One of the biggest rules of thumb for any investor is that you should never put all of your investments into a single large position or basket. The concern is that if anything goes wrong and this purchase is affected by market volatility, you could be in a position where you have significant losses.
As good as this advice is, at least one Redditor is wondering how much other Redditors are willing to put into YieldMax funds, according to a post in r/YieldMaxETFs. Unsurprisingly, these funds are super hot right now as the dividend returns can add up to thousands per month, depending on how much you have initially invested.
Don’t Put Everything Into One Basket
For this Redditor, there is a huge question about how much you should invest in a YieldMax fund versus more traditional, “less risky” investments. If you think about this as a conventional piece of advice, the most important thing any sensible investor can do is to diversify themselves as much as possible.
This means that while it would be okay going into YieldMax on some level, going all-in or making it a significant percentage of your portfolio would be ill-advised. Now, if you think about a traditional investment portfolio, it should look to diversify in any number of ways.
Conventional thinking would have you believe that the ideal split is to have some percentage of your net worth or retirement money tied up in stocks/equities. Another percentage of your portfolio should then be tied up with bonds as fixed income, which are lower-risk investments that can offer a steady stream of income that isn’t subject to market volatility.
Lastly, you should also have a bit of cash on hand in places like a high-yield savings account that can be accessed in an emergency. This could also include CDs, money market funds, or short-term government securities, as well as anything that would give you some level of liquidity should you need to access money in a hurry.
Why YieldMax Can Be a Dangerous Play
Unsurprisingly, as the Redditor posted this in a YieldMax subreddit, they received a wide range of responses, indicating that some investors are willing to go all in. Several responses suggest that there is a heavy belief in “YOLO,” where multiple individuals are perfectly aligned with investing at least 75% or more of their total portfolio into YieldMax.
As the most popular YieldMax right now, ULTY is the easy favorite that other Redditors are leaning towards, thanks to its approximately 10-cent dividend paid every week. On the plus side, these individuals are all reaping the rewards of this moment in time when these investments are paying off with big dividends.
The challenge with this play is two-fold in that these are not growth stocks, so the only real benefit is the dividend remaining high. Once this dividend starts to fall, there is very little reason to own this play, as these stocks will not grow at the same rate as safer ETFs or even FAANG stocks like Apple and Google.
So, How Much Should You Invest In YieldMax?
If you want to go all-in on YieldMax, the good news is that nobody can stop you. However, you shouldn’t have more than 20% of your portfolio tied up in these positions. If you really want to press your luck, you can bump this up to 30%, but only if you are truly diversified. The other 70 to 80% of your portfolio should be a mix of stocks, bonds, and low-cost index funds. The hope is that there is far more long-term potential with these investments than the short-term gain of YieldMax positions.
Most importantly, you or your financial advisor should be working on your portfolio at least once every quarter to rebalance your portfolio based on market and global trends. There is also a big need to make sure you are in a good position with an emergency fund, so this needs to exist to cover at least 6 months, if not longer, given the current job market.
Ultimately, if you want to take the risk and go to a 50% portfolio with YieldMax Funds, you can do it, but you have to observe this market to get out of these positions as soon as the market starts to turn against you.
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