This 2 ETF Dividend Portfolio PAYS You EVERY MONTH - 2025 Strategy!

Summary

In this video, the creator presents a two-ETF portfolio strategy combining the Schwab US Dividend Equity ETF (SCD) and the JP Morgan NASDAQ Equity Premium ETF (JPQ) to offer impressive growth, high dividend income, and minimized volatility. The portfolio leverages a growth-value balance with an added layer of risk mitigation through covered call strategies. The creator explains how this combo has performed well against the S&P 500 and provides insights into market outlooks for 2025. Additionally, alternative ETFs and their merits are discussed, including key considerations for choosing dividend-focused funds.

Takeaways

• 😀 Covered call ETFs, particularly JPQ, offer a strategic way to gain exposure to growth (like Big Tech) while reducing risk by collecting premium income through covered calls.
• 😀 The combination of SD (Schwab US Dividend Equity ETF) and JPQ (JP Morgan NASDAQ Equity Premium ETF) in a 50/50 split offers a balanced portfolio with growth potential, dividend income, and minimized volatility.
• 😀 JPQ minimizes volatility by using covered calls on the NASDAQ 100, providing a cushion against downside risk and outperforming in volatile markets.
• 😀 SD focuses on value stocks with strong dividend yields (around 3.6%) and offers good diversification with minimal reliance on Big Tech, making it a solid choice in the current market environment.
• 😀 In a 50/50 portfolio, SD and JPQ together provide an average annual yield of 7%, combining growth and high income with risk mitigation.
• 😀 JPQ's strategy of only using 80% of its assets for market exposure adds an extra layer of protection, lowering potential losses during downturns by utilizing the remaining 20% for income from covered calls.
• 😀 While dividend ETFs like SD have underperformed recently, they are well-positioned to benefit from potential rate cuts as interest rates decrease, shifting investor focus from fixed income to dividend stocks.
• 😀 The current market environment, especially with concerns about inflation and persistent interest rates, has put pressure on dividend-focused ETFs like SD, but historical trends suggest potential for rebound as rates decrease.
• 😀 An alternative to the SD and JPQ combination could involve replacing SD with other value ETFs like DJ or D, which also offer good diversification and lower expense ratios.
• 😀 The S&P 500-based covered call ETF (like SPYID) has a high yield but lags in total return compared to NASDAQ-focused covered call ETFs like JPQ due to lower volatility in the S&P 500 and the resulting lower premium income.
• 😀 JPQ's superior downside protection, driven by its strategy and exposure to Big Tech, helps it capture more upside while minimizing losses during market corrections, whereas SPYID's risk mitigation is less effective.

Q & A

What is the main purpose of the 2-ETF portfolio suggested in the video?

The 2-ETF portfolio is designed to offer a powerful investment strategy for 2025, combining growth potential, dividend income, and strong risk mitigation by minimizing volatility. The portfolio consists of the Schwab US Dividend Equity ETF (SCD) and the JP Morgan NASDAQ Equity Premium ETF (JPQ).

How do the two ETFs, SCD and JPQ, complement each other in the portfolio?

SCD focuses on value stocks with strong dividend income, while JPQ uses a covered-call strategy to provide high income while reducing volatility. This combination ensures the portfolio performs well in different market conditions, balancing income and growth with risk mitigation.

What is the average annual yield of the 50/50 portfolio consisting of SCD and JPQ?

The 50/50 portfolio of SCD and JPQ provides an average annual yield of around 7%, combining strong dividend income with growth potential.

What factors make JPQ an attractive ETF for risk mitigation?

JPQ reduces risk through its covered-call strategy, which helps cushion downside movements. Additionally, it only has 80% exposure to the NASDAQ 100, providing a buffer in case of market downturns. This strategy helps minimize volatility, especially during market sell-offs.

Why is the 200-day moving average important for investors when considering SCD?

The 200-day moving average is a key indicator of support for SCD. Historically, every time SCD has reached this level, it has either bounced off or fluctuated around it. This provides a potential buying opportunity when the ETF is near this threshold, especially in light of changing interest rates.

What are the potential concerns for dividend ETFs like SCD in the current economic environment?

Dividend ETFs like SCD may face challenges in a high interest rate environment, as investors may prefer fixed-income assets over dividend-paying stocks. However, as interest rates decrease, dividend ETFs may see increased demand due to their higher yields compared to fixed-income assets.

How does JPQ's strategy differ from other covered-call ETFs like SPYI?

JPQ's strategy focuses on the NASDAQ 100, which has a higher concentration of tech stocks, leading to more upside potential. Additionally, JPQ minimizes downside risk more effectively due to its 80% exposure to the NASDAQ 100, unlike SPYI, which is based on the S&P 500 and generally offers less premium income from its covered calls.

Why does SPYI offer a higher dividend yield than JPQ, and what is the downside to this?

SPYI offers a higher dividend yield (around 12%) because it sells covered calls on the S&P 500. However, this higher yield comes with the trade-off of lower premium income and less effective downside risk mitigation. The fund's ability to cushion market sell-offs is weaker compared to JPQ, leading to similar performance as the S&P 500 itself.

What role does volatility play in the covered-call strategy used by JPQ and SPYI?

Volatility is directly linked to the amount of premium income that covered-call ETFs can collect. Since the NASDAQ 100 (used by JPQ) is more volatile than the S&P 500, JPQ generates more premium income and is better at managing downside risk. In contrast, SPYI's lower volatility results in less premium income, making it less effective at reducing risk.

What alternative ETFs to SCD and JPQ are mentioned in the video, and how do they compare?

Alternatives to SCD include value ETFs like DJ and D, which could replace SCD depending on investor preferences. However, SCD's popularity and low expense ratio (0.06%) make it a standout choice for value-focused dividend investors. JPQ’s alternatives, like SPYI, are less effective due to lower risk mitigation and less premium income.