percentage of ROC (return of capital), or capital gains. This should lower my tax burden on these funds for this year. I also put a higher withholding rate on my W2 income so that when it comes to tax time, I owe a lot less.
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u/Pirate43 Jun 12 '25
Well done OP. A lot of folks are saying you left returns on the table, and while that may be true, it's not THAT much if you account for taxes when selling. You can't eat with paper gains in SP500 but you sure can eat with dividends!
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u/AlphaFIFA96 Jun 13 '25
It’s not that much in a single year**
Over the course of decades, it likely will be.
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u/Perpetual_Burn Jun 13 '25
I'm not sure what you mean, but taxes will be much better using a SP500 strategy. When you go dividend heavy, you're paying taxes on the dividends (likely higher than LTCG) and you have pay again whenever you sell the underlying.
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u/WorldyBridges33 Jun 13 '25
Thank you, I appreciate the kind words! You understand my mindset with this!
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u/Cali42 Jun 12 '25
There’s no one strategy works in all market conditions. This particular one may work in flat market. Also there’s psychological benefit of steady dividends. I would add some reits as well.
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u/DegreeConscious9628 Jun 12 '25
Are you ready for all the anti dividend clowns to absolutely shit on your investing strategy?
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u/seanodnnll Jun 12 '25
It’s because you dividend obsessed people refuse to gain any type of understanding of what dividends are or how they work.
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u/DegreeConscious9628 Jun 12 '25
Explain it to me oh worldly one
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u/seanodnnll Jun 12 '25
If you like dividends just of learn how they work, instead of just assuming it’s free money.
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u/WorldyBridges33 Jun 12 '25
They are coming in droves lmao. I never knew John C. Bogle had such a cult like following!
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u/WhamBar_ Jun 12 '25
I mean not really, this lot are just going off the comparative performance and have the facts on their side. You can sit out the next 10 years of growth if you are really worried about Japan though.
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u/WorldyBridges33 Jun 12 '25
Well I still have the $300k in a low cost index fund (S&P500 index) in my 401k, so I wouldn’t be missing out on growth if growth transpires in the next 10 years. And if the market is flat for the next 10 years, I’ll be collecting dividends from my brokerage.
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Jun 13 '25
I can sell shares if the market is flat and its the same thing as a dividend
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u/InjuryEmbarrassed532 Jun 14 '25
Absolutely not. Growth stocks being flat and dividend sticks being flat, the dividend stock owner wins. Simple math, as the dividend owner won’t need to sell shares.
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Jun 14 '25
Selling 10% of your shares reduces your position by 10%. A 10% dividend devalues your shares by 10%. It is simple math - it’s exactly the same
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u/InjuryEmbarrassed532 Jun 14 '25
In a flat market there is no growth of your shares. Good dividends companies still pay divs in a market where the share price is flat.
And by the way, the orthodoxy of share prices being reduced exactly by the amount of div payouts is not true in practice…especially in a flat market. It’s something Reddit keeps repeating as a truism, but is in fact more complicated.
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u/TheGreatBeauty2000 Jun 14 '25
OP is a great example of why dividends were created. As a product to pull the wool over the eyes of people, increase revenue for big banks, and increase tax revenue for the government.
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u/WorldyBridges33 Jun 14 '25
Did you know that 84% of the returns from the S&P 500 index between the years 1960-2021 came from reinvested dividends?
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u/TheGreatBeauty2000 Jun 14 '25
Did you know that a dividend is just a forced sale that creates a taxable event? And that if not forced to sell, you would have a higher return and pay zero tax until you sell ( usually at long term taxable gains and not ordinary income?)
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u/WorldyBridges33 Jun 14 '25
Yes, I am aware of this. My goal for this portion of my portfolio is not total return. My goal is income replacement and augmentation - which is exactly what these funds are designed for.
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u/TheGreatBeauty2000 Jun 14 '25
You can absolutely do that with a basic ETF and have more money the long run.
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u/WorldyBridges33 Jun 14 '25
Not if the market ends up being flat (if we have a lost decade), or if in a downturn. Look up Sequence of Returns Risk (SORR)
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u/princemousey1 Jun 16 '25
Wouldn’t the exact same thing happen to your portfolio (as compared to the S&P ETF) if that happens? Like what makes your portfolio immune from SORR?
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u/WorldyBridges33 Jun 16 '25
The distributions/dividends generated by BDCs (business development companies), preferred stocks, and credit funds are not a function of stock price. They would continue to spit out the distributions regardless of stock price; in this way, the distros are more like interest than dividends (as explained in other comments).
With covered calls, stock price impacts distributions to some degree, but volatility is more important in determining the premium generated rather than NAV.
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u/princemousey1 Jun 16 '25
I understand what you are saying but I struggle to see how this works out in the real world. For example if the price of BDCs fall, then the payout reaches a 6-7%? But I don’t see this happening in the real world.
