#1 Concern: Why Do High Yield Funds seem to Have NAV EROSION? Declining Stock Prices over time?

[@TheBreamer999]

Adrian, I'm 59 and have been following you for close to a year now. Your videos are well done and you explain everything, and your content is relevant because you listen to your subscribers. I'm 59 and months from retirement thanks to your videos

[@paulabeattie8565]

We retired 3 weeks ago and have followed Adrian's strategy. We don't have a pension and we need steady income, win-win.

[@shantidanceyoga]

The #1 rule of investment is to preserve capital, so if the NAV/ stock price decreases then your Total Return also decreases . Total Return is calculated by Stock Price AND any income/interest/dividends gained. If the Stock Price decreases more or equal to the Yield , then you have less Total Return. For example a given yield is only based on your NAV value if fixed.

[@jiti5034]

Tru but the hard core believers in these Etfs won't listen

[@joannapatterson4625]

Love your videos. You explain the concepts in a way that is informative and easy to understand. PII all the way from day one for me. I’ve sold off all but 3 percent of my remaining growth stocks this week. I prefer the steady income now, especially in this market. Thank you Adrian!

[@PassiveIncomeInvesting]

Thanks Joanna enjoy it :)

[@PassiveIncomeInvesting]

Hi Everyone, Wow, a lot of comments (positive and negative) and some remaining confusion....Let me try one more time to explain this. This will be my final attempt Say you have 6 Stocks or Funds. Stock 1 is a typical Growth Stock. Stock 2 is a typical Dividend Stock or Index Fund Stock 3 is a typical High Yielding Dividend Stock or Dividend ETF Stock 4-6 are typical Income Oriented Funds Stock #1 - The stock gives no Dividend/Income and the stock price appreciates 10%/year for 10 years. Stock Chart looks great Stock #2 - The stock gives 3% Yield and the stock price appreciates 7%/year for 10 years. Stock Chart looks really good Stock #3 - The stock gives 5% Yield and the stock price appreciates 5%/year for 10 years. Stock Chart looks good Stock #4 - The stock gives 10% Yield and does not appreciate at all in 10 years. Stock Chart is flat as a board Stock #5 - The stock gives 13% Yield but the stock price depreciates 3%/year. Stock Chart looks bad Stock #6 - The stock gives 15% Yield but the stock price depreciates 5%/year. Stock Chart looks horrible At the end of the 10 years, what is the Average Annual Return for each case if everyone SELLS their shares after 10 years? Answer: 10%! Its exactly the same for each Investor At the end of the 10 years, what is the Average Annual Total Return for each case if nobody sells their shares? Answer: Stock #1: Absolutely nothing. You realize nothing until you sell your shares at the end of 10 years Stock #2: 3%/Year. To realize 10% you need to sell all your shares at the end of 10 years Stock #3: 5%/Year. To realize 10% you need to sell all your shares at the end of 10 years Stock #4: 10%/Year whether you sell your shares or not. You made all your money back (initial investment) in Income without Selling anything after 10 years. Additional Income + NAV of the Stock after 10 Years is all PROFIT! Stock #5: 13%/Year if you did not sell any Shares at a LOSS. You made all your money back (initial investment) in Income without Selling anything in 7.7 Years. Additional Income + NAV of the Stock after 7.7 Years is all PROFIT! Stock #6: 15%/Year if you did not sell any Shares at a LOSS. If you Sell your shares you get 10%/Year. You made all your money back (initial investment) in Income without Selling anything in 6.6 Years. Additional Income + NAV of the Stock after 6.6 Years is all PROFIT! This is why I am a BUY and HOLD Income Investor. Its important to understand REALITY VS FANTASY. Hypothetical vs Real. The longer you wait as an Income Oriented Investor, the better off you will be. If you never sell anything, you will be great long term. The growth investor HAS to sell to Realize Returns. So when do you sell? How much do you sell? What do you do with the $ after you sell? These 3 questions are what keeps people up and nigh and obsessed with stock Prices. Income investors have no much problems. The longer time goes one, the more we laugh because you will eventually make all your money back (realized). Once that happens, the rest if profit. And for those of you concerned with: How will be fund keep paying out if it goes to $1, or $0? My questions to you is: - Will a growth stock keep going up forever? - Will a dividend stock keep increasing its dividend forever? - Will the stock market keep going up forever? - Why take plane when the plane can crash? - Why cross the street when you can get hit by a car FEAR holds you back... whats the point of it? Life is short and you won’t live forever... Hypothetical is Fantasy, Reality is... Reality. Stay Passive, Adrian

[@MegsCarpentry-lovedogs]

Let's hope this additional explanation will help a few more of your listeners. I keep stating to those who feel concern about the price falling over time....they do NOT ALL fall over time is one reality and this is also what is factual: Please pay attention to what the holdings are in the etf and split corp you may be interested in purchasing. IT IS VERY IMPORTANT. If you look at the quality holdings in a cover call etf and a split corp, then the argument is that the stock price would not fall greatly because that would mean that the value of ALL the holdings would have to fall greatly. If the holdings are quality blue chip paying dividend companies then the likelihood of ALL of them falling ALL at once is really not a very high probability. If ALL the holdings fell in the ETF or split corp, then that might mean that russia has nuked us all and there are not markets to speak of and, we would not be worried because we would not be around to worry, we would be dead.

