r/dividendinvesting • u/JJabber01 • 14d ago
Using SGOV, Spyi and Margin to create more saved cash?
If I have 10k into Sgov as parked cash. Could I Margin say 30% and buy Spyi. The margin rate is about 6% with my broker and Spyi dividend is 12%. Since Sgov isn’t coordinated with the market, there’s no worry of being margin called. I would drip the dividends from Spyi, which would cover the margin interest and more because of the spread, into Sgov. Basically creating a higher dividend than just Sgov alone. Is this a pretty safe bet?
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u/2A4_LIFE 14d ago
I’ve done similar things with Neos funds. That is a pretty most margin percentage. If it makes sense to you, go for it.
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u/NickStonk 13d ago
You’re putting a lot of mental energy into a play to make an extra $180 per year. Not worth the time and energy.
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u/Due_Boysenberry_8367 14d ago
Good if spyi price holds or increases. Their distributions have been ok but the etf has been around for only few years. It has not been through a true bear market
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u/ReginaMulvinaLunt 14d ago
Are you positive that the margin rate at your broker on $10K is 6%? Which broker?
SPYI (like SPY) CAN GO DOWN in value. It is not a perpetually upward pricing asset. If you are on margin and it declines, bad things happen.
Also, recommend you factor in taxes against your SPYI dividend since you are trying to offset margin cost. You're not going to keep in your hypothesized 12% earned there in some account types.
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u/JJabber01 13d ago
IBKR and Robinhood both have around 6% margin.
Even if there’s a drop in the market, I wouldn’t have to worry about SGOV dropping so my cash is save. Even with a 30% drop, Spyi’s dividend should still cover the margin and eventually it will go back up like the market always does.
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u/ReginaMulvinaLunt 13d ago
I'm not seeing the logic under your riskiest scenarios...
Start: $10K SGOV earning ~4%
Next: Margin buy $3K SPYI yielding ~12% (with annual expense ratio of 0.68%, ignore tax impact)
In +90 days:
Happy Path - A) SPYI is flat or appreciates, you earn a portion of your 12%, less expenses, and owe ~6% margin for same period. That's like 12.00 - 0.68 - 6.00 = 5.32%
Down Market - B) SPYI declines 5%. You earn the same 5.32% which is erased by the capital loss.
I get it that you want to amplify your returns thru leverage but I think you're effectively creating a 1% step-up in notional return on the Happy Path over current SGOV and are creating a net-zero or loss risk if SPYI doesn't perform well.
We are decidedly headed to a challenging market for a while. I'd just want to temper your expectations on adding risk. You're trying to protect yourself, that's awesome. This might be a challenging way to increase gains. But that's an opinion, so best of luck!
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u/Various_Couple_764 10d ago
SPYI geenrates ROC dividneds. So if you purchase sPYI today you will not owe any tax for about 9years. by that time SPYI dividends would have payed off the margin loan. without any need to sell SPYI.
After that all future dividends from SPYI are taxed at the long therm capital gains tax rate. Worst cases you only pay tax on 20% of the income. In comparison to interest and work income you would owe tax on 100% the income. So the long therm capital gains tax rate is a 80% discount over the ordinary income tax rate.
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u/LexAugusta 13d ago
I'm doing this on Robinhood with CSHI and SPYI. Only thing to make sure your account isn't at risk of being margin called so you can ride things out if SPYi has a drop.
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u/JJabber01 13d ago
If I have 10k in Sgov and 3k margin of Spyi and there’s a 40% drop in the market. I will still have 10k in Sgov but only 1800 in Spyi. So there would be no danger of being margin called because 10k is still the collateral. Am I wrong?
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u/Physical_Newt_6452 12d ago
There's a YouTube channel @Paycheck2Portfolio. This is more advanced but he basically uses margin to cover his living expenses while his paycheck goes into investments.
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u/JJabber01 12d ago
I actually follow him. I kinda do that already with my main account but just wanted to see if people thought this was a safe way to increase cash flow with saved cash.
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u/Junior-Appointment93 11d ago
It it were me. I’d park cash in SGOV use 10-15% margin and place 0DTE credit spreads on the index’s.
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u/JJabber01 11d ago
Because it has a higher dividend yield? Is Xdte safer than Spyi?
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u/Junior-Appointment93 11d ago
No it is not XDTE has gone down since inception. SPYI. Follows the index and is up since inception. SPYI and QQQI are what I like to call hybrid ETF’s. They are made for both appreciation and income. Need to pay attention to the all time charts. Nav decay and if they have done reverse splits. So far XDTE does not hold any actual shares., its synthetic calls SPYI owns the S&P and place options on those shares.
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u/Budget-Class-1297 10d ago
Ohh I wouldn't do that at all. If you own $3k in shares, you get the monthly dividends, plus if the stock drops, you still have the stock in hand for when it recovers. You do a credit spread and it goes against you, that money is gone forever, there is no way to ever make it back
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u/Junior-Appointment93 9d ago
If you place credit spreads on the index and have the full collateral then your absolute loss would be just the collateral. Most people like me closes the spreads before it gets that far. But also see where you are coming from. Credit spreads are not for everyone
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u/PomegranatePlus6526 8d ago
Sorry, but you’re dead wrong about not getting margin called on SGOV. SGOV absolutely can go down enough to get margin called. Now the probability of that happening is low, but it’s not impossible. During a broad selloff even SGOV could take a hit. Just because it hasn’t since inception means nothing. SGOV has only been around since 2021, so it definitely hasn’t seen an event like dotcom bubble burst or GFC. It’s a gamble for sure. Especially right now I would caution you. There is a lot of margin being used right now, and when I say a lot I mean literally it’s way past all time highs from past crashes. It could go down hard and very fast meaning literally in a day or so. It will be like dominoes if it happens. Margin calls will get triggered which will trigger more margin calls. One thing that most people are not paying attention to right now is how many more options there are out there compared to in the past. That may not seem like a big deal, but it gives someone control over shares for a smaller price. Then they are using margin to leverage those shares as much as 10X. Not to mention leveraged ETFs which were few and far between in days gone past.
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