Investing in JEPI/Q right now

[jesterdeal]

Hey, everyone

I'm 28 yo non-US investor here and I found JEPI/Q more attractive and lucrative than our local investments, even with a 25% dividend tax!

I recently sold a property and have $220,000 disposable cash right now and planning a lump sum of 30% of it to JEPI/JEPQ and DCA the rest for 2-3 years.

I aim to generate extra monthly income for myself as a freelancer since my income is cyclical - I have some great months and some ghost months. The dividends are there to supply my ghost months but will reinvest to VOO/SCHD when it's not. Don't worry about my emergency fund since I have 1 year's worth of it.

My main question is, how sustainable are the dividends on JEPI/Q like will there be months that pay low dividends?

Is it also okay to go all-in in JEPI/Q and then diversify along the way? 100% of my portfolio right now is in S&P500 but I have to wait decades to maximize its return and start withdrawing. I need something that supplies my monthly income and I think JEPI/Q fits my goal so far.

 

[chirstsboi_willingservant]

@jesterdeal Lemme teach you a basic point about economics.

There's a risk free way to make money. Its called "The Risk Free Rate". The Risk Free Rate is the money that comes out of the central bank (because the central bank can print dollars, its risk free).

The risk-free rate is 3% right now (though there's speculation that it will rise to 3.75% in about... 40 minutes, depending on how this meeting with the FOMC goes). (Its 1:20pm EST right now, and the Fed's meeting ends at 2pm)

Anything that offers gains above the risk free rate has risk. The question is if you understand it or not and find the risk acceptable. The more gains you have above the risk-free rate, the more risk there is.

Anyone promising gains below the risk-free rate is trying to sucker you. (They'll just put the money into the risk-free rate and give you a tiny slice of the profits). Anyone promising gains above the risk free rate has a risk (be it stated, or unstated).

12% is very very high above the risk-free rate. So there's risk here. Period. Now comes the question of if you understand the risk or not.

 

[adversa]

@chirstsboi_willingservant Great comment my friend

 

[chirstsboi_willingservant]

@adversa Nice to see ya again too!

 

[resjudicata]

@chirstsboi_willingservant Efficient Frontier.

 

[kiptoo]

@jesterdeal The 12-13% dividend is not sustainable long term. It’s very high because of how volatile the market has been. Volatility increases premium values from options. They sell covered calls on their holdings and purchase structured index derivatives to generate premium and pay the dividend.

High volatility = higher premium = higher dividend. The fund targets a monthly dividend in the 5-7% range in ordinary conditions.

If you truly are in need of income and are not just drawn to the allure of a high monthly payout, JEPI/Q is superior to the 100% buy/write covered call etfs like QYLD in that you’ll receive similar income in the volatile times but realize much better capital appreciation otherwise.

That said, for someone your age, you’re much better off keeping the majority of your holdings lake cost index funds for capital appreciation, and maybe taking a smaller 20-25% stake in things like JEPI to generate some income and hedge against risk.

 

[lapiito]

@kiptoo Also if the underlying indices go down, then the forward call writing profits will also go down about proportionally to the indices.

So if your cost basis is X and receiving p in profit, and it goes to X/2, then you will likely be receiving p/2 in profit. Just a rough approximation but it does hold true.

This is also the problem with constantly writing covered calls is that if the underlying drops by a lot, your subsequent call writing profits also drop by a lot relative to your cost basis.

 

[resjudicata]

@jesterdeal Dividends are not monthly income. There is 0 difference between selling shares and being paid a dividend.

In my opinion, you’re better off going with your country’s equivalent of an all-world etf (equivalent of VT). Much more diverse and you won’t be paying 25% on your dividends.

 

[rksharma]

@resjudicata It depends on the country, but mine taxes dividends at 5% while selling shares is grouped in a generic 10% income tax. So it is cheaper to base your income on dividends, at least in my country.

Dividends are also generally fixed per share, even if the share price fluctuates. The income you get from shares is largely dependent on share price, so you would see a decrease in income during downturns.

 

[resjudicata]

Dividends are not monthly income

Um, how so?

 

[j2048b]

@resjudicata They prefer the returns they’re getting on META.

 

[aimz]

@resjudicata He must not make $200 a month as some of us do, when the money you invested works for you.

 

[resjudicata]

@aimz Yeah, I think you're right. Also, it's probably the ones who have small or no salary who are hating on dividends.

 

[resjudicata]

@aimz How exactly are you making $200 on dividends if the asset also depreciates in the value by a total of $200? Do you understand that 0 dollars have been made here?

 

[aimz]

@resjudicata Cuz I give no fucks about the value, it will always increase overtime. To be able to receive some sort of income monthly to reinvest (or pocket for food) is highly significant.

Regarding taxes I have kids so essentially the child tax credit pays my taxes on this income and I still receive more than 5k in taxes.

 

[resjudicata]

@aimz Yes but that’s just because the asset is increasing in value, the same way a non-dividend stock also increases in value in the same manner.

Being paid a dividend is exactly the same as selling a few shares of a non-paying dividend stock. So again, what income is being made here?

 

[resjudicata]

The dividend comes out of the price of the stock - it’s like if a rental property paid the owner the property’s fridge and shower as a dividend. The price of the property has now gone down in value because it no longer has a fridge + shower.

Ben Felix can do a better job at explaining it than myself

 

[naina02]

@resjudicata Oh nice summoning the snake oil sales man in here again.

Let me tell you guys something. If Ben Felix is as good as he claims he should be at top firms making 7,8 figures and have no time to make a Youtube channel for a few hundred bucks a month.

In this day and age, anybody can dress in a suit and talk about investments on YouTube: janitor, taxi drivers, etc … and you morons wouldn’t even figure it out.

 

[resjudicata]

@naina02 What exactly did they state in the video that is incorrect?

 

[resjudicata]

OK, yes but there’s a good reason they call these “income ETFs”. If the share price stays flat or increases you are undoubtedly making money. Your blanket statement assumes the ETF keeps decreasing in share price. And even while decreasing, many choose to not DRIP so they ensure they have some cash to be safe yet never exit the market for when it turns around.