[@efullname]

Maybe the issue is I don't see MY real average total return right away per stock, I need to calculate it myself and I don't know how to represent it in graph form. I got a simple question, if my capital is 50K and my total book value is 70K how do I calculate my return? Could I use that formula to calculate MY return per stock?

[@PassiveIncomeInvesting]

That’s a 40% unrealized return ( it’s realized only when you sell it all ) 70 divided by 50 , minus 1 , times 100 . Oh and any dividends are extra… unless you dripped it and it’s included in The 70k …

[@efullname]

@@PassiveIncomeInvesting My 3 year annual compound return is 40%!? Wow! That's from DRIP and PII universe of stocks swapping. I made me 40% rich! My complements to the chef!!!

[@lastnamefirst650]

Thank you for this video. I’ve heard a few channels upset at dividend chasing because it eats into the stock’s gains. Come to think of it, they hold options positions so they don’t get to participate haha. THIS is how I wanted to invest. Real returns every month. Cheers!

[@markbrown51]

Another solid and much needed video great work.

[@greendraggun]

I admit that this was something that I didn't fully understand for the first 2 or 3 months. Those declining charts DID concern me at first. But, I learned the difference, and how to not be concerned. Thanks for the information buddy!

[@eilonwoolf1129]

Qyld mat never ever return to its original price

[@greendraggun]

@@eilonwoolf1129 why?

[@mgmgmba]

@@eilonwoolf1129 did you add in the income? Cause by my calculations index-tracking covered call ETFs has an overall positive return, which makes your comment of “never went back to same price” obsolete.

[@RichardAkin-qj6xt]

You explain the NAV very well, one thing nobody ever talks about is that if you get divided income from a fund and the stock price goes up, there is no such thing as NAV anymore. You get a cash payment and growth even in ultra high yield funds.

[@martycurtis7090]

I'm pretty sure NAV erosion is a term more aptly applied to mutual funds, not etf's. The NAV of a mf is calculated daily on the close of trading, and is determined by the up or down movement of every holding within the fund. So people buying and selling the fund have no affect on price of the fund (or how that price would look on. a chart), whereas the trading of ETF's by investors has more of an effect on it's price chart than distributions ever would I think, as these trade like any stock would.

[@-Nab-]

Love your videos and your topics Adriano!!!!!!!

[@mmabagain]

Thank you sir. I was concerned about the share price trending down but you explained it well.

[@youppieyouppie]

If the share price/NAV decreases over the long term it means NAV is used to pay distributions. This means there will be less and less capital in the fund to generate returns. Less capital in the fund but still the same amount of shares. How likely is it that the fund manager will generate the same return with less capital? In the end the NAV will come closer and closer to zero. Yes split share funds are protected by the 15 NAV rule, but still, if the long term trend is negative with the current distributions, this rule will just help the NAV to stay more or less flat around 15 over the long term. Meaning several distributions will be skipped and hence helping the fund to pay distributions at a sustainable level. The level will be more in line with the market.

[@PassiveIncomeInvesting]

Annual compound returns speak for themselves … there’s nothing more I can say buddy .

[@coltong694]

My concern would be that as the share price declines over the long-term, eventually the dividend payments are reduced so that the yield stays fairly constant. Otherwise the yields would just keep going up, which isn’t what really happens.

[@PassiveIncomeInvesting]

What can I say … watch my channel and portfolio unveils until I’m dead . Maybe by update 459 you Won’t be concerned anymore

[@jumbothompson]

You can still get decent capital appreciation on covered call ETFs. ZWK went up like 35% after the COVID crash. BTW nobody says you have to focus on one strategy. I like passive income ETFs but i find myself steering more toward individual stocks at the moment, ones that pay a dividend but definitely not in the 6+ range.

[@PassiveIncomeInvesting]

Sure you can !😉

[@frankinfante791]

For those that are concerned, and don't understand the income investing strategy, this may not be for you. The other option is to reinvest dividend income into growth stocks, or pay a financial adviser to manage your investments. My experience with financial advisers has not been positive. In most cases the fees charged don't reflect the returns over the long term.

[@MegsCarpentry-lovedogs]

Frank the same here. When I was out in BC working flat out and no time for fun learning about investing I tried a financial adviser. I would come with questions and answers showing charts and graphs and he scoffed at me too many times. I learned about a brokerage option, got to switch my funds and...well, the rest is history my friend....retired at 45 and did stuff I wanted to do even making some cash on the side while still rescuing and rehabilitating dogs. Giving back is always the thing to do. Cheers from East Canada.

[@JamesBrown-ug2tm]

I've been buying cnd bank stocks as I learn and watch video's.

[@MegsCarpentry-lovedogs]

@@JamesBrown-ug2tm Yup! The banks have a long history of increasing dividends and are going to be around for years to come! Always an excellent place to start. Good one. I started buying the banks during the first part of the pandemic when everything pulled back. Amazing low price. There is another pullback taking place now as well. I also added to DFN which is heavy on the Canadian banks but gives a lot higher dividend yield than the banks themselves. I have held DFN for over a decade. Also PDV which is Canadian Bank focused a long with several other different sectors, similar to DFN. A real nice variety, or diversity of quality holdings.. Go with your gut and buy only dividend paying quality investment vehicles....you will do well in the long run. Keep up the good work! Cheers from East Canada.

