I Invested Another $250,000 in ULTY – Is My Half-Million Position Too Risky?

Sometimes, when you stumble upon an investment that seems to be doing well for you, it can be tempting to keep buying more of it. That’s the situation for this Reddit poster.

The poster and their wife are on the cusp of turning 59 and 1/2 and don’t have any immediate plans to retire. They recently increased their position in ULTY by $250,000, bringing their total position in that ETF to $465,000.

Given the nature of ULTY and the total value of the poster’s portfolio, this move is a risky one, though. The poster should recognize that and consider diversifying more.

What is ULTY?

The YieldMax Ultra Option Income Strategy ETF is an actively managed ETF whose aim is to generate weekly income from a portfolio of covered call strategies.

When we think of ETFs in general, we often think of fairly low-risk, passively managed funds. ULTY, however, is very different.

It has a huge distribution rate, which is appealing to investors. But it’s an investment that also carries a lot of risk, as it’s an ETF that’s subject to a world of market volatility.

Also, most ETFs come with very low expense ratios due to being passively managed. ULTY’s expense ratio is far from cheap at 1.3%.

The poster above decided to increase their position in ULTY after having earned over $65,000 from it in just a few months. Clearly, that’s a nice payday. However, there’s a huge flaw in the poster’s broad strategy.

It’s important to diversify

When you have an asset as risky as ULTY, it’s important to proceed with caution. But it’s also important to not have any single investment comprise too large a portion of your portfolio, regardless of that asset’s risk profile.

The poster now has a $465,000 position in ULTY, and the total value of their investment portfolio is around $2.5 million. This means that roughly one-fifth of the poster’s assets are in a single ETF, and a volatile one at that.

Now if the poster had one-fifth of their portfolio in an ETF like the Vanguard S&P 500 ETF (VOO), it would be a very different story. Some people put their entire portfolio into an asset like VOO because it offers exposure to the broad market.

This is a different scenario. The poster should consider scaling back on ULTY and making sure that it comprises a smaller portion of their portfolio.

Some financial professionals will tell you that unless you’re talking about something like an S&P 500 ETF, no single asset should comprise more than 5% to 10% of your portfolio. Given ULTY’s risk profile, that’s probably good advice here, too — especially because the poster may be getting closer to retirement, despite having no immediate plans to stop working.

All told, it sounds like the poster is taking on undue risk in an effort to chase strong returns. It would be wise of the poster to sit down with a qualified financial advisor and get some guidance on how to manage their portfolio in a way that generates strong returns without being exposed to too much volatility.