An Income Portfolio on Steroids
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I was doing some research this past week and came across something a little startling.
That's my favorite sort of research.
It's not that this research is revolutionary; anyone could've come up with it.
It's just that I'd never really thought about it to any great length.
Here's the premise: what if we want income AND growth?
Most of the noise out there has people firmly in one camp or the other. Growth is short-sighted, useless paper profits and high income is nothing but a failure filled with NAV erosion.
There's no in-between.
Or is there?
To try to get a good answer, I had to have data.
Most of the high-yield stuff is barely a year old. While that's not nothing, it's not really good enough to form a solid hypothesis.
So, I wanted to go way back.
And what income ETF goes way back?
QYLD.
It's the original and has many years of data.
And while its extreme former popularity has died down significantly, it's still doing the job it was supposed to do.
It hasn't gone to zero like the armchair YouTube experts promised it would. Here's the Total Return chart going back to July 2013:
It's doing quite well, thank you. And here are its income results with distributions reinvested:
If you reinvested all those years, 2024 would've paid out over a 25% yield. On a $100k account, you would have received over $27,000. That feels like a success by any metric.
But growth disciples will scream that the NAV is eroding. And, yes, the stock chart is going down over time:
Can we do anything about that?
Or better yet, can we do something drastic about that?
How about this?
We'll keep the income, so QYLD will be 50% of the portfolio. But we'll add hyper growth in the form of SPXL and TQQQ. Both of those will be 25% each.
And here's the kicker, we'll rebalance our portfolio at the end of every year.
Many smart people say rebalancing is the only holy grail in investing. It magically helps everything via taking profit from things doing well and investing more in things that are going to (hopefully) bounce back.
And here's what that steroid-infused portfolio looks like over that time period:
It beats the market handily. But check out what it does to the income:
If we started with a hypothetical $100k, 2024 would've paid out over $55k in distributions. It beats the market overall and creates a massive income snowball.
How?
SPXL and TQQQ had massively great years in 2023--and all of those profits got piled into QYLD during the rebalance.
Pretty crazy.
Are there downsides to this? Of course.
Rebalancing means selling, and many people hate taxes more than I hate men's tennis since Roger retired.
Also, QYLD is probably not the best candidate. We discuss many better options in the Dividend Income Program.
Nonetheless, that's a lot of data.
And a lot of income.
And a lot of market-beating total return.
And that startled me.
