My $100,000 Investment Plan in MSTY – A Conservative Approach with Risks Explained

Got $100,000 to invest? Are you itching to grow your wealth fast with a high-yield exchange traded fund (ETF)? Dreams of magical compounding and massive profits from hefty cash distributions are commonplace. Many investors envision generational wealth from an eye-catching fund like the YieldMax MSTR Option Income Strategy ETF (NYSEARCA:MSTY), but is it realistic and safe?

After conducting my due diligence, I’ve found that it’s possible to invest $100,000 profitably and safely in MSTY. This can even be achieved if you’re borrowing the $100,000, depending on the circumstances. Just be sure to follow some cautionary guidelines so your quest for yield doesn’t blow up your account.

MSTY: Passive Income, or Aggressive Income?

Technically speaking, the YieldMax MSTR Option Income Strategy ETF could be considered a passive income fund. At the same time, it would be misleading to simply call MSTY “passive.”

Indeed, the YieldMax MSTR Option Income Strategy ETF is actively managed and aggressively generates yield for its investors. I hope you’re sitting down, as you might fall out of your chair when you find out how big MSTY’s yield is.

But first, we need to cover the basics. To sum it up, the YieldMax MSTR Option Income Strategy ETF holds U.S. Treasury bonds and trades options on Microstrategy (NASDAQ:MSTR) stock. Since MSTR stock can be volatile, it’s fair to conclude that the MSTY ETF can also be volatile sometimes.

This chart shows the sharp price moves of the YieldMax MSTR Option Income Strategy ETF. So, already we can identify volatility as one of the main risks of MSTY.

I’ll touch upon the other risks of investing $100,000 into the YieldMax MSTR Option Income Strategy ETF. First, however, I feel compelled to share this fund’s jaw-dropping yield.

If you can believe it, the MSTY ETF boasts a distribution rate (i.e., an annualized dividend-like yield) of 90.4%. The fund will subtract 0.99% worth of operating expenses from the share price, but obviously, the YieldMax MSTR Option Income Strategy ETF’s gigantic annual yield makes up for the fees.

Risks of Going All-in on MSTY

Right now, your imagination might be running wild with visions of ballooning your wealth with the YieldMax MSTR Option Income Strategy ETF. If the annual yield stays at 90.4%, then even if you subtract the fees, MSTY’s net yield for investors would still be 90.4% – 0.99%, or 89.41%.

In theory, this annual net yield could turn $100,000 into $189,410 after just one year. Actually, it could be more than that since reinvesting the monthly cash distributions would allow the compounding principle to take effect.

This brings up some major risk factors, though. There’s no guarantee that the YieldMax MSTR Option Income Strategy ETF will continue to yield 90.4% per year. Furthermore, the MSTY share price could drop during the next year, especially if the Microstrategy share price falls. 

The fund’s prospectus also mentions risks associated with trading derivatives (especially options). The YieldMax MSTR Option Income Strategy ETF uses options trading as an income-generating strategy, but it’s entirely possible to lose money with options.

The risks will be even greater if you’re borrowing $100,000 to invest in MSTY. A $100,000 personal loan from a financial institution might carry a 12% annual interest rate nowadays, while the average home equity loan rate recently stood at 8.41%.

Unless you somehow manage to borrow $100,000 interest-free from a friend or relative, you’ll probably have to pay interest and this will make your MSTY investment even riskier. That’s why it’s crucial to apply precautionary measures if you’re holding the YieldMax MSTR Option Income Strategy ETF, and it’s even more crucial if you borrowed money to purchase the shares.

MSTY: Here’s the Plan

Now that you know the main risks, you can invest prudently in the YieldMax MSTR Option Income Strategy ETF. To start off, if you’re borrowing $100,000, be sure that the loan terms are favorable and compare the interest rates with potential returns on the MSTY investment.

Next, you’ll always need to monitor your profit-or-loss results with the YieldMax MSTR Option Income Strategy ETF. This is an aggressive, fast-moving fund that you can’t afford to take your eyes off of for very long.

Moreover, you should be ready to exit your MSTY ETF investment if the profit-or-loss results are unfavorable for several months or even several weeks. Along with this, you could further de-risk your strategy if you slowly scale into your position instead of buying $100,000 worth of MSTY shares all at once.

The final part of my conservative approach is to diversify your portfolio with less volatile income-producing funds. If you’re putting $100,000 into the YieldMax MSTR Option Income Strategy ETF, you might consider also buying shares of the NEOS S&P 500 High Income ETF (BATS:SPYI).

To continue reducing your portfolio’s risk, you could then add shares of the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) and the Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO). That way, you can balance your $100,000 MSTY stake with some diversified funds for a safer, more sensible approach.

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