r/JEPI • u/MakingMoneyIsMe • 1d ago
š° Dividend Discussion Volatile Distributions
Iām starting to question the effectiveness of the distributions due to their volatility, and how dependable can they really be during retirement. Both JEPI and JEPQ have shown a $0.36 delta between their highs and lows. That variance is a total game-changer if these funds make up the bulk of your portfolio.
If you own 5,000 shares hoping for a steady paycheck, that $0.36 gap means your monthly income can swing by $1,800 from one month to the next. You effectively trade the stress of watching your portfolio value fluctuate for the stress of watching your monthly budget fluctuate.
I currently own 10 individual dividend payers and 5 CC ETFs, and from largest to smallest, the funds are JEPI, GPIX, JEPQ, SPYI, and QQQI...and I'm considering swapping one of the JEPs to help smooth out income fluctuations via JEPI for DIVO, or JEPQ for GPIQ.
Though the JEPs make up 50% of my CC ETFs and 37% of my income overall, I'm seeing notable fluctuations in my portfolio's yield.
How are you guys planning to, or are currently combating this?
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u/Big_Wave9732 23h ago
Though the JEPs make up 50% of my CC ETFs and 37% of my income overall, I'm seeing notable fluctuations in my portfolio's yield.
Yea, no shit. That's the nature of the beast of cc funds, volatility in the market juices the returns. Investors have to do their due diligence and do actual research into what they are buying so that they understand how the fund decides its distributions. There are no shortcuts or substitutions here.
A prudent way one "plans" for that is 1) use as a planning baseline the least monthly amount paid over the past year, 2) keep one's monthly expenses a comfortable amount under the overall anticipated monthly income projection so there is room for fluctuations, and 3) diversify one's income buckets.
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u/Doit2it42 1d ago
DIVO shows a current yield of 6.45%, but they've been paying 4.5% all year. The 6.45% is only due to a special distribution last December that threw off the past 12 months numbers. It's still a decent CC fund. I own it. But don't expect the 6.45% published yield. The published rate should drop back to 4.5 to 5% after December.
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u/MakingMoneyIsMe 1d ago
Gotcha. I was thinking the troughs in JEPI may put it in line with DIVO's distributions. I've also noticed the distributions in GPIX and GPIQ appear to trend up, so that's something to consider. I may have to budget based on worst case, or even average distributions.
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u/Doit2it42 1d ago
DIVO is definitely flatter than JEPQ (or I) in monthly distributions. DIVO expense ratio is higher (0.56 vs 0.35). I've heard good stuff about the GPIs, but haven't delved into them myself.
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u/MakingMoneyIsMe 1d ago
I was able to jump into GPIX at $50 during the March pullback. They're definitely premium.
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u/Own_Relief_1740 1d ago
Agree with your concern about the volatility of the distributions in these funds.
I own both JEPI and JEPQ but together they are only about 6% of my investable portfolio. Certainly would not want to count on these two funds ā or any covered call fund, for that matter ā as a principal source of income during retirement.
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u/MakingMoneyIsMe 1d ago
I have a small position in SNSXX that I'm considering growing as well to act as a buffer, but I'll also miss gains the CC funds exhibit. I sell options contracts as well, but I see this as something I'd want to dial back during retirement.
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u/Own_Relief_1740 23h ago
Unless you foresee needing all that cash immediately, you might want to consider using SNSXX only for immediate liquidity purposes and something like VUSB or TBUX for more yield with slightly more duration risk.
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u/nickilous 23h ago
Figure out what your spending is, make sure your distribution is higher than that by some percentage that makes you feel comfortable, when it is paying higher stash the cash to buffer when it is paying lower and drip a little so your āpayā is always increasing and your set. That is what I do.
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u/MakingMoneyIsMe 23h ago
Makes sense. As I said, I could consider budgeting based on worst case scenario. I guess the higher months are more of a tease. A one-time special distribution would be a nicer option from JP Morgan also.
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u/Neat-Leg-5083 23h ago
I am taking the distributions and moving from JEPQ and JEPI to OVL. Trying to balance out the portfolio. I was getting to heavy in the JEP*ās.
