"During the 2022 bear market, covered call ETFs declined 20% to 30% in net asset value even as they continued paying their monthly distributions. The income kept coming, but account values kept falling."
"A fund yielding 8% that declines 15% in NAV over the same period has a total return of approximately negative 7%. The challenge is that while the income is real, the loss is also real."
Covered call ETFs, like the JPMorgan Premium Equity Income ETF, offer retirees monthly income but can decline significantly in net asset value. In 2022, these funds dropped 20% to 30% while still distributing income. For example, a retiree with $500,000 in such a fund lost $120,000 in principal despite receiving $36,000 in distributions, resulting in an overall loss of $84,000. Understanding the difference between yield and total return is crucial for retirees relying on these funds for income.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]