Monday, April 30, 2012

A Guaranteed Yield of 20%!

Inspired by a reader comment on Canadian Capitalist’s article about covered-call exchange traded funds, I’ve decided to make an offer to select investors. I will guarantee payments each year amounting to 20% of the average daily balance in each investor’s account.

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, thank you. 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.


  1. I'm definitely interested. I mean, it's been at least two or three years since the latest financial innovation went bust so I assume the financial industry have worked out by now how to make instant riches with no money down.

    Do you have a motivational seminar planned or perhaps a 2:00 a.m. infomercial?

  2. You're too late! I already bought this product after watching a 2:00 a.m. infomercial, and so far it's paying off handsomely. Highly recommended.

  3. @Blitzer68 and @Spock: I think this baby's gonna sell itself without an infomercial. What Spock saw must have been my competition. I'll have to up the yield to 30%.

  4. HEY, it's April 30, not April 1. Cut it out.

  5. @Anonymous: It's not completely an April Fools thing. If enough investors really were interested, I'd be happy to set it up and collect a 2% management fee. Investors would defiitely experience returns that are exponential (decay) :-)

  6. I'm new to investing, so I'm not sure if this is a prank?????? Sounds too good to be true. Would you please explain this further?

  7. @Al: Thanks for asking -- I was hoping someone would. All I've promised to do is to take your money, invest it in some manner I didn't specify, and give you one-twelfth of 20% of it each month. These payments would include whatever returns the investments have made, but the bulk of these payments would be just returning some of your money to you. So, if I invest in stocks that make 8% in a year, I'd take 2% as a management fee, maybe another 0.5% in various costs, and sell 14.5% of the shares to make up the 20% payment to you. However, you'd be starting with 14.5% less money in your account for the next year and your next year's payments would be 20% of the smaller value. So, over time, your payments would dwindle. This is a bad deal for you, but seems good because of the 20% yield figure. I'm just taking the covered call income aproach to a more ridiculous level.

  8. You could avoid the exponential decay of returns if you returned newer investor's capital to earlier investors. I wonder if anybody has ever thought of that ;).

  9. @Greg: Great idea! A significant fraction of early investors would be very happy with this arrangement.

  10. @Greg: Isn't this the way the Canadian banking model works? :)

    Take peoples money and call it a savings account.
    Pay near 0% interest while the banking systems invests.
    Make the 20% in returns and charge the investor 2-3% to manage the MF.
    Declare MER expenses to manage the fund.
    Return 2% or less to the contributors...
    Rinse & repeat.