Many of the websites on our network discuss the importance of passive income and how portfolio built around dividends and passive income can ultimately lead to a better lifestyle. Even though Covered Call ETF’s do track and index and are thus very diversified, I would not build an entire portfolio around just this one portfolio for many different reasons. One of them of course is the limited upside in times of rapid gains for the overall market. Another would be to limit exposure to a given model.
That being said, I am a strong believer in the fact that Covered Call ETF’s can ultimately lead to much higher dividends than most alternatives that you can find in the markets these days.
Enhanced Income In A Flat Market
Many including myself have fears that the markets will turn out to be mainly flat in the next few years. Why? There are massive problems in the broad economy, governments and individuals have too much debt, demographic issues are bound to put downward pressure on the markets. Some, such as John Mauldin have called it a “muddle through” economy meaning things are likely to remain stagnant for years. That will likely translate into the markets being very flat for the next decade which is also exactly why dividend investing is gaining popularity so quickly. In such a context, Covered Call ETF’s are likely to be great performers.
How Much Should You Own?
That of course depends on each individual investor and it depends on many different things. I would think that Covered Call ETF’s could easily represent between 10% and 40% of your portfolio. I would guess it depends mostly on how much desire you have for dividends and passive income but also how much potential upside you are ready to sacrifice in order to get it.