Should I Invest $500,000 in QQQI and SPYI for the Next 40 Years?

The magnitude of enthusiasm surrounding higher-yielding covered call (premium income) ETFs has been strong among the retail crowd. And while the yields are above and beyond what you’d come to expect from an ETF that just owns shares of various dividend-paying companies, investors must consider the nuances before placing a big bet. Indeed, yields can be on the move. And when it comes to options market premiums, investors had better be prepared for a yield to go in any direction in the short run.

For those who are fine with such dynamic yields, such products can really help one meet their individual investment goals. Maximization of yield, even if it means forgoing capital gains potential, is a priority for many. In any case, I’d check in with a financial advisor specializing in covered call ETF products if you’re not quite sure what you’re getting into. Indeed, if you’re going to put in half a million dollars, as this individual on Reddit wants to do, you should know the ins and outs of the product you’re looking to buy.

The QQQI and SPYI show promise. But owning individual names as well could make sense

Notably, the individual highlighted that the NEOS Nasdaq 100 High Income ETF (NASDAQ:QQQI), which has a stunning 14.5% yield, and the NEOS S&P 500 High Income ETF (SPYI), with an equally impressive 12.1% yield, are on their radar.

And while I’m a fan of both ETFs as a way to move some of that growth more towards the yield side than capital gains (it’s a great pick for prospective early retirees seeking to live off portfolio dividends rather than scheduled withdrawals), investors should ensure that they’re properly diversified before putting in six figures in any one (or two) securities. Indeed, diversification into lower-yielding dividend ETFs or individual dividend stocks, I believe, could further solidify a portfolio that has the QQQI or SPYI at its core.

The yields are elevated, but they can move quite quickly

Though you could concentrate in both ETFs and still be sufficiently diversified across sectors, I do think that those who need a fixed amount of income should be prepared for fluctuations. A 14.5% yield could be at 10% next month and closer to 8% to end the year, depending on what’s hot and moving in markets.

If one can account for a wider range of potential yields, I have no problem in plowing such a big sum into the ETFs. That said, for a retirement plan that will be sunk if a percentage point or two were to be shaved off of a dividend payment, perhaps pairing QQQI and SPYI with a strong portfolio of individual high-yield dividend stocks could also make a lot of sense. 

When it comes to the QQQI or SPYI, you’re not just getting a run-of-the-mill covered call strategy. You’re getting a sophisticated data-driven strategy led by some very capable active managers. Indeed, the gross expense ratio sits at 0.68%, which is quite a bit higher than that of index ETFs. However, given the active management and the labor involved in implementing options strategies, I’d argue the fees represent a good value compared to the benefits you’ll get over investing in a traditional index ETF that follows the S&P 500 or the Nasdaq 100.

The QQQI and SPYI have an intriguing value proposition

It’s not just the income boost you’ll get from the likes of a QQQI or SPYI, but you may get a softer landing if markets look to slide again. In any case, if a double-digit yield that can fluctuate with capped capital gains upside is more enticing, perhaps the pair of ETFs is worth a look.

Indeed, the AI bull market could propel broad markets to even higher highs (the S&P just broke 6,500 today), but if you’re in the camp that thinks prospective returns will be modest, ETFs like the QQQI and SPYI stand out as a potentially better bet, even if there are a few more basis points to pay in fees.

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