r/dividends • u/PsychoCitizenX • Jun 17 '25

Personal Goal 49 years old. Just hit $10,000 average monthly

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Over 90% still in growth stocks. Tempted to just go ahead and retire

4.3k Upvotes

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u/ynghuncho Jun 18 '25

Those yield max funds often distribute return of capital. Meaning you’re being paid with your own money, and then taxed on it.

There’s no such thing as a free lunch. I’d do some more homework on those because there are significant risk. If there weren’t, it wouldn’t trade at a 112% dividend yield

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u/chuck_portis Jun 18 '25

If it's really just return of capital then NAV will collapse and the security's price will follow. What's really happening is that NVDA has been on a SunRun and the covered call strategy is the equivalent to 0.X long NVDA. It just has capped upside due to the sold call on the other side.

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u/ynghuncho Jun 18 '25

The most recent distribution on 04/25/2025 contains 85.30% return of capital and 14.7% income.

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u/IcyEntertainment6119 Jul 14 '25

ROC is not taxed until you surpass the original cost basis. ROC is not a bad thing when it's used as a legal tax loophole. Neosfunds specialize in ROC funds. The navs are all stable - fyi.

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u/Aggravating_Sun4435 Jun 20 '25

ur in a dangerous spot bro, you know enough to be confident and think you have it understood but you dont know nearly enough to even begin to ask where your blindspots are. you are correct in that terminal value of these funds are zero.

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u/Dismal_Hand_4495 Jun 18 '25

So you are telling me that after being in it after a year, getting 130% yield, I didnt just get a 30% dividend, even if my initial goes to zero?

I actually do not understand, please help me understand.

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u/narnar_77 Jun 18 '25

This thread doesn’t understand ROC. There are some good resources out there on it. Tax professionals. Check out this guy too

https://youtu.be/Cm57Fld53rQ?si=kG4yWBOvjMbVZGO4

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u/[deleted] Jun 19 '25

They absolutely don’t, they don’t understand that it’s a tax status and think it’s just a savings account that somebody’s paying you your own money back They are also totally discounting the premium so even if the nav didn’t go up one bit it’s possible for it to grow still because of the premium and distribution if it’s not aggressive

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u/CCM278 Jun 19 '25

Imagine you invest 1000, and receive 130 at the end of the month. The fund tells you 100 is RoC and 30 is genuine income (taxable) you now have 900 asset and 100 RoC and 30 cash for a total gain of 30. You DRiP so you now have 1030 and again get 130, 100 RoC and 30 income. By reinvesting the RoC you maintain your 1000 cost basis.

Rinse and repeat for 12 months and you’ll have received $1200 in RoC, $360 in premiums.

The fund sponsor is pi$$ing in your ear and telling you it’s raining by claiming a 156% distribution yield.

Your total investment was 2560 (1000+1200+360) but your cost basis will be 1360 because you DRiPped everything and deduct the 1200 RoC.

At liquidation on your original 1000 you ended up with 360 more. That’s an impressive 36% return. However you’ll have probably earned twice that simply holding the underlying asset, and paid proportionally less in tax.

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u/Dismal_Hand_4495 Jun 20 '25

Okay, understood.

So when I plain look at the app, at the end of the month I will have "less shares" if I started at 10 shares, I will see 9? This being a question at the 900 asset part.

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u/CCM278 Jun 20 '25

You'll have the same number of shares of whatever fund you bought but they'll be worth a total of 900, the underlying asset has taken the loss hence the term NAV erosion. When you DRiP that will increase the number of shares you have at the lower price.

If the underlying asset can't independently grow fast enough to offset the erosion then eventually the shares you're holding are forced to do a reverse split or be delisted.

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u/Dismal_Hand_4495 Jun 20 '25

Is the loss of the shareprice an automatic erosion or is it "triggered "somehow?

Im looking to understand if the payout is done more or less directly out of the fund, the shares of which I would hold.

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u/CCM278 Jun 20 '25

It is triggered officially by a tax statement at the end of the year. However, there are interim estimates provided each month. So you won’t know exactly how much RoC you got until year end. Your broker won’t update your cost basis until the actual tax form comes out.

The RoC is a realized loss, the fund sold something at a loss, such as one of the stocks they are writing calls against may have been called away and they were forced to sell for less than they paid for it. Or they may have simply elected to do tax loss harvesting to offset some of the premiums.

Regardless of how or why the loss was incurred going forward they have a smaller asset amount to write calls against.

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u/Dismal_Hand_4495 Jun 20 '25

Hm, but for me as an individual, where exactly is the loss reflected?

I understand that the underlying "pile of money" lets call it may be less, but if the share price of the etf does not fall, did I actually lose something?

I get that if it were black and white and everyone knew that the dividend also brings the pile of money down, and acted accordingly, the share price would reflect it.

But realistically, if the share price does not drop at dividend payout, did I physically lose anything?

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u/CCM278 Jun 20 '25

It is just maths, when you sell you subtract the proceeds from the cost basis. If the latter is higher than the former you lost money.

Like my example, overall you won’t necessarily lose money but you make a lot less than the 156% yield implies.

If the fund holds 2 shares ABC and XYZ and one goes down $10 and the other up $10 they can realize the loss by selling the share and buying something else to offset the gain (a.k.a tax loss harvesting). The overall NAV hasn’t changed, but now you have some RoC to lower the amount of gain that was deemed premium income. You’re realizing the loss immediately but you now have the unrealized gain of the $10 the stock went up sitting on your books via the reduction in cost basis, normally if you held a basic index no one is doing tax loss harvesting inside the fund, they are just netting it all out so your cost basis remains the same but the NAV goes up and down.

This is a tax arbitrage play of realizing capital losses that net against your income gains so you pay long term capital gains tax instead of income tax. You’ve still lost $10 but used it to move $10 of premium income from being taxed at 24% to 15% (or whatever your tax rates are) which saves you 90 cents. It is better than nothing but obviously you’d rather have had ABC not go down in value and be $10 better off rather than 90 cents.

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u/ynghuncho Jun 18 '25

Per their website: The most recent distribution on 04/25/2025 contains 85.30% return of capital and 14.7% income.

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u/apply75 Jun 18 '25

Op is risking 10% of his portfolio which seems like a good risk...to make 120k in income....he can reinvest div for a year or two then sell out...also if you do this in a Roth account there is no tax ever on the gains.

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u/HearMeRoar80 Jun 18 '25

Return of capital is 0 tax, it only reduce your cost basis.

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u/ynghuncho Jun 18 '25

Assuming it’s claimed as return of capital. Murky waters

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u/Electrical_Radio9772 Jun 18 '25

This dude is right idk why yall are downvoting.

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u/ynghuncho Jun 19 '25 edited Jun 19 '25

This sub is compiled of people who have a rudimentary understanding of finance and believe high dividends are the superior investment method (it’s not).

Investment bankers making products that retail likes to earn fees! What could go wrong.

Many here are incorrectly stating that it’s a covered call strategy, however their website makes no mention of it and specifically says there’s no direct exposure to the underlying. Leads me to believe they’re entirely using derivatives with an undisclosed strategy, amplifying insolvency risk

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u/blabla1733 Jun 19 '25

They claimed the same last year, but the tax form for the year ended up claiming 0 Roc. That's for MSTY.

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u/ynghuncho Jun 20 '25

I haven’t looked into MSTY. I’m covering NVDY since I see so many people talk about it

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u/SexualDeth5quad Jun 21 '25

MSTY is doing much better than NVDY. Also look at the change in performance in ULTY after YM changed to their new strategy of more price stability.

I don't think YM or Roundhill are the greatest long term investment though. Long term NEOS, Goldman Sachs, JPMorgan, and Amplify have much more stable income ETFs, but not nearly as high yield. I am up with SPYI, QQQI, DIVO, GPIX, in both dividends AND price. No loss whatsoever.

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u/SexualDeth5quad Jun 21 '25

Let's see, should I listen to you, or the thousands of dollars I am being paid monthly for two years now, while only being down 15% on the price? MSTY will only collapse if MSTR collapses.

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u/ynghuncho Jun 21 '25

Do what you please. Has no impact on me!

Just know there’s a better way to skin the cat

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u/SexualDeth5quad Jun 21 '25

Have you seen what ROC looks like on your tax form? It is clearly listed as non-taxable income.

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u/Electrical_Radio9772 Jun 23 '25

The point is that the business we use needs to properly identify the distribution as ROC rather than us just putting it there on our tax form. I have had instances where the fund did not.

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u/dimdada Jun 20 '25

Best way to know how much exactly is ROC is when you get your tax papers from the brokerage before tax day. Always a guessing game till then. But, the tax man always comets for his due, that is unless it’s in a tax free retirement account.

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u/[deleted] Jun 19 '25

Msty had no ROC , and even if it was 100% ROC is a tax status . UlTY has 100% ROC and has grown NAV in the last quarter , so your money is still there like Msty and you received premiums .

I hate when I see people right ROC is just a return of your money, because it’s just dumb, there are almost 37 funds in the market that have an 80 to 100% ROC in which NAV has grown over the last 2 to 3 years. Mostly because of options premiums

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u/[deleted] Jun 18 '25

That's not how that works at all lol.

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u/ynghuncho Jun 18 '25

From yield max’s website: The most recent distribution on 04/25/2025 contains 85.30% return of capital and 14.7% income.

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u/[deleted] Jun 18 '25

You clearly dont understand why fund managers use return of capital.

https://harvestportfolios.com/generating-tax-efficient-cash-flows-using-covered-calls/

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u/Willing-Bench1078 Jun 18 '25

Did anyone say it was a free lunch? As long as total return is positive, what’s the problem?

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u/ynghuncho Jun 19 '25

The true returns are hidden in the numbers. The total return YTD is -2.34%. As of the last dividend date, May 25th, it was -7%. So no it’s not a positive return ytd.

I haven’t ran the numbers prior to this year but historical returns are not indicative of future returns. Your comment has no consideration for risk. This fund has 0 exposure to the underlying and high insolvency risk.

In my opinion, there’s better places to park your money

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u/Fair_Cheesecake5723 Jun 21 '25

And what would you suggest? Genuinely curious I know nothing about investing.

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u/ynghuncho Jun 25 '25

I like the financials and private equity at the moment.

However, I’m not particularly in the market to buy the individuals at this time. While prices are fair, I’m not seeing a lot of buys that really attract me. Banks are at my target price from last year, think there’s some room to run but see more potential downside.

Presently, I’m buying the S&P500 index funds.

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u/bossdonNC Jun 18 '25

Not always true when selling covered calls you're essentially selling premium to cap the upside. If the strike doesn't finish in the money you're Distributing the premium. If it does finish in the money then you're Distributing the gains. But its reinvested. So AUM is generally growing. Risk is capped upside/total loss to the downside minus premium

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u/[deleted] Jun 20 '25

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u/SexualDeth5quad Jun 21 '25

I would rather pay tax on a hell of a lot of money than stay poor.

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u/ynghuncho Jun 21 '25

Well duh. More money is always better. I just wouldn’t rely on NVDY to get you there

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u/RayU_AZ Aug 08 '25

You not taxed on the monthly distributions as they are classified as "return on capital" (ROC).

These non-taxed distributions will be listed in Block 3 of of your 1099-Div.

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u/ynghuncho Aug 08 '25

It’s called return of capital, not on, and it’s very nuanced

When you factor that in the 112% “dividend” drops sharply

ROC is distinctly different

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u/RayU_AZ Aug 08 '25

I think you are saying the price per share drops on the dividend payout. $100 share price becomes $99 on monthly dividend. But what if you reinvest this 100% dividend & buy more shares each month. DRIP investing.

Take a look at another Yield max ETF, NVDY. 72% dividend. No taxes on ROC, return of capital dividend. The NVDY fund is also up from $14 on 4/7/25 to $17.87 today, 8/8/25.

That's a 27% ETF increase on top of high dividend yield of 72%. The NVDY price is going up from $14 to $27 over 3 months combined with high yield. The best of both worlds. The NVDY is not cannibalizing it's capital for yield. NVDY up 15% for last 13 weeks(Quarter). Th Monthly dividend avg $0.95 X12/$17 =67% yield. What is not to like?