The "Return of Capital" Illusion
Funds like YieldMax or Global X often pay out Return of Capital (ROC). Sometimes this is constructive (tax deferral), but often it is destructive (giving you your money back).
If a fund starts at $20 and ends the year at $18, it lost 10% of its value. If it paid you 12% in dividends, your Total Return is only 2%.
You can only safely spend 2%.
How to Audit Your Portfolio
The 3-Step Check
- Check NAV History: Look at the 1-year chart (Price only, no dividends). Is it down? By how much? (e.g., -5%).
- Check Yield: What is the TTM Yield? (e.g., 12%).
- Subtract: 12% - 5% = 7% Safe Yield.
*If you spend more than 7%, you are eating the seed corn.
Conclusion
Don't trust the yield percentage on your brokerage app. Trust the Total Return. Use our NAV Erosion Calculator to find the truth.