Straight Cash, Homie
Welcome to the Schmoozeletter Blog. Your source for weekly water cooler wisecracks from the world of finance. If you have an opinion different than mine or a topic you want to hear about, let me know!
This week, we’re talking about:
Straight Cash, Homie
Shut up about your long-term growth.
Miss me with your waiting decades for a return.
If I wanted paper profits, I’d buy a Monopoly board!
Okay, what do you care about?
This is…
Straight Cash, Homie
Oh, I should give my money to some faceless corporation and wait thirty years?
Well, statistically speaking, yeah, you’d probably have a higher net worth if you…
Psssh. Fat chance. AI will have wiped us out by then anyway!
So you want an immediate return?
Yes.
You want that return in cash?
Yes.
You want it paid monthly?
Yes.
You want it returning double digits per year?
Yes, I want straight cash, homie!
Okay. I’m here for you.
Some people just don’t want to wait and aren’t interested in long-term capital appreciation. If you are willing to sacrifice potentially underperforming the market…
What’s the best fund to have your money make more money?
QQQI
The stats:
Name: NEOS Nasdaq-100 High Income ETF
Current Yield: 14%
This means if you bought $100 of this fund one year ago, you would have received $14 in cash over the past twelve months.
This means if you bought $100k of this fund one year ago, you would have received $14k in cash the past twelve months.
This means if you bought $1M of this fund one year ago, you would have received $140k in cash the past twelve months.
Ya get it.
How does it pay: Monthly Distribution
If you buy this fund in your Vanguard or Charles Schwab or insert-broker-of-your-choice-here account, then each month a distribution of cash will be paid right there in your Vanguard or Charles Schwab or insert-broker-of-your-choice-here account.
How does it work: A covered call strategy on the Nasdaq-100 index
The team at NEOS sells slightly out-of-the-money covered call options on the stocks within the popular tech-driven Nasdaq-100 index.
The aim is to capture the upside growth in cash instead of price appreciation. Take a look at the price of this fund vs. the index that it tracks, the Nasdaq-100 with ticker symbol QQQ.
The price of QQQ is up 22% over the past year and the price of QQQI is up only 1%.
What the heck?
What kind of lame-ass malarkey stock are you pitching…
Hang on.
Take a look at the charts of TOTAL RETURN. (The price AND the cash distribution).
The total return of QQQ is up 23% over the past year and the total return of QQQI is up 17%.
Which really tells the entire story of how this works.
You get most of the upside from QQQ in the form of a monthly cash payment.
QQQI will not outperform QQQ over the long term, but that is the tradeoff for getting that sweet cashola in your pocket every month.
Lots of companies and ETFs use a covered call strategy, but NEOS is the best at it. Don’t believe me? Maybe you’ll believe the blood-sucking, heartless, money-driven scoundrels at Goldman Sachs. They just shelled out over $2B to acquire the company that was founded just four years ago.
How does this blow up in your face: Lower yield in a crash
If we get a dot-com-style crash where the Nasdaq drops 80%, the payout from QQQI will go way down.
This isn’t a bond or CD where it is a steady rate every single year. You get the high payout due to the risk involved.
That said, the Nasdaq has returned an annual 14-15% per year since inception in 1985. That includes the dot-com bubble, the Great Recession, and Covid.
How do I supercharge my returns: DRIP, baby, DRIP
A mouth is a mouth.
14% is 14%.
Whether you are getting 14% through the price going up or 14% in cash, if you reinvest, you are making 14% per year.
So if you do a Dividend Reinvestment Program, which automatically buys more stock with every monthly distribution, you will be growing that cash payment year after year. Just keep in mind you need to pay taxes on that cash.
How does Randy Moss pay his fines: Straight cash, homie.
Final Thought
For those of you asking about Trump’s “$5,000 dividend” to every US adult: it is so obviously bullshit I felt it didn’t deserve more than this sentence.