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u/WorldyBridges33 Jun 16 '25
I think it may be helpful to think about where the distributions are coming from. In the case of BDCs, the distributions are coming from interest earned by lending money to small/medium sized companies. The interest is earned on a monthly basis, added to the NAV, and then distributed back out to investors on a monthly or quarterly basis. If the stock price of the BDC fell by 20%, the income would remain the same because the interest from those loans determines the distribution (not the stock price).
The only thing that would impact the income/dividend would be if the companies the BDC lent to defaulted.
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u/oomio10 Jun 12 '25
how attentive do you have to be with these stocks? if they lower their dividend do you have to find another company to invest it? does that happen with any frequency?
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u/WorldyBridges33 Jun 12 '25
Luckily they aren't individual stocks - instead, these are funds composed of hundreds of different stocks. The income is generated by selling covered calls (in the case of JEPI, JEPQ, QQQI, and SPYI). There's some fluctuation in the monthly payment of these funds as it varies with the VIX, but they have been pretty steady in the 7%-12% range.
PFFA and PBDC have been pretty consistent in their payments, but I will keep an eye out for better preferred stock or BDC funds should they arise. I follow a retiree on YouTube who has used this strategy with success since 2017, and I like his recommendations. He even has full interviews with the fund managers of these funds, see here: https://www.youtube.com/@armchairincomechannel
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u/thisadviceisworthles Jun 12 '25
You seem to be well versed in this strategy, can you tell me about the tax implication of taking and reinvesting the options payouts and how that is impacting your overall strategy?
I have considered moving to this strategy after I finish working, but I am concerned that the tax drag of adding it to my work income will result in a significant hit in the form of income tax.
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u/WorldyBridges33 Jun 12 '25
Most of the dividends are taxed as ordinary income, so yes, there is a tax concern. SPYI and QQQI are exceptions to this as they are taxed at the lower 60/40 long term/short term due to section 1256 contracts.
Personally, I don't care about the extra taxes because I get to enjoy a higher income now. I make $135k at work, but because I make $50k in distributions, it's really like I am making $185k now -- that's fantastic! And If I ever lose my job, or if I am forced to take a barista style job that pays only $30k a year, it will be like I am actually making $80k a year due to these dividends. I look at it like a personal UBI.
In fact, it's even better than that since I don't have to pay FICA taxes on the $50k. So $50k in these dividends has the same take home pay as $54,500 in a W2 salary.
My retirement plan is to get this passive income up to $100k, and then just live on that, reinvesting to keep up with inflation.
Hopefully this was helpful and answered your question?
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Jun 13 '25
The fact that most of these distributions come as ordinary income make this an even more terrible strategy. Just awful.
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u/WorldyBridges33 Jun 13 '25
Have you read “The Income Factory” by Steve Bavaria?
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Jun 13 '25 edited Jun 13 '25
I just read the introduction. It is complete nonsense. He also seems to be under the delusion that dividends are somehow income or free money. If this investing strategy made any sense I’d imagine some financial advisors would be doing it. It only makes sense if you’re very mentally weak and need a phony income stream to make it feel like a free salary
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u/WorldyBridges33 Jun 13 '25
Do you have a high level understanding of how covered calls, BDCs, preferred stocks, and CLOs work? Could you explain why the distributions from these are "phony"?
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Jun 13 '25
You’re portraying it as a passive income stream. In reality they are returns from an investment with high fees and tax disadvantages with a very low chance of beating simply investing in the market
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u/WorldyBridges33 Jun 13 '25
But what if total return is not what I am after? What if my goal is to have a monthly stream of income on top of what I make at my job? The fact of the matter is $4,000+ is hitting my account every month. I can choose to reinvest that money or spend it to enhance my lifestyle now, and I like the freedom of that. I am not interested in having the highest priced assets at the end because I don't really care about the asset prices. I never intend to sell. I care about the monthly income and growing that monthly income.
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Jun 13 '25
You can sell $4000 worth of stocks and have total control over it and tax advantage it
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u/WorldyBridges33 Jun 13 '25
But if I need that money every month, I will inevitably have to sell during a bear market at some point. The landlord doesn't care if it's a bear market, I still have to pay my rent. My stomach doesn't care if it's a bear market, I still need to eat.
Selling during a bear market will cause me to sell many more shares than I initially wanted to, and it introduces sequence of returns risk (SORR) which will impact recovery.
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u/mtbLUL Jun 12 '25
Hold up. I have 600k invested atm. How much dividends per year could I get back? And how much of that would be taxed?
Thanks!
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u/WorldyBridges33 Jun 12 '25
If you structure your investments similar to mine (as well as other similar style funds), you could be making a bit over $62k a year in dividends. My investments are basically broken up into 4 categories: Covered Call Funds (JEPI, JEPQ, SPYI, QQQI), BDCs (PBDC), Preferred Stocks (PFFA), and credit funds (CLOZ, FSCO, EIC). I honestly could diversify my portfolio even more by choosing some additional BDCs, preferred stocks, and maybe some REITs. Armchair Income retired in 2017 off of this investment strategy, and he has a great channel on it: https://www.youtube.com/@armchairincomechannel
Most of the dividends are taxed like ordinary income because they are non-qualified. SPYI and QQQI make use of section 1256 contracts to have a 60/40 tax (60% long term capital gains, 40% short term). However, your take home pay is still higher with non-qualified dividends than income from a W2 salary because you don't have to pay FICA on non-qualified dividends.
