The idea for this investing approach was sparked by the savvy comments of STU L comparing covered call ETFs to regular ETFs:
“I’ll take the income thankyou. The capital gain/loss is unimportant as I’ll hold these stocks indefinitely. 2.25% or +10%? it’s a no brainer decision. I wanted to setup some kind of cash generator portfolio or ATM and these coverd-call ETF’s filled the bill. Everyone gets all weird about the hi yields but have they noticed that more and more companies are bringing out their own call option funds. That says something in itself.”STU correctly points out that 10% is, in fact, more than 2.25%. STU is also right that many companies are coming out with covered call funds, which means that they must be good for someone.
My thinking is that a 10% yield just isn’t enough. What if you’ve got $120,000 saved and you want to start collecting $2000 per month instead of only $1000? That’s where my investing approach fits the bill.
My approach has tax advantages as well. The payments I make will be a mixture of interest, dividends, capital gains, and capital. But my unique approach will make most of the 20% payments tax-free! Not only will you start collecting twice as much per month compared to covered call ETFs, but you’ll pay a lower tax rate on this yield. If there’s a downside to my approach, I haven’t mentioned it.