[@badass6656]

@@MegsCarpentry-lovedogs Seems to me many are not understanding income, total return and the relevance of each to fund a retirement.

[@MegsCarpentry-lovedogs]

@@badass6656 Hi there. It takes time for people to understand when something is totally new to them. The "teachers" have to be understanding that many think all differently and process info in a variety of ways. It takes a lot of patience for any "teacher" to hang in there and cherish moments when you do see "light bulbs" brighten up from having correctly processed what is actually in front of them. Total return, a big factor in considering just how much income one can get from a high quality dividend paying preferential tax treated investment vehicle. What is "fun" for a teacher is seeing people "get it" and then they are off flying more on their own like a baby bird out of its nest for the first time. Again, enormous amount of patience for both teachers and students. We carry on and keep doing the best we can with what we were born with. Cheers, nice input, from East Canada.

[@janetcheong2121]

Thank you Adriano, no financial advisor have explained this to me. Seems like there some sound distortion at the end of the video...

[@PassiveIncomeInvesting]

Yes we can’t figure out the audio issues 😢

[@MrChepburn]

Thank you Adriano ! Excellent, clear, concise, and evidence based discussion of an important topic. If anyone remains unconvinced after this, then apparently Passive Income Investing is not right for them.

[@PassiveIncomeInvesting]

Yup ! There’s really nothing else I can say lol

[@MrChepburn]

@@PassiveIncomeInvesting me too - I think the "e" word should be banned, like playing "Stairway to Heaven" at a guitar store !

[@MegsCarpentry-lovedogs]

@@MrChepburn LOL, funny, thanks!

[@haroldspanier9185]

Agreed. Case closed!

[@joannapatterson4625]

Totally agree!

[@p.c.h.6721]

Nice video Adrian, I’ve read all the comments, not sure why people are so confused, I think you explained everything very clearly. (The microphone issue seems to be that suddenly the microphone doesn’t capture the sound well, if there’s nothing loose, a cable or something, maybe the microphone is faulty, try another microphone just to see what happens, but even if the mic is misbehaving, we can still hear you, so no big deal! 👍)

[@CM_Burns]

you got an audio problem at 23:10

[@overhansable]

If you want to start Income Investing early, just pick decent lower yield funds that still grow, JEPI, SCHD, DIVO an so on. More tax efficient anyway.

[@slavekp420]

Adrian thank you for the video. My only question is the "total return of income" that you gave so many examples for, do they include reinvesting the money, like a DRIP, or is that "total return" without DRIP?

[@wisewealthsolutions]

yes it does , if you dont need the income now you better invest in a dividend grower that will keep increasing their dividend over time

[@PassiveIncomeInvesting]

yes, it counts the income

[@henryhonda8408]

In those examples I don't believe the DRIP is included the "total return" just the capital appreciation plus the dividend.

[@PassiveIncomeInvesting]

It is included , the drip is the divided .

[@YuginSkolov]

Its a different style. Reinvest to make gain via drip.

[@Master-bp8pd]

It's like spending a bit of your savings every month to put it simply, and.. pay tax on it too. Not real "income" by definition sinve you spend part of your capital every month, more correct to call it "distributions". You have to set aside a part of that "income"to ensure long term sustainability. How much decline in price are you willing to take? Consistent NAV and stock price decline (if you dont like the word NAV erosion) if taken as expected and normal, mean at least three things: first, the "income" is really a partial return of capital; second, you pay tax without selling shares; and third, with consistant declines, these instruments are not sustainable because they all loose like 50% or so every 10 years. Ultimately the split funds will trgger $15 unit and will reverse split 1:2 halving the dividends and the none split funds will just cut the dividends as many have done. Not sustainable in a really long term, and not "income", but distributions.

[@PassiveIncomeInvesting]

oh yeah? keep watching my portfolio updates videos every month. Maybe by update 354 you will understand and change your mind...

[@Master-bp8pd]

@@PassiveIncomeInvesting I am a very long term investor, having held zwu and zwb for more then 10 years, but losing your "capital" year after year is not "income", its spending part of your savings momth after month and it is not sustainable, unless you set aside some dividends for reinvestment to support your future dividends. These instruments self-cannibalize in the long term, and thats without a market crash - I came to this conclusion through holding them after 2009 market crash, and was looking for answers why its not working.

[@michaelferriss4594]

Cover calls are defensive income so is there any funds that are doing the opposite of covered calls, such as put options? Could you build a portfolio of both to protect the principal capital and generate income? Or is this the role of split shares? To take advantage of the good times.

[@PassiveIncomeInvesting]

yes there are a few like zpay, zpw or payf but they don;t seem to work super well, or better than covered calls anyways

[@Rob-ob3sh]

Hi Adrian, just noticed Berkshire & Hathaway is one of the holdings in EIT and a big holding would be Apple. That would give Eit some tech exposure but not a lot. EIT is my biggest holding now.

[@PassiveIncomeInvesting]

Yeah but that would show up . Bershire is probably considered industrial

[@Rob-ob3sh]

@@PassiveIncomeInvesting Apple is Berkshire’s largest holding accounting for 41% of its stock protfolio but Berkshire is just a small percentage of the top 25 holdings in EIT

[@andyhermiz3075]

Thank you!! Thank you!! Thank you!! You truly put my mind at peace ✌️ 😌

[@jameswellhu]

One of the problems I can see is when the NAV of a fund goes to zero or near zero. You are forced to sell or the fund dissolved and that creates a taxable event.and your cost base is zero or negative and you will have to pay a huge capital gain tax.

