Paul Samuelson, the Nobel Prize-winning economist, said investing should feel like watching paint dry. Spencer Jakab opens Wednesday's Heard on the Street with that line. Then he shows what the thrill seekers are paying. Dave Nadig of ETF.com ranked fund companies by revenue per dollar they manage. Vanguard sits at the bottom, at four hundredths of a percentage point. YieldMax sits at the top. It takes in about 27 times as much.
YieldMax funds use derivatives to pay distribution yields of 60% or more. That word, distribution, is doing a lot of work. A yield is what the fund pays out. It isn't what you earn. YieldMax's oldest fund pays cash by tracking Tesla (TSLA). It launched less than four years ago and has since changed its strategy. Over that stretch, anyone who simply owned Tesla shares came out 66 percentage points ahead on total return. The cash came out the front door while the value leaked out the back.
Leveraged funds are the next tier up. They aim for a multiple of an index's daily move. Over short stretches the results look great. The losses sting just as fast. Jakab notes that funds betting for and against the same index can both lose money. Direxion helped invent the category. By Nadig's math it takes in about 21 times Vanguard's revenue per dollar.
The star picker
Then there's ARK Invest, which makes about 18 times Vanguard's take. Cathie Wood's hot streak early this decade made her a fixture in financial media. Her main fund, the ARK Innovation ETF (ARKK), has trailed a Nasdaq-100 index ETF by more than 130 percentage points over five years. Morningstar put it at the top of its list for destroying shareholder wealth. Back in 2022, Wood said she expected her portfolio to compound at 50% a year for many years. Jakab calls that emotional catnip for people who want to get rich fast. His advice is to look past the hood and read the price tag.
Our read
This is Investments and Risk (IN04), and it's the oldest lesson in the business. The fee is the one number you can know in advance. The return is not. A 60% yield is a payout rate, not a return, and a fund can pay it out of your own capital. Our books hold the plain versions of what these funds dress up. Tesla is held at weight in 13 books; nothing added. The Vanguard S&P 500 funds (VOO, VFIAX) are held in six books each, and the Nasdaq-100 fund QQQM in four. All three are cheap. That's the whole trick. Boring and cheap beats exciting and expensive, most years, for most people.
In your own plan, the fee line matters more than the yield line. The check this week is any fund in your accounts with a double-digit yield, or the word leveraged or innovation in its name. Pull up its expense ratio and its five-year total return next to a plain index fund. If the plain fund won, you've been paying for the excitement. Bring it to your next review and we'll go through it with you. Better to find that out on a calm Tuesday than after the next storm.