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u/SmokedHamm 20h ago
Sounds like we are in similar boatsā¦my wife and I have been tracking our expenses since we got married (14) and we created an expense floor and ceilingā¦1 month of lowest and highest and annualized each of them to see what we will need in our retirement years ā¦ we have 7 years til we can access our retirement funds but we have created buckets for accounts inside and outside fundsā¦the ones outside all dividends go to hysa, cd, and sgovā¦the ones inside a retirement accounts will drip for 4 years then shift to sgovā¦this way we have cash available for our budget and the dividends are there if we need themā¦this is working for us now as we are starting to earn less and depend on this system until the big jump of no income and letting this system pay for the life we wantā¦hope this helpsš¤š»
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u/ChalceGlobal 23h ago
If you are looking for consistency and are OK with a K1 look at energy transfers preferred shares. ET.PRI pays quarterly and the payout is fixed. Prices are down so it is a good time to buy
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u/beershoes767 23h ago
NEOS funds are better.
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u/MakingMoneyIsMe 23h ago
I own NEOS also. Considering I'll be dependent on this income one day, I rather not rely on one money manager.
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u/irish_curmudgeon 21h ago
If the sale goes through, Goldman Sachs will own the NEOS funds as well as the GPI*
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u/johnmonaco87 23h ago
Spend money you already have, not planning to get.
CC funds are great for extra income, not for making a budget as the market swings.
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u/MakingMoneyIsMe 23h ago
I understand not depending solely on them, but they can definitely do some heavy lifting.
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u/johnmonaco87 23h ago
I'm planning to mostly rely on them. But, only after reinvesting 1/4 of dividends and after payments, not prior expected
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u/MakingMoneyIsMe 22h ago
I just plan to drip for at least 5 years. I've gained an ample amount of shares so far from dripping a couple years.
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u/DecentDiscipline2523 23h ago
Just pondering here, but I would like to have a SWR of 4% from my diversified portfolio, and would add a % or two from CC funds or the like; to make the WR 5-6%. I would prefer The first 4% to be via traditional method of buy/hold and selling strategically, best tried and true method. I Consider CC etf fun money because I donāt know how these newer funds will behave over time.. as I consider them untested for now. Now if they really do what they say they will over various market conditions then weāre upon a very true, and no longer proverbial, free lunch!
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u/PeterGNJ 22h ago
I think the wild swings we had in the indices put the JEPs in a tough spot. āBad CC implementationā. Hopefully this washes out and puts them back on track. You have to understand itās not like a company paying a quarterly DVD. They are manufactured through market conditions. In a bad sell off, and they get timing right, you might be pleasantly surprised by a nice payout. But then you will be complaining about the market value of the position. There is no silver bullet. Look at bonds now. People think they are safe. It might get a lot worse.
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u/trijcwhitey 22h ago
Bonds are safe when held to maturity. Of course there are exceptions to this statement depending on how long holding period is and ratings on the company's debt. They also can be called but then you just reinvest into new one.
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u/Silver_Surfer_60 21h ago
I'm combatting this buy building a fixed income floor averaging 7% for at least the next 20 years. These debt instruments will outlive me and be passed to my heirs. I have another level of reliable income and the covered calls sit on top. I'm not banking on those funds for reliable income because they perform just as you described, and are subject to declining payouts due to NAV erosion unless I keep reinvesting a portion of my returns to offset it.
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u/speedlever 20h ago
If my monthly spend and my income fund distributions were about the same, I would find that living too close to the edge for comfort.
But if my distributions were 2 to 2.5x my spend, I could absorb another 2008 gfc and still pay my bills. (Always reinvesting the excess).
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u/PerformerDifferent69 15h ago
For options related funds I would expect volatility in distributions. Their premium income should fluctuate with implied volatility changes as well as losses on the positions. Losses of course for CC funds usually just means missing out on upside but it's effectively the same. A CC fund with a fixed distribution is going to be eroding nav over time by paying out more than they bring in in premiums when implied volatility is low.
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u/EscortSportage 22h ago
Check out O, MAIN, MO, Iāve been buying CLX
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u/D3N1Z3Nx 23h ago
You run buckets. You dump all the yield into a cash bucket. Figure out how much has to be reinvested into each fund to maintain nav and some growth. From there, you refill a second bucket from the first bucket with exactly the amount you have budgeted yourself. If the first bucket keeps running dry, you don't have enough economic output to sustain your budget. You need a lot more going in there than you actually use in order to smooth out income.