[@PassiveIncomeInvesting]

well i do not see that problem. you think all those stocks will go to zero? have you checked the stocks?

[@firozkassam2283]

Very well explained all the details. You guys ROCK for helping everybody. Thank you both. Erica included.

[@PassiveIncomeInvesting]

Our pleasure!

[@jackjia8773]

Thank you for confirming my thought.

[@Angela-mc3nq]

So clear! Thanks for your video!

[@donl9701]

your argument against the depreciative value related to many high yielding products might be valid only if the distribution is reinvested. If an individual needs the distribution to live, then the NAV definitely goes DOWN in many of these products. Your statement of the distribution being part of the NAV is only valid until the distribution is paid out. Once the distribution is paid, the NAV decreases by the amount of the distribution. This reduction is generally against capital assets, cash of an increase in debt, which all reduce the NAV. What I look out for is the value of the product to stay at least flat in the longtem so that the only cost to the initial outlay is inflation.

[@paob7580]

So what would you invest in you opinión? genuinely curious

[@PassiveIncomeInvesting]

I don’t need to argue or try to convince anybody . I’m living it . I can’t give more proof than that . If you are still worried , don’t invest in these funds

[@claudelatour263]

@@PassiveIncomeInvesting Sure, but you profit from the advice you give out to your followers, which is fine, but it does come with some level of responsibility. Keep that in mind.

[@PassiveIncomeInvesting]

No I don’t …. I just show people how I invest . You do what you want .

[@stanleylu3625]

Can you make a video for how passive income investing performed during a recession?

[@MarkMD.]

if everything is what s explained, compare the total return not the live etf price, so in that case, the yield of these funds are actually not that great combine with the capital eroding

[@hamin31]

Good information 👍

[@mr.financial]

That was very well explained Adrian. Total return is an important concept for DG and PII investing. Even ETF Index investing needs to take the income into consideration.

[@langleyj8199]

Excellent video.

[@unknownknown2776]

Do they reset the NAV when it gets below a certain point?

[@PassiveIncomeInvesting]

? the NAV is the value of the fund, they cannot reset it

[@hopstiguy]

Good video- I'm hoping that you'll explain the leverage concept in future videos..

[@PassiveIncomeInvesting]

Yes, soon

[@km6731]

So I put 1000 in an already paid 100 in taxes on that money and got 1000 shares. I get 10 a month or 120 a year in divs and have to pay 12 in taxes with stock market risk. At year two, my 1000 shares are 900 because I use the divs to live on. My total return before taxes is .02. my return after taxes on distributions is .008! I hope the nav doesn't erode that quickly.

[@sukhjinder71]

Adrian the sound cut out at 23:20 for a few minutes

[@CanadianDividendInvesting]

Great video, thanks for sharing!

[@rajaggarwal2010]

Thanks Adriano!! very informative video!! I have one question to ask you - even though I subscribe to the channel, but I still don't see your ask for a survey!!

[@MegsCarpentry-lovedogs]

I know what you mean. I get to see his surveys when I scroll down on the intro youtube video screen and then you will see the subscribed channels show any comments make by the YT owner of the channel. Sometimes Adriano's pops up 3 days after he posted it though. Good question. I also wondered why it does not pop up in the notifications.

[@PassiveIncomeInvesting]

you need to enable notifications, or simply click the name of the channel and then click on Community :)

[@dustful]

Good video man, I'm new to the investing world and your videos are helping me a lot! Just a quick question, for the NAV rule in split funds, do you look at the Class A shares and preferred shares combined? I'm really thinking about buying some shares of SBC, right now I have TD, EIT.UN, and ZPH for my dividend stocks, and XEQT for the growth. Thanks!

[@PassiveIncomeInvesting]

I got plenty of split fund videos , check ‘em out

[@smallmj2886]

The part that is scary about decreasing stock price is that it makes some of us worry about the long term prospects of the income from the fund. Is CLM's aggressive distribution policy sustainable over the next 40 years? Will other split funds have a share consolidation like FTN did back in 2020 which effectively slashed the income from the fund? No growth in an income fund isn't scary, but consistently falling prices make me worry that the income will fall or stop altogether. If the fund goes to zero, but I still got out more than I put in, then I invested in an unusual kind of annuity.

[@MegsCarpentry-lovedogs]

As Adriano points out, good investing strategies work for your own personal risk tolerance, if you find CLM's is too aggressive then do NOT buy it! Buy something else less aggressive. There is tons of stuff out there that is medium to low risk. Adriano has already put out lots of video's for you to browse through to select what you like.

[@smallmj2886]

@@MegsCarpentry-lovedogs I guess my point is that the video doesn't really address the fear that declining stock prices might bring declining income. Income investors may not care if the holding falls in value, but we do care if the income falls.

