An article examines a retail investor's strategy involving MSTY (NYSEARCA:MSTY), a volatile, crypto-sensitive option-income fund, held at a significant loss, while its high dividends are reinvested into a growth stock like NBIS (NASDAQ:NBIS), which has seen a 334% year-to-date increase. The analysis cautions against passively holding MSTY due to its price volatility and capped upside, stressing the necessity of an exit strategy or stop-loss to mitigate portfolio risk. However, it praises the investor's tactical use of MSTY's distributions to fund higher-conviction growth opportunities, deeming it an intelligent cash flow recycling approach, and advises continuous reassessment and risk budgeting for such high-yield, high-risk investments.
There is no question that once you hit the “purchase” button whenever you make an investment in the stock market, it’s immediately a gamble and a hope that the future will drive things in the right direction. On the other hand, there are also times when you might make the wrong decision and have to decide how and when to bail out. Key Points - This Redditor has bought into MSTY and is now thinking about riding the dividend wave all the way to the bottom. - While this strategy might sound good on Reddit, in the real world, it could be an easy way to lose a lot of money, fast. - - Are you ahead, or behind on retirement? SmartAsset’s free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don’t waste another minute; learn more here.(Sponsor) In the case of one Redditor posting on r/YieldMaxETFs, there is a concern on their end that they are going to ride the MSTY ship until the very bottom. With only a relatively small number of shares, they are refusing to sell and are looking to continue DRIP investing with the returns, but they wonder if they aren’t a little nutty for hanging on. “Riding the Sinking MSTY Ship” According to the Redditor’s story, they are holding around 1,700 shares of MSTY (NYSEARCA:MSTY), with a dollar cost average of $20.85 and refusing to sell. To offset their concerns, they are DRIP investing with the dividend payouts to invest into NBIS (NASDAQ:NBIS) at the moment, though this too is subject ot change. Needless to say, they are wondering if they are crazy for hanging on to what could be a sinking ship. As an option-income fund tied to a highly volatile, crypto-sensitive underlying, there is no question that MSTY can and has already produced eye-popping distributions. Of course, to this Redditor’s point, there are also some wild price swings as well as a concern of a capped upside. In other words, buying into MSTY isn’t something you are going to do as a growth opportunity, but as a way to get dividends and create/generate passive income. The problem is that markets don’t know your cost basis, so anyone like this Redditor is asking MSTY’s dividend yield to do two things: make up past losses and compound for the future. It’s for this reason that having an exit strategy, regardless of what this Redditor says, is the right thing to do. I can’t imagine being in a scenario like this, Redditor, where there isn’t a stop-loss in place, or at least a mental stopping point. Otherwise, my concern here for this Redditor and what I would voice to them is that a giant slide with MSTY can become a portfolio-level problem real fast. In this Redditor’s case, some back-of-the-napkin math includes that at a $20.85 cost basis, the working capital is $35,445, so if MSTY is down, say 40% from your basis, there would need to be a 67% rebound to break even. This is a reminder that if the Redditor isn’t seeing the distributions to actually cover this gap, then maybe this stubborn hold on MSTY till the ship sinks isn’t the smartest move for the future. A Smarter Way to Stabilize Cash Flow I will say this to the Redditor: I think they are absolutely doing things right by using MSTY’s dividends to look for more growth opportunities, such as NBIS (NASDAQGS:NBIS), which is already up 334% year-to-date. For this Redditor, I think it’s a smart move, and if they were my friend, I would emphasize that they think of this like recycling cash flow by redeploying the distributions into growth names that can compound over time. While holding MSTY doesn’t feel very disciplined, repurposing the distributions absolutely does. This isn’t something I would say is about panic-selling, but the Redditor should be risk budgeting and decide how much of their portfolio they are willing to let really sink with that ship. If they are stuck on riding the wave down, pun intended, then they are doing the right thing by pairing this investment with something else that gives both short-term income and long-term recovery potential. I would absolutely urge that this Redditor reassess their decisions quarterly, and make sure that the MSTY return is a juice that’s worth the squeeze, so to speak. Finding a Way Forward Without Sinking Deeper If you are stuck with a loser stock or position, as might be the case with MSTY in the future, depending on how things go, the worst thing can happen. While I can’t say I recommend this all-or-nothing approach, the Redditor and others in the comment section on this post are in agreement with me, and I would absolutely emphasize a stop-loss in place. I would also ask this Redditor to take a 10,000-foot view of what they are doing with this position. Is it worth diversifying more into other sectors now? How about making some smaller reallocations to help better balance their risk profile? The current move to not let the dividends go to waste is great, so putting them into higher-conviction stocks is going to be a better way to build long-term wealth than driving MSTY into the ground. The last big piece of advice is to emphasize, again and again, that this investment strategy should be regularly reassessed so that the right adjustments are being made based on changing market conditions. There is no question that MSTY is having a moment right now with high yields, but the hope is that if the Redditor starts to see more red, they might reassess their point of view and get out sooner. If You have $500,000 Saved, Retirement Could Be Closer Than You Think (sponsor) Retirement can be daunting, but it doesn’t need to be. Imagine having an expert in your corner to help you with your financial goals. Someone to help you determine if you’re ahead, behind, or right on track. With SmartAsset, that’s not just a dream—it’s reality. This free tool connects you with pre-screened financial advisors who work in your best interests. It’s quick, it’s easy, so take the leap today and start planning smarter! Don’t waste another minute; get started right here and help your retirement dreams become a retirement reality. (sponsor)The image featured for this article is © relif / Getty Images MSTY (NYSEARCA:MSTY) is characterized as a highly volatile, crypto-sensitive option-income fund, noted for "eye-popping distributions" but also significant price swings and capped upside. Investor sentiment for MSTY is strongly negative (-0.8), suggesting considerable capital risk for those holding for income without robust capital preservation strategies. This fund is primarily for passive income, not growth opportunities. An investor's strategy of reinvesting MSTY dividends into NBIS (NASDAQ:NBIS), a growth stock up 334% year-to-date, is highlighted as "cash flow recycling." This tactical redeployment of high-yield income into higher-conviction growth opportunities is deemed a "smart move" to balance risk and build long-term wealth, contrasting MSTY's negative sentiment with NBIS's highly positive sentiment (0.7). Despite the potential for income, the article stresses the critical need for an exit strategy or stop-loss for MSTY, as dividends alone may not cover substantial capital losses (e.g., a 40% drop requires a 67% rebound). Investors should regularly reassess such high-risk, high-yield positions quarterly, ensuring the yield justifies the capital exposure and considering broader portfolio diversification.
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