Focus on Total Return

Bought an investment for $100 that a year later is worth $110? Your price return is $10.

That same investment also paid you $5 of income over the year? Your income return is $5.

Put them together for a total return of $15.

Total return is all that matters to investors, so don’t be tempted by potential income returns. It’s called chasing yield. And chasing yield is a hallmark of bad investing.

Bonds are in the news because their expected income return is higher than it’s been in a long time. “Did you see the interest rate you can earn on bonds right now?”

Covered call ETFs somehow remain in the news because they pay a higher expected income return than their ‘plain vanilla’ equivalents. “There’s an Amazon covered call ETF paying north of 15%!”

And countless investment shops have jumped on the “let’s just name our products ‘high income’ to get some inflows” train.

The infatuation that so many investors have with income return is unhealthy and exhausting. People who focus on potential income return while ignoring potential price return are bad investors.