[@MegsCarpentry-lovedogs]

​@@smallmj2886 I now see your point a lot clearer. I guess that is why managers use cover call strategies to help sustain the income side of things. But if you look at the quality holdings in a cover call etf and a split corp, then the argument is that the stock price would not fall greatly because that would mean that the value of ALL the holdings would have to fall greatly. If the holdings are quality blue chip paying dividend companies then the likelihood of ALL of them falling ALL at once is really not a very high probability. If ALL the holdings fell in the ETF or split corp, then that might mean that russia has nuked us all and there are not markets to speak of and, we would not be worried because we would not be around to worry, we would be dead. The point Adriano is making is that he wants his listeners to focus on what are all the holdings in the etf or split corp? If the basket of holdings is diversified, like eit.un, or dfn, or pdv, and the holdings represent blue chip quality dividend paying companies, the chances ALL of them would go to zero or ALL of them would pull back ALL at once is super unlikely. Again, pick the etfs and split corps that have quality blue chip diversified dividend paying companies and you will most likely be able to sleep well at night and live a really wonderful life. Hope that helps. Cheers from East Canada.

[@arkady3seven]

Aren’t the split funds declining in value over time by design? Would they eventually go to zero? Should we keep an eye on when to cash out? DRIP works great for compounding, but a drop of $1 could wipe out almost a year’s worth of dividends. Looking at the charts, E.g. CLM, it has held at around $20-$10 for the last 8 years. Do you think that’s sustainable for the next 20? Just looking for thoughts/opinion. Thanks, great stuff!

[@MegsCarpentry-lovedogs]

@@arkady3seven There really isn't too much to worry about. Managers use cover call strategies to help sustain the income side of things. BUT, please pay attention to what the holdings are in the etf and split corp you may be interested in purchasing. IT IS VERY IMPORTANT. If you look at the quality holdings in a cover call etf and a split corp, then the argument is that the stock price would not fall greatly because that would mean that the value of ALL the holdings would have to fall greatly. If the holdings are quality blue chip paying dividend companies then the likelihood of ALL of them falling ALL at once is really not a very high probability. If ALL the holdings fell in the ETF or split corp, then that might mean that russia has nuked us all and there are not markets to speak of and, we would not be worried because we would not be around to worry, we would be dead. The point Adriano is making is that he wants his listeners to focus on what are all the holdings in the etf or split corp? If the basket of holdings is diversified, like eit.un, or dfn, or pdv, and the holdings represent blue chip quality dividend paying companies, the chances ALL of them would go to zero or ALL of them would pull back ALL at once is super unlikely. Again, pick the etfs and split corps that have quality blue chip diversified dividend paying companies and you will most likely be able to sleep well at night and live a really wonderful life. Hope that helps. Cheers from East Canada.

[@sainitoronto]

Adrian, As always you have explained very well with examples. I love it and follow your advice sincerely. Thank you and progressing towards my goals👍

[@PassiveIncomeInvesting]

Great to hear!

[@Pintohh.]

Great vid!

[@Master-bp8pd]

Glad to see that you moved on from the previously fierce denial of NAV erosion

[@petrulupas1658]

I believe that some of the funds erosion, in this time, is also caused by the bear markets, no? The ETFs stock price will gain back once the bear market is over. Thank you for the info !

[@PassiveIncomeInvesting]

well yes of course, but the term erosion is not correct. everything goes down in a bear market....

[@petrulupas1658]

@@PassiveIncomeInvesting based on your explanations, we have funds NAV erosion even in a bull market !? interesting, I will look into that, on the ETFs price history during 2019 .. 2021 ... thank you !

[@CanadianBi-WeeklyInvestor]

Hey guys, when considering these types of funds is there something to be concerned about the NAV pricing eroded to much and the fund being disconnected and all share holders are just paided out? It sounds great to lock into a monthly income and have the capital erode a bit... but after 10-15 years down the road, what does that look like?

[@PassiveIncomeInvesting]

like i showed, there are many funds that have been around for over 10 years including split funds , and several of them have beaten the overall market in the last 10 years. like SBC, EIT, LBS, DFN. what happened to these? they are still around. so this is a non worry for me.

[@jasonstupak4535]

Watched and liked, thanks Adriano!

[@veneetbansal8559]

Does the volume / audio change for anyone else? Good video otherwise Adrian!

[@PassiveIncomeInvesting]

well aware... sorry, cannot seem to figure out this issue

[@efullname]

So the graph we see is for growth people, PII people should also look at compound return because it includes income payment. HYLD BTCY ETHY are all new so we don't have a basis for long term compound return yet. BTCY ETHY lack sector and geographic diversification? That's why Purpose use covered call to soften the risk?

[@PassiveIncomeInvesting]

Yes , cc etfs refer to this as “lowers volatility”

[@slavekp420]

thank you for the video.

[@khan200us]

Nice video. Which stock broker do u use for Canadian and US Stocks?

[@PassiveIncomeInvesting]

see my portfolio unveil videos :)

[@paob7580]

More of this please

[@jeanlucbergeron3106]

Adam, same here, I'm 62 yo and I've been following you for the last year. One question: Leverage Canadian funds fared well in the last 10 years in a low interest environnement indeed. Considering that the Fed and BOC are hiking rates, how do you expect these leverage fund to perform in the future ???

