Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
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104% Yield? Here's What They're Not Telling You...
At the 2022 Berkshire Annual Meeting, Warren Buffett said: “Wall Street goes where the money is, and you can sell almost anything if you stick a famous name on it.”
Man, was he right. And today, I want to show you a perfect example of this - YieldMax ETFs. They’re slapping famous names like Tesla and NVIDIA on what I call “buckets of yuck,” and sadly, people are buying them up.
I just finished reading the third edition of Marc Lichtenfeld’s “Get Rich with Dividends” (great book, by the way), and it got me thinking about return of capital and yield traps.
Quick Basics Before We Dive In:
•Return ON capital = actual profits 🤑
•Return OF capital = just getting your own money back 🫤
👇 Check this out. TSLY, which sounds like Tesla exposure, is actually:
TSLY Portfolio Allocation, 2023 Annual Report
•91.2% Treasury bonds (yep, really)
•13.0% Options bought
•2.4% Cash
•-6.6% Options sold
They’re charging you a 1.01% fee to basically hold Treasury bonds and do some options magic. And we see in the last annual report that on 10/31/23, 59% of their funds had negative total returns, which INCLUDES dividends reinvested!👇
YieldMax 2023 Annual Report
Oh, and they sell merch! Nothing screams “legit investment,” like $42.80 branded pajama pants, right? 🤦♂️
YieldMax Merch!
👇 Check this out - in the prospectus, they flat-out tell you:
YieldMax Prospectus
•You DON’T own Tesla
•You get limited upside if Tesla goes up
•You eat ALL the losses if Tesla drops
•Fund shareholders are NOT entitled to any Tesla dividends
👇 Look at these distribution numbers:
YieldMax Annual Report, 2023
•Regular income: $8.7 million
•Return of capital: $93.4 MILLION
That’s 91.5% of your “distributions” being YOUR OWN MONEY! But hey, they’re advertising a 104.07% distribution rate!
YieldMax.Com
The Real Impact On A $20 investment:
YieldMax Annual Report, 2023
•Got back $7.93 in “distributions”
•But $7.26 was your own money
•Shares worth $11.09 now
•Total return: -7.26%
The Brutal Truth: No Free Lunch
Remember what your parents told you (at least mine did): there's no such thing as a free lunch.
Wall Street will always find new ways to sell you complex products with famous names attached. But remember - there’s no free lunch in investing. When someone promises you astronomical yields:
•Read the docs
•Understand what you own
•Look for where your money’s really going
•Be skeptical about investment firms selling merchandise
•Anything that doesn’t need to sell branded pajamas
As Buffett tells us, Wall Street will stick famous names on anything to make a sale. Please don’t fall for it. Do your homework, understand what you own, and remember - if someone promises you a free lunch, you’re probably the one paying for it.
Keep Compounding,
~Russ
P.S. Seriously though, who buys investment firm pajama pants? 🤔
😁THANK YOU to everyone who responded to the last newsletter!!
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Each week you'll learn how to be a better dividend investor and follow the journey of a welder with a passion for passive income to $1,000,000 and beyond.
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