On paper, QQQI seems to give ~13% annual dividends. What are the downsides to buying QQQI? (Or funds of that type) You're not going to get returns anywhere close to that with any CD. So what's wrong with parking some chunk of cash in there and getting the dividends?
Serious answers only please. I'm not a pro investor; just follow the market a little on the side.
What are the downsides to funds like QQQI ?
byu/siskyouthrowaway ininvesting
Posted by siskyouthrowaway
13 Comments
The underlying fund price goes down. Sure you get 13% in dividends but if the share price goes down 13% you basically make nothing
There is nothing special about dividend funds. You can do the same thing yourself with a fund that doesn’t pay dividends and just sell when you want “dividends”
Would you rather have a stock that’s at $100 or a stock at $95 but paid a $5 dividend? It’s the same thing
Dividends aren’t a guaranteed return. Your actual share value is free to rise or fall as well, so this can’t be compared directly to a CD. It has a high fee and not a long track record yet – it’s doing well now, but we’ll see.
Also this is not ideal as a long-term investment in a taxable account since you will be taxed every year on the dividends. If you need the income now then it’s fine, but if you don’t need the money for multiple years I’d either choose growth stocks or put this fund in a retirement account.
You are taking roughly an equivalent risk as the underlying index it tracks, the S&P 500, and the total return (dividends and capital appreciation) of QQQI will long term under normal market conditions underperform QQQ by a percent or so. In a prolonged sideways market or in stagflation it may over perform the underlying.
Also, the dividends are return of capital, so eventually your basis will become zero and you will have a larger immediate tax bill when you sell, rather than selling little bits of QQQ constantly to simulate dividends.
I built myself a spreadsheet to test two things: what is the relative performance of reinvesting QQQI dividends back in (less what QQQ pays) so basically treating QQQI like it was a stock with the same dividend as QQQ, and also selling enough QQQ every month to get the same equivalent dividend as QQQI. In the first case QQQI underperformed the last two years by about 2%, in the second case about 0.76%
Your upside is not great on the actual shares. This is also a bull market. They also sell calls on their positions. In a pullback or down market the dividend yield will come down dramatically. Not saying you should or shouldn’t buy. Just pointing out the draw back. The underlying shares perform in a stairs up, elevator down type fashion
On paper the yield looks attractive, but the trade-offs usually matter more than the headline number.
Funds like this often cap upside in exchange for income, which can really show up over long time horizons. Another thing people underestimate is how different the return path can feel compared to a simple index, especially in strong bull markets.
I think the key question is less “is this good or bad” and more “what role would this play in a long-term system?” — income smoothing vs growth, and how it fits with rebalancing and risk tolerance.
If you like QQQI at 13% – 14% div and 3% growth with 0.68 expense ratio –
You should like QQQ more. Since it’s been returning 19% average last few years. Plus a tiny dividend and 0.18 expense ratio.
The underlying QQQ is always going to outperform the income fund (QQQI) and is a better fund to hold unless you are retired and living off the dividends – maybe it might make sense for some tax benefits? Even then it still might be better to hold QQQ and sell 1% of your holding here and there when you need to for income
Watch the Ben Felix video series on covered call funds.
They generate income with covered calls. The mechanism of this means the upside is capped entirely, and the downside is slightly mitigated. This means the fund will typically underperform whatever the underlying asset is. Not to mention NAV erosion also.
I could go on quite a rant about this, but just do yourself a favor and stay away. These products are dogshit, despite what most of the mouthbreathers in this sub are probably going to say. You’re selling vol into an oversupplied term structure and getting shit tax treatment for your efforts. Ignore dividends/distribution yield and focus on total return—particularly risk adjusted total return. If you need cash flow, sell something. It’s the same thing as a dividend but it puts you in control of how it’s generated.
all of the income focused etf/stocks underperform compared to holding the underlying.
I see that the QQQI outperformed the VOO when you include dividends since the April 2025 low, 54% to 38%. That’s a significantly better return for that 9 month period.
The majority of people’s goal with investing into the stock market, is to grow your money. QQQI won’t really grow your money. It will generate income for you. If your goal is to generate a passive stream of steady income then it hasn’t been too bad for me. I understand though it isn’t gonna grow a lot. IMO it isn’t ideal for most people because they just want to DRIP the dividends.
You cap your gains in a bull market, that’s it. Bear markets and sideways markets, the income funds outperform the underlying.
>QQQI seems to give ~13% annual dividends.
that 13% is annual YIELD, not annual dividends.
dividends are typically paid from profits. Exxon sells gasoline, Proctor and Gamble sells soap and toilet toothpaste which earns a profit. as a shareholder in those companies, you get a bit of the profits.
just for comparison: with high-quality companies whose stock you’d want to hold anyway over the long-term, the highest realistic dividends are generally in the 3-5% range. anything above that can be a bit of a red flag.
in contrast things like QQQI generate yield partly through dividends, and partly through selling covered calls or equity-linked notes. these strategies have the upside of high potential income, but they have the downside of (for example) often being taxed at a higher rate than dividends or capital gains (from selling stocks).
QQQI and similar things tend to have lower “total return” than other investments (total return means the return on investment if you re-invested all the dividends and capital gains, rather than taking them as income). https://www.morningstar.com/columns/rekenthaler-report/covered-call-stock-funds-like-jepi-are-popular-should-they-be