[@PassiveIncomeInvesting]

The impact in the leverage is tiny . I spoke about with rob wessel in a video about hdiv or hyld

[@jeanlucbergeron3106]

@@PassiveIncomeInvesting Thanks, cheers

[@cindykloman1177]

If I buy a high yield fund and it pays me 100% of the money originally invested over the next 3 years but then the NAV goes to zero, it's as if I bought a stock, held it for 3 years, sold it, and then had to pay taxes on all of the value of the stock, not just any profit that I realized. Please help me understand where I'm going wrong with this logic. I want to like these funds.

[@PassiveIncomeInvesting]

a lot of places.... why don't you try it out?

[@cindykloman1177]

@@PassiveIncomeInvesting I am in fact trying it out. I made a small purchase - 300 shares of NVDY. I chose this one because 1. the NAV seems to be going up, not down 2. I've read here and in other places that covered call ETFs do better in a down market 3. I believe this is or will shortly become a down market. Just looking for some analysis on how to properly judge the viability of a high yield ETF. Do these "live" long enough to return more that 100% of the initial investment? If they don't then I'm better off buying high yield stocks such as MO which I do already own.

[@tonynabuurs7975]

Hi Adrian, my simple question is this: if at retirement I have one million dollars and invest in hdiv at 8% thus I will receive $80,000.00 a year. If I spend that 80 k a year to live and don’t reinvest any of it will my investment slowly shrink giving me less income each year and eventually go to zero? What is a retired person’s solution to that problem?

[@PassiveIncomeInvesting]

no :)

[@sidb9540]

did you end up investing in HDIV??

[@Bella0480]

Why would your investment go to zero? If you make 80K in income and spend 80K in income your capital is still there until you sell the actual share. So if that is 1M and 15 years go by and the fund didn’t grow or do anything, you still have $1M

[@hilarynguyen2784]

Great video Adrian. Thanks for helping investors like us.

[@PassiveIncomeInvesting]

You’re welcome ☺️

[@Garen1]

is the income we receiving comes from the nav, then in this case, are we not simply giving out our money just to get it back over time with fees and tax complications? just holding cash seems to outperform it. what am i miss understanding?

[@PassiveIncomeInvesting]

Noooooooooooo 😢 annual compound return . That’s all you need to look at . What’s the annual compound return of cash : it’s negative . You lose whatever the inflation % is

[@Garen1]

@@PassiveIncomeInvesting if you can make a response video to Brad Finn’s video “Truth on QYLD Covered Call ETF (Watch Before Your Buy)” that be very awesome. although this is qyld specific, it is still concerning bc of the mechanism behind them. ofc they will always outperform the market in bear markets. but in bull markets they will get destroyed (qyld specific). your expertise will be appreciated on this!

[@MegsCarpentry-lovedogs]

@@Garen1 I watched the same vid. It was awesome and so well explained right!💯👍

[@PassiveIncomeInvesting]

Yes cc etfs always underperform in bull markets . But destroyed ? Nah

[@onlyparttime]

The best on KZbin by far. Question, do you find your PII strategy effective for those who are still working as it relates to taxation on dividends in Canada?

[@PassiveIncomeInvesting]

yes you can start with PII as well, the funds are very tax efficient. But of course you need to start with a TFSA which is all tax free

[@jimmyers7570]

Is TXF a good buy at this time.

[@PassiveIncomeInvesting]

yes

[@TheJsugg]

When you were explaining zwc and the total return you didn’t use the cumulative return which would have shown a greater percentage. I am I wrong in my understanding in reading that?

[@PassiveIncomeInvesting]

Cumulative is basically start to finish . Divide that by the number of years the fund has been out and you get the annual average. But yes that can also be an accurate indicator of performance . You just to know how many years the fund has been out . If the cumulative is only 31% after 10 years . It’s performing poorly

[@maureenmurphy]

Thanks for your clear explanations Adrian!. I've been following this channel & your FB group for several months and have learnt so much about PII. Already seeing my investments growing much better thru these methods.

[@PassiveIncomeInvesting]

Glad to help!

[@668_neighbor_of_the_beast6]

I hold EIT myself for income but always found their CDN index benchmark comparison a little misleading given the fund holds - 40% in US stocks. Especially some large US Healthcare companies that generated higher returns vs. the CAD market benchmark. It’s a bit unfair to say Canoe beats the CAD market over time (as we’re comparing apples and oranges).

[@PassiveIncomeInvesting]

i would not say it's "misleading" its just a benchmark to help you compare. Since its mostly Canadian focused it makes the most sense. even if you compare it to the SP500 i say EIT does a pretty darn good job

[@668_neighbor_of_the_beast6]

@@PassiveIncomeInvesting I’ve held the fund since late 2008 and happy overall with it. I hear you that it’s “mostly” Canadian but a 40% US weighting in my opinion doesn’t make the current benchmark comparison fully transparent. Maybe Canoe should include a US index comparison as well or a weighted CAD / US index. Either way, I think Canoe does a good job with the fund but I never liked their benchmark. I know this wasn’t the topic of your video so I will need it here 😀. Thanks.

[@henryhonda8408]

EIT is listed on the TSX. That's why it can be compared against S&P 500 ETFs or the TSX60.

[@khuo0219]

Simple, to avoid erosion the underlying business needs to earn a greater return than the dividend that it pays out. each fund report their financials, check if it is true. Even if erosion is happening, as long as yield is greater than erosion + index return you still come out ahead.

[@shakydog6756]

Yes, I see that, however, that still doesn’t look like a wise decision to give a yield that puts the stock price in a position where it’s dropping. You could be pleased with your Total Returns in the current year because it has produced more value than an Index it’s following, but the following year wouldn’t it have put itself in a more difficult position to produce the same yield with less value?

[@vicfontaine5130]

Great video Adrian, helped clear my head. Going to go with income funds and all in one's for my TFSA.

[@FranticWaffle]

Your examples imply there’s no correlation between the stock price and the NAV. The EIT example claims stock price goes to $9 but the NAV provides $1.20 in distro. That’s value of $10.20 for investors but the NAV is still down to $9 and cannot sustain these distros forever. There must be capital appreciation to maintain the distro. How can you maintain giving everyone a slice of the pie if the size of the pie never gets bigger? Can’t dismiss share price, you need to balance price/distribution.

[@PassiveIncomeInvesting]

The longer you go the less correlation there is because the nav has been given out to you in income . Income and capital appreciation is the same thing . It’s all total return in the end.

[@briangriswold5762]

@@PassiveIncomeInvesting , maybe the elephant in the room that really needs to be discussed is Return of Capital which is likely a portion of the Income when the NAV is going down especially if the underlying asset values are appreciating like they have over the past 10 or more years. Can you comment more on ROC?

[@danjennings4700]

@@briangriswold5762 But don't forget that ROC is first a tax designation of the distribution. See Adrian's video on good/bad ROC.

[@PassiveIncomeInvesting]

Already done , See my roc video . It’s mostly misunderstood

[@briangriswold5762]

@@PassiveIncomeInvesting I re-watched the ROC video and totally agree that ROC income is not a bad thing. However all of the examples show a neutral NAV after distribution, none of the examples show a falling NAV except for the BAD ROC example. This video focused on discussing how to calculate the real return and was discussing that the NAV going lower was not a bad thing and that to calculate how the investment is doing you had to include the distribution. If the NAV is falling and a portion of the distribution is ROC then this must be BAD ROC as the investment has not grown in value or produced enough income to support its distribution if it had the NAV would be neutral to increasing but not negative. It would be nice if you could expand on the falling NAV even under market conditions where the asset values are rising. Thanks

[@ricknash3055]

DRIP only works if the broker provides it. Both EIT and HYLD.U are not on BMO's DRIP program. That's something to keep in mind when choosing an investment broker.

[@PassiveIncomeInvesting]

Questrade DRIPS everything :)

[@vancitydadpool3945]

@@PassiveIncomeInvesting think about how good National Bank is though. In addition to DRIP on everything. If you don't have enough for DRIP on the day of dividend payment made you can always manually buy any day the price drips. This is extremely useful for a dividend portfolio a single buy of free! Not just ETFs like Questrade (and no sneaky fees like ecn tagged on top).

[@henryhonda8408]

@@PassiveIncomeInvesting so does Scotia iTrade

[@PassiveIncomeInvesting]

Yup it’s useful !

[@TheBreamer999]

I'm part of RBC "Royal Circle", separate phone #, I called and turned off DRIP for everything in my RRSP. TFSA by nature has no DRIP

[@aaronhall5715]

So if I'm understanding this correctly, the NAV goes down because distributions are part of the NAV, so they need to be included to calculate total return. But what are the implications for Split Share funds that need to maintain a minimum NAV of $15? Does that mean that eventually, after distributions, the NAV will always go lower than $15 over time? I think I may not fully understand what goes into valuing the NAV of a fund but I thought I'd ask.

[@PassiveIncomeInvesting]

Nav of the fund is simply the combined value of all the stocks inside the fund . For split funds , that 15 rule protects the fund long term . So that 10 cents is not being paid out . It stays In The fund helping to rebuild its nav … and eventually it will go back over 15 . This happens quicker when the distribution stops being paid

[@slavekp420]

I also want to ask this same question!

[@aaronhall5715]

@@PassiveIncomeInvesting Gotcha. Thanks Adrian!

[@MegsCarpentry-lovedogs]

Good question. I learned that the NAV has nothing to do with the distributions. It has everything to do with the combined value of all the holdings. So if the markets pull back, like covid era, all the holding will lose their value like on all the markets. This will lower the combined value of all the holdings and that is when the NAV is lowered. If it hits below 15 dollars, to protect the fund, they then suspend the distributions BUT the distributions are STILL occurring just that the managers are putting it back into the fund to keep it growing while we wait out the pull back. Its quite a cool system and gives peace of mind knowing that the managers certainly want to perserve the integrity of the quality diversified split corp or cover call etf. Then again, if you did pick a quality one, which means it is diversified, the chances of it going below 15$ is slim, like EIT.un or DFN which missed only 4 payouts over a period of over 10yrs. I have had dfn for over 10 yrs...can you imagine what over all return I have made!!! Hint: I retired at 45 yrs of age...PII works. Just be patient and invest quality and diversified and only dividend paying choices. Have fun because it is fun investing! 👍💯🇨🇦

[@aaronhall5715]

@@MegsCarpentry-lovedogs Beauty. Thanks!

[@mrsjuliemasse]

If the share price becomes lower over time what happens when it reaches $1 or less?

