TSLY’s high yield masks weak total returns. Even with distributions reinvested and taxes ignored, the ETF produced less than half the return of simply owning Tesla shares.
Spending the income can erode your nest egg. Investors who withdrew the distributions instead of reinvesting them would have seen their principal decline dramatically over time.
You are paying high fees for an inefficient structure. TSLY charges a 0.99% expense ratio and distributes income taxed at ordinary rates, making the strategy both costly and tax inefficient.
The analyst who called NVIDIA in 2010 just named his top 10 AI stocks. Get them here FREE.
READ: The analyst who called NVIDIA in 2010 just named his top 10 AI stocks
I am going to be very blunt. Many retirees say they want income from their portfolio but refuse to sell shares to generate it. The idea is that spending dividends or distributions feels acceptable, while selling principal feels like running down the portfolio.
That distinction is mostly mental accounting. What actually matters is total return. That means the after tax performance of an investment with all distributions reinvested. If the total return of a strategy is not competitive with a basic index benchmark, then the high yield is not helping you. You are simply paying a fund manager to package your own money back to you as income.
There may be no better example of this problem than a category of ultra high yield ETFs that has attracted a wave of income focused investors. Today’s example is the YieldMax TSLA Options Income Strategy ETF (NYSEMKT:TSLY).
As of March 5, 2026, the ETF advertises a distribution rate of 48.5%. For income hungry retirees, that number can look irresistible. But the yield tells only part of the story. In reality, investors who bought this ETF would have been worse off historically than someone who simply bought shares of Tesla and sold a few shares each year to fund retirement income.
In the next section, we will walk through the total return math using historical data. My goal is simple: to show why focusing on high yields alone can be misleading, and why total return should always be the metric that guides your decisions.
Using data from the backtesting platform testfolio.io, I compared TSLY with Tesla Inc. (NASDAQ:TSLA) over a 3.28 year period from November 23, 2022 through March 4, 2026.
The results are based on total return before taxes, with all distributions reinvested. In other words, this gives TSLY the benefit of the doubt. We assume you reinvest every distribution and ignore the tax bill that many investors would actually face.
Looking first at TSLY, the ETF delivered a cumulative return of 55.51% over that period. At first glance, that might not seem terrible. After all, this is a strategy built around generating income rather than maximizing price appreciation. If you had faithfully reinvested that enormous headline yield and ignored taxes, this is roughly the outcome you would have achieved.
But now compare that with simply holding Tesla shares. Over the exact same period, Tesla produced a cumulative return of 121.58%. No complex options overlay. No covered call strategy. No massive distribution yield. Just going long the stock. That means an investor who simply held Tesla would have earned more than twice the return of the investor who chose TSLY!
But this is where the mental accounting often creeps in. Some investors will say that Tesla does not pay a dividend, so they would have needed to sell shares to generate income. But that is perfectly fine and mathematically superior.
Selling shares is simply another way of converting total return into cash flow. In fact, even if you had sold half your Tesla stake and paid capital gains tax to fund withdrawals, you still would have come out ahead compared with holding TSLY.
The picture becomes even worse if you look at what happens when the ETF distributions are actually spent instead of reinvested. If you had withdrawn the payouts from TSLY instead of reinvesting them, your principal would have declined by 83.69% over the same period. What is the point of collecting a large distribution if your nest egg steadily shrinks week after week?
We have already established that TSLY’s eye-catching yield comes with a steadily declining net asset value. That creates two major problems for investors.
First, even if you reinvested every distribution and ignored taxes, the strategy still delivered less than half the total return of simply owning Tesla shares over the same period.
Second, if you actually withdrew distributions, your principal would have deteriorated significantly. Over time, that shrinking base makes it harder to sustain future income.
Think about what is happening here: you are paying YieldMax an obscene 0.99% expense ratio to underperform the underlying stock, watch your capital steadily decline, and end up with a worse long-term outcome than simply buying the shares yourself.
On top of that, the tax treatment is surprisingly inefficient. Many high-yield strategies distribute a portion of their payouts as return of capital. That is essentially your own money being returned to you, which lowers your cost basis but is not immediately taxable.
TSLY does not offer that benefit right now. The most recent distribution estimate from March 4, 2026 was classified as 100% income and 0% return of capital. That means the entire payout is likely going to be treated as ordinary income and taxed at your marginal tax rate.
When you combine a declining net asset value, weaker total returns, and fully taxable distributions, the value proposition becomes difficult to justify, which is why it is so surprising to see how much money has flowed into the fund. Despite these drawbacks, investors have collectively poured about $941 million into TSLY!
If you see a double-digit yield, take the time to dig deeper. Understand where that yield comes from and what tradeoffs you are accepting in exchange for it. Because at the end of the day, total return is what determines whether your wealth actually grows.
Wall Street is pouring billions into AI, but most investors are buying the wrong stocks. The analyst who first identified NVIDIA as a buy back in 2010 — before its 28,000% run — has just pinpointed 10 new AI companies he believes could deliver outsized returns from here. One dominates a $100 billion equipment market. Another is solving the single biggest bottleneck holding back AI data centers. A third is a pure-play on an optical networking market set to quadruple. Most investors haven’t heard of half these names. Get the free list of all 10 stocks here.