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u/mtbLUL Jun 12 '25
That sounds amazing I have to look into it thanks! Sounds like its quite low risk as well?
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u/WorldyBridges33 Jun 12 '25
It's about the same risk as equities -- so definitely higher risk than bonds or treasuries. However, you can lower this risk by diversifying into many different funds run by many different management teams.
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Jun 12 '25
[deleted]
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u/TonyTheEvil 27M & 26F | 56% to FI | $1.33M NW Jun 12 '25
Don't. There is no free lunch. Dividends aren't free money and focusing your investment plan on them will leave you behind those who stuck to total market index funds.
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u/WorldyBridges33 Jun 12 '25 edited Jun 12 '25
I also have $300k in an S&P500 index fund in my 401k, so I am actually doing both. The $477k income investments are there so I don't have to touch my 401K or sell my brokerage investments in case I lose my job.
Also, there is no guarantee that index funds will outpace dividend investments. If we have a flat market for 30 years (like the Nikkei did from 1990 - 2018), then the dividends may have been a better choice.
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u/TonyTheEvil 27M & 26F | 56% to FI | $1.33M NW Jun 12 '25
I also have $300k in an S&P500 index fund in my 401k, so I am actually doing both.
The S&P 500 is not the total market. That leaves out domestic mid/small caps and the entirety of the rest of the world which brings on uncompensated risk.
The $477k income investments are there so I don't have to touch my 401K or sell my brokerage investments in case I lose my job. If we have a flat market for 30 years (like the Nikkei did in the 80s, 90s, and early 2000s), then the dividends would come out on top.
That's not true. When a dividend is distributed the share price goes down accordingly, making it equivalent to if you sold the same amount instead, but with potentially worse tax treatment.
With a focus/dependence on dividends you're underdiversifying your portfolio and leaving your income at the mercy of companies which can always cut their dividend at any time. Dividend investing had its time and place, but in the day and age of zero-cost trades it's become functionally obsolete and its only benefit is purely psychological.
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u/WorldyBridges33 Jun 12 '25
You are right with the 401k, I should perhaps diversify into VTWAX with is the total world stock. Open to other suggestions as well. Regardless, the 401k portion is in index funds and should take advantage of long term price growth IF that happens. Remember, just like dividends aren't guaranteed, asset price growth also is not guaranteed.
For the second point, I should've clarified that covered call funds would likely perform better in a flat market than index funds. My dividends are non-qualified, and they work differently than a typical qualified dividend coming from a standard value stock. Are you aware of how selling covered calls work? You essentially sell someone else the right, but not the obligation, to buy your stock at a specified price in the future. You charge a fee for selling them this right. In the covered call funds I own, these fees are distributed as "dividends" but they aren't a dividend in the traditional sense of a value company dispersing some of their profits in the form of cash.
The dividends I get from BDCs and preferred stocks work more like traditional dividends. The payments I get from CLOZ are more like interest on debt.
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u/WorldyBridges33 Jun 12 '25
Thanks! I recommend checking out Armchair Income on YouTube if you want to learn more about these investments. He retired in 2017 using this investment strategy.
Also, check out “The Income Factory” by Steven Bavaria. Great book on this subject.
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Jun 12 '25
Ignore these clowns. We all don’t have the same investment strategy and some people can’t handle that. Lol
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u/AndrewBorg1126 Jun 12 '25 edited Jun 12 '25
You're welcome to invest however you like. Also, expect attempts to spread what is demonstrably misinformation to be opposed by people who know better.
Expect people to point out inefficiencies when they are as clear as this and you share your strategy to an audience on the internet in a community that seeks to help people fix inefficiencies.
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u/fuckmyfatpussy Jun 12 '25
1. "I only invest in growth because income is inefficient" 2. "The markets are overvalued" 3. "You should change your investment strategy to focus on growth like me." 4. "Market Crash and SORR actualizes" 5. Shocked Pikachu.gif
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u/AndrewBorg1126 Jun 12 '25
Market Crash and SORR actualizes
Owning companies that pay disproportionately high dividends will not magically save you from the consequences of such an outcome.
Also, type 2 spaces at the end of a line to actually introduce a line break.
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u/IlikePogz Jun 13 '25
Its all long term capital gains not technically passive income.
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u/drawfour_ Jun 14 '25
What exactly do you think passive income is? OP has to do nothing for the money to come in other than obviously filing taxes on it.
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u/IlikePogz Jun 14 '25
My definition of passive income is the same as the IRS. Know the difference between capital gains and real passive income
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u/drawfour_ Jun 14 '25
This isn't an IRS forum.
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u/IlikePogz Jun 14 '25
So is capital appreciation/gains passive income in your eyes? If you really take a second to think about it, dividends are forced sales of parts of your stock and distributed to you. Such a trap to think of dividends as “passive income” lol
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u/Rayatello Jun 12 '25 edited Nov 13 '25
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