High dividend vs Cheap Index investing for FIRE

[Running_Man]

ADX is a managed Large cap stock distribution fund . It has outperformed the S&P500 by nearly 2 percent per year for the last 10 years and when you buy it sells at a discount to the stock value of the portfolio, recent discount is about 5 percent. It aims to pay out of 8 percent of the account value per year

On a 1 million dollar investment 10 years ago with all dividends reinvested you would have 560 thousand dollars less with an investment today in the S&P500 over the same time period, which is equal to 10 years of a 4 percent portfolio withdrawal from a portfolio with an assumed 3 percent inflation rate over 3 years.

 

[Al18]

JEPQ yield is currently 10.58%. The fund paid $.509 on 3/4/26.

 

[eniacpalm]

I'm trying to decide between investing in high dividend funds like ADX, USA, SPYI, QQQI, IAUI, IWMI and cheap index funds like SPY, QQQ, IWM and IAU. I see the argument for either one. One can earn income either way. With the cheap index funds the argument is that you save on expense and you can simulate the income by projecting your expenses ahead of time and selling gains in timely fashion. With the high dividend funds that distribute every quarter or monthly there are high expenses so you would theoretically gain less over time but you don't have to worry about timing as much. I want to get feedback on everyone's experience in FIRE about their experience with these investments and how they work for you.

 

[mrfeh]

ADX is a managed Large cap stock distribution fund . It has outperformed the S&P500 by nearly 2 percent per year for the last 10 years...

 

[Montecfo]

ADX is executing a total return strategy and selling shares to fund the dividend. It essentially automates what total return investors due, and thus makes itself attractive to dividend investors.

 

[COcheesehead]

ADX is executing a total return strategy and selling shares to fund the dividend. It essentially automates what total return investors due, and thus makes itself attractive to dividend investors.

Right, but are the returns taxed as cap gains or qualified dividends?

 

[eniacpalm]

Right, but are the returns taxed as cap gains or qualified dividends?

https://adamsfunds.com/wp-content/uploads/adx_taxinfo_2025.pdf

 

[FD1000]

I used to debate Sharp ratio with PhD in math.
Their problem is that they look at this from only a math angle.
A fund can have a great Sharpe but terrible performance. These funds don't interest me.
I want funds with everything: good performance, SD, and Sharpe. But I also look at funds with good 1-3 years and pay more attention to the last 1-3 months.
Then, I selected only the best 5 funds. I would do it 3 times annually. That was my original model.

After I made my first million, I decided I will never lose more than 5% ever from any top, but my portfolio must have a much better risk-adjusted return than typical indexes/funds.
This is when I learned how to be a much better trader and timer.

 

[jtmax]

View attachment 62436

you want to have growth with Div when you graph to show total returns. You can see then that ADX outperforms VTI significantly. See graph below

 

[jtmax]

I used to debate Sharp ratio with PhD in math.
Their problem is that they look at this from only a math angle.
A fund can have a great Sharpe but terrible performance. These funds don't interest me.
I want funds with everything: good performance, SD, and Sharpe. But I also look at funds with good 1-3 years and pay more attention to the last 1-3 months.
Then, I selected only the best 5 funds. I would do it 3 times annually. That was my original model.

After I made my first million, I decided I will never lose more than 5% ever from any top, but my portfolio must have a much better risk-adjusted return than typical indexes/funds.
This is when I learned how to be a much better trader and timer.

The more I think about it, the more I realize that I can reduce risk significantly with time in the market since I have a long investment horizon. So as long as I find funds that have good total returns long term and can maintain dividends in down market I can have the cake and eat it too. Never have to sell in a down market and know I will gain long term.

 

[mrfeh]

you want to have growth with Div when you graph to show total returns. You can see then that ADX outperforms VTI significantly. See graph below

As always, no free lunch:

The Adams Diversified Equity Fund (ADX) is an actively managed closed-end fund (CEF) with a risk profile similar to, but slightly higher than, the S&P 500 (SPY). While it offers high income and has historically outperformed the S&P 500, ADX carries risks from concentration (fewer holdings), potential NAV-to-price discounts, and reliance on tech-sector performance, often showing slightly higher volatility than the index.
Seeking Alpha +4
Key Risk Comparison: ADX vs. S&P 500

• Volatility & Risk-Adjusted Returns: ADX has shown slightly higher standard deviation (volatility) than the S&P 500. However, its risk-adjusted returns (Sharpe ratio) have historically been strong, sometimes surpassing SPY.
• Concentration Risk: ADX typically holds around 98–100 securities, compared to the 500+ in the S&P 500. This makes it more concentrated in top tech holdings (e.g., Nvidia, Apple, Microsoft).
• Fund Structure (CEF vs. ETF): As a Closed-End Fund, ADX can trade at a premium or discount to its Net Asset Value (NAV), which adds a layer of price risk not found in index ETFs.
• Income Risk: ADX focuses on distributing a high yield (around 6-8%), which depends on capital gains. If the portfolio does not perform, the dividend may be less stable than that of an S&P 500 index fund.
• Management Risk: Unlike the passive tracking of the S&P 500, ADX relies on managers to generate alpha.
• Expense Ratio: ADX has an expense ratio (approx. 0.49%) which is higher than low-cost S&P 500 ETFs like SPY (0.09%).

 

[frank05]

4 out 5 of ADX’s top holdings are contributing to the AI bubble.

 

[FD1000]

The more I think about it, the more I realize that I can reduce risk significantly with time in the market since I have a long investment horizon. So as long as I find funds that have good total returns long term and can maintain dividends in down market I can have the cake and eat it too. Never have to see in a down market and know I will gain long term.

I'm not against income, I'm against the belief that income funds have better performance or risk-adjusted return at all times.
During 10 years 2000 to 2010, I held managed funds that did a lot better than the SP500. I held 3 for about 8-10 years (FAIRX,SGIIX,OAKBX) and trade 2 funds.

ADX beat SPY. It's great. It's worth it. Although it's a CEF. Will the future be the same?
On the other hand SCHD trailed SPY in the last 10 years. It had higher income, it doesn't matter because SPY made more money.

Can you post several income funds, not CEFs that accomplish better performance and especially risk-adjusted returns in the last 15 years?

 

[jtmax]

I'm not against income, I'm against the belief that income funds have better performance or risk-adjusted return at all times.
During 10 years 2000 to 2010, I held managed funds that did a lot better than the SP500. I held 3 for about 8-10 years (FAIRX,SGIIX,OAKBX) and trade 2 funds.

ADX beat SPY. It's great. It's worth it. Although it's a CEF. Will the future be the same?
On the other hand SCHD trailed SPY in the last 10 years. It had higher income, it doesn't matter because SPY made more money.

Can you post several income funds, not CEFs that accomplish better performance and especially risk-adjusted returns in the last 15 years?

For ETF's I like XMMO and SPMO for high returns in bull market.

 

[jtmax]

As always, no free lunch:

The Adams Diversified Equity Fund (ADX) is an actively managed closed-end fund (CEF) with a risk profile similar to, but slightly higher than, the S&P 500 (SPY). While it offers high income and has historically outperformed the S&P 500, ADX carries risks from concentration (fewer holdings), potential NAV-to-price discounts, and reliance on tech-sector performance, often showing slightly higher volatility than the index.
Seeking Alpha +4
Key Risk Comparison: ADX vs. S&P 500

• Volatility & Risk-Adjusted Returns: ADX has shown slightly higher standard deviation (volatility) than the S&P 500. However, its risk-adjusted returns (Sharpe ratio) have historically been strong, sