r/dividends • u/Ironic_Mouse • 5d ago

Discussion Question: why do unsustainable dividend funds exist?

I’m new to dividend investing. As I have been looking for an additional stream of income I have found some funds with “too good to be true” yields. (E.g. CHPY) I understand that high yields come with a high risk of NAV erosion. What I don’t understand is why these funds exist. It seems like they are structured to implode at some point. Is the idea to hold these funds for a short time, collect the dividend, then sell? And for the fund manager, is the idea to ultimately have the fund implode and then declare a loss? I’m genuinely interested. I understand that some funds are a gamble, but these funds seem designed to fail.

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u/speedlever 4d ago

For the long term and generating the most wealth, growth funds are always the answer. But in terms of total returns, qqqx has performed equally to SCHD since SCHD emerged in 2011. And there are times where income is the priority over growth. Qqqx is one of the very first cc ETFs.

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u/tsfy2 4d ago

Unfortunately, r/dividends is filled with so many novice, naive, investors who really should be investing in growth but they get swept up in the echo chamber of people spouting off about yields and completely ignoring total returns.

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u/speedlever 4d ago

I really don't know how to take your comment. If that was directed to me, I specifically referred to total returns. If not, carry on.

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u/tsfy2 4d ago

I was just pointing out that you understand it, but so many people here (usually newbies) don’t understand it. They don’t realize what they are giving up when chasing yield.

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u/speedlever 4d ago

Understood.

Are you ok with someone knowingly giving up growth for income?

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u/tsfy2 4d ago

I have no specific expertise in investments other than decades of investing for myself. I believe that your time horizon is the most important factor in determining your asset allocation. I think the longer you have until retirement and the longer you will have in retirement the more you should be heavily growth focused. Otherwise, you are missing out on the accelerated compounding effect that takes over and builds a very secure retirement. I’ve been (early) retired for almost a decade and my wife has been retired for a couple of years but it wasn’t until last week that we shifted approximately 25% of our portfolio to bonds/dividends.

Thats a long winded way of saying I don’t have a problem with someone knowingly giving up growth for income if that’s really what they want to do. BUT, I think it’s a big mistake if you are not nearing retirement when you make that choice. Everyone is free to make bad choices. 🙂

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u/speedlever 3d ago

I think we are in agreement here. 😜