NAV erosion

NAV erosion — the long-term decay of a fund’s net asset value per share underneath a high distribution yield: the fund pays out more than it genuinely earns, so each payout is partly principal, and the bucket leaks. The diagnostic: chart the NAV since inception with distributions not reinvested — QYLD’s chart (never recovered from 2018, never recovered from 2020) is the canonical picture. A decaying NAV under a fat yield means reinvesting the distributions just recycles capital losses.

First used in: 2.4 · Yield is not free money