[@MegsCarpentry-lovedogs]

This was discussed in another video. The word of the day is "over time." The first phrase of the day is "Diversified quality dividend paying Blue chip companies held as holdings in the basket of the split corp or cover call ETF." If the share price ever goes down that low on these quality holding split corps or cover call ETF's it will take a very, very, very long time, decades or never. In the meantime you would have been collecting income. AGain, to determine your TOTAL return you would have to ADD UP all the income you received and then add what percentage of a loss you had to calculate your total return. Adrian gave the example of a stock that drops in price in one year from 10 to 9 dollars. BUT you would have received 1.20 in income. You have to consider that percentage of the income and ADD it to the percentage loss in that one year. BUT the key here is that Adrian is picking or telling us which basket of holdings are diversified a lot, or not and that it is a bit more risky with some than others. So if you pick the low risk: aka, "Diversified quality dividend paying Blue chip companies held as holdings in the basket of the split corp or cover call ETF," then seeing the price go to down to 1 dollar is highly unlikely. But Hey! Never say Never right. If you see it go down, and you can't sleep at night, sell it...keeping in mind you have to consider all the income you received as part of the over all return with the price that you sold it at. Make sense?? Happy investing👍I have been practicing passive investing for over 2 decades and I never saw a quality split corp or cover call ETF drop to 1 dollar. They are all diversified and blue chip paying companies, the back bone of the Canadian stock market. I retired at 45yrs of age and keep the passive investing strategy going 100 percent. Its amazing. Stay safe from East Canada, glad you asked the question.

[@mrsjuliemasse]

Thank you for answering.

[@PassiveIncomeInvesting]

it won't the $15 UNIT NAV rule protects the fund. You need to stop looking at the fund itself, its the stocks inside the fund that matter

[@mrsjuliemasse]

@@PassiveIncomeInvesting for split shares yes but what about covered call ets?

[@henryhonda8408]

@@mrsjuliemasse no covered call etf has ever come close to $1 or even $5 ..... maybe 50 years from now

[@mixmasterpax]

Don't forget that these fund managers rarely or never lower their fees, which has to be paid whether the market is up or down. The fund managers always profit. 🥴

[@PassiveIncomeInvesting]

PROFIT while the market is UP or DOWN?? sounds like the PII strategy :)

[@mixmasterpax]

@@PassiveIncomeInvesting Missing dividends while fund managers keeping the admittedly high fees is my issue. Maybe they should or could miss a monthly MER fee or two also? 🤔 I'm still passive but this has always bothered me.

[@PassiveIncomeInvesting]

Try mutual funds instead lol . For what you get , the fees are a nothing burger. The taxes you pay to incompetent government… now that should bother you . And it’s not .65% is it ?

[@slickwilly4613]

QYLD total return is one of my worst etfs I watch

[@PassiveIncomeInvesting]

Did you sell it ?

[@nikhilrodye8226]

aka there is no free lunch

[@JD-un2zv]

Dfn good example 3% yr avg erosion over 5 years, but returning 15%. So if dont reinvest anything, and dont overweight underweight it. Yeah losing 3% every year.

[@PassiveIncomeInvesting]

Either you didn’t watch the video , or you did not Understand what I said …. I have nothing more to say . You’re wrong …

[@JD-un2zv]

@@PassiveIncomeInvesting i will rewatch, thought i was supporting, where am I wrong?

[@PassiveIncomeInvesting]

You are not losing anything . Nothing is eroding … it’s being given out as Income and dfn is beating the overall Canadian market by far along with the other leveraged funds mentioned

[@JD-un2zv]

@@PassiveIncomeInvesting ahh think you misunderstood, im saying yes 15% minus 3%. Your up 12% on average per year. But if dont reinvest or buy dips trim the highs the position will erode by 3% on average per year. If its just left to sit, nothing added, no trades.

[@MegsCarpentry-lovedogs]

@@JD-un2zv You need to edit your first entry to add the correction so that when others read it they will not get confused.

[@dedracingteam]

Hi everyone, it seem like there is some misunderstanding and I think that I'm part of the one who doesn't catch everything about the NAV and the " Erosion " of capital. But after have read some comments, my comprehension ( and I might be wrong ) is that the NAV will building back after distribution by the capital appreciation of his holding, that are mainly quality stocks so that's why they seem staying alive for ever.. covered call and leverage strategy can be good but leverage with moderation... 2X and even 3X leverage can really eat up your capital or underperform overtime specialy if they don't have distribution but they stay alive.. Just look HXU compare to the TSX60 for 5 years.. you are leaving money on the table.. And compare QQQ and TQQQ to the Nasdaq 100.. that's hurt.. EIT that using covered call is alive since 1997.. and beat the TSX on annual compounded return. Unfortunately, I didn't find a TSX comparable leveraged by 1.25 ETF old enough to compare the annual returns and longevity.. maybe someone can help on this ? Finaly, I think income's ETF with dividend blue chip quality stock is the key to keep a leveraged ( modest) and covered call alive and sustainable.. and buy mostly of your covered and leveraged ETF's during bearmarket to get your capital appreciation plus the yield, DCA practices.. that way, we should be fine..

[@thailandwithnoideaatall9460]

I guess the best case scenario is for the etf to pay out the yield (net of mgmt. fees), and the price stays flat. If the price increases on top of that then you have exceptional mgmt.

[@PassiveIncomeInvesting]

kind of. even with a declining stock price. something can do better than an increasing stock price. look at SBC. it does better than EIT overall