I bought SPYI for one reason. I wanted my income to depend a little less on big tech.
Then I pulled up the top three holdings in SPYI and put them next to the top three in QQQI. And I had to read it twice.
I’ll show you exactly what I found, because it changes how I think about owning both of these.
But first, here’s where I actually stand with my personal account. I own two hundred and thirty shares of QQQI and thirty shares of SPYI. Both sit in my high-income bucket.
And almost every time I post a QQQI video, somebody asks me the same thing: why not SPYI? Or, why not both? So I finally bought some, and my goal is to own a hundred shares of SPYI by the end of this year.
Two Funds, Same Fee, Close Returns
Here’s the first thing you need to know. These two funds charge the exact same fee. They’re both run by NEOS, which is being acquired by Goldman Sachs. (I wrote about what that deal could mean in my QQQI vs. GPIQ post.)
And over the last twelve months, their total returns landed pretty close to each other. So if you were hoping one of these was the obvious winner, it isn’t at this point. The real difference is somewhere else, and that’s what this post is about.
What Is SPYI, Exactly?
SPYI is run by the same company as QQQI, and it uses the same basic playbook. QQQI holds the Nasdaq 100 and sells call options against it. SPYI holds the S&P 500 and sells call options against that. The premium from those options is a big part of what pays you every month.
The difference is the basket of stocks in each. QQQI owns about a hundred companies, and SPYI owns about five hundred.
And because the Nasdaq swings more, the options QQQI sells bring in bigger premiums, so it pays more. That’s the gap you’ll see when you pull up the two yields side by side.
On my actual shares this month, QQQI is starting to pay out enough for me to reinvest and buy a few shares every month. SPYI is a blip on my radar right now, and that’s fine, because I didn’t buy it for the income. At least not yet.
Why I Wanted a Second Income Fund
I run a few businesses, so my income already comes with plenty of risk I can’t control. The last thing I want is for my investment income to depend on one corner of the market too.
QQQI is basically a bet on the Nasdaq. When tech runs, it’s great. When tech gets hit, the whole position gets hit, and the income can shrink with it.
And honestly, the part that worries me more than the drop is the recovery. When the Nasdaq falls hard and then bounces back, a fund like QQQI has sold away part of that bounce. So it can lag on the way back up, right when you want it to catch up.
So the idea was simple. Keep QQQI as the volatile one that pays big, and add a second income fund built on a wider base, so one bad year for tech doesn’t hit my whole high-income bucket at once.
To be clear about the size of this, the high-income bucket gets the smallest share of my new money. Most of it goes to growth and dividend growth, because I am not close to retirement yet. Not that I ever plan to really “retire,” since I will always be active in running a business. Maybe just not as active as I am today. (If you want the full picture of how I split my money, I laid it out in The Investing Buckets Framework.)
Every Friday I put money into whichever bucket is furthest behind, and when that’s the income bucket, SPYI is where a lot of it is going to go until I hit my number.
What the Diversification Costs You
Now, that diversification isn’t free. You give up some monthly cash for it.
Take ten thousand dollars and put it in each fund at the current rates. Compare roughly what each would pay you in a year, and that’s the gap. That’s what the broader basket costs you in cash flow. It works out to about the price of a lunch every month. For some people that’s worth it, and for some it isn’t. You get to decide which one you are.
And to be fair, that’s less cash paid out, not necessarily less money made. What really counts is total return, and over the last year these two were close.
If you’re already retired and every dollar of that income is paying a bill, that gap matters more. If you’re still working and still building, like I am, a little less income in exchange for a steadier base is an easier trade to make.
The Part That Made Me Read It Twice
Okay. Here’s what made me read it twice.
I bought SPYI to own less big tech. So I lined up the three biggest holdings in each fund. It’s the same three companies in both: Nvidia, Apple, Microsoft. And they make up almost the same share of each fund.
The three largest positions in my “less tech” fund are the same three largest positions in my tech fund, at nearly the same weight.
So the honest case against me is this: if my goal was to get away from big tech, I didn’t get very far. Oh, well.
Why It’s Still a Real Hedge
Here’s where I landed after sitting with that.
The top of the list looks the same, but the rest doesn’t. Take the ten biggest holdings in each fund. They make up a smaller share of SPYI than of QQQI. And after those top names, SPYI keeps going for hundreds more companies. Banks, healthcare, energy, the stuff QQQI mostly doesn’t own at all.
So it’s a real hedge. It’s just a smaller one than some of us might think. If tech has a rough year, SPYI still takes a hit, but it has more of the portfolio standing on other legs.
Think about what that means in a real selloff. If the whole market drops, both funds drop, and no covered call fund stops that. But if the drop is mostly in tech, QQQI takes most of that hit, and SPYI only takes it on the part of the fund that’s tech.
I’d rather tell you that than pretend I bought a perfect fix.
One More Honest Number
Since SPYI launched, it has trailed the plain S&P 500.
That’s the trade with every fund like this. You get paid every month, and you give up some of the upside to get it. If total growth were my goal, I’d just own the index.
But this position isn’t in my growth bucket. It’s in my income bucket, and its job is to pay me. (I also ran SPYI through a simple price-versus-payout test in my NAV erosion post, and it passed.)
A Quick Word on Taxes
Both funds use the same kind of index options, and that can get treated differently than a normal dividend. I’m not a CPA, and it depends on your situation, so talk to one before you count on it. I explained why this matters for which account you hold these in my post I Had QQQI and SCHD in the Wrong Accounts.
My Decision: Keep Both
So here’s my decision.
I’m keeping both. QQQI stays the bigger position. It’s going to pay me more, which is the entire point of the ETF. SPYI is the wider base underneath it, so my high-income bucket isn’t one tech selloff away from a bad year.
I have DRIP on for QQQI and off for SPYI. The SPYI cash comes to me and I use it to build up other positions.
And I’m building SPYI to a hundred shares by the end of this year. When I get there, I’ll show you the payout and whether that wider base did its job.
What I’d Do If I Were You
Pull up the top holdings for every fund you own and add up the three biggest names across all of them.
If you own a few different funds and the same three companies keep showing up at the top, you might be less diversified than your account makes it look. I was, and I own two different funds from the same company.
Then ask yourself one question. If those three companies had a bad year at the same time, how much of your monthly income goes with them?
If the answer scares you, you don’t have to sell anything. You can do what I did and point your next few contributions somewhere with a wider base. That takes ten minutes, and it tells you more than any ticker comparison on YouTube.
And to be honest, I like the idea of diversification, but I also believe you can be overdiversified. Depending on what type of investor you are, you might only want a few focused positions. I respect that, because it can be very powerful if they run.
So where are you on this? SPYI, QQQI, or both? Tell me in the comments on the video.
One Last Thing: Return of Capital
Both of these funds pay you in a way that isn’t a normal dividend. Almost all of it gets labeled something called return of capital. You don’t pay tax on that when you get it, but it lowers your cost basis, so the bill shows up later when you sell. If you don’t understand that, it can catch you off guard.
I broke that down in my video “I Bought QQQI for Income and Found a Dangerous Trap,” and it applies to SPYI too. For the version of that story in my own account, read my post on turning on QQQI’s DRIP.
Watch the full video above, or on YouTube: https://youtu.be/tgUR5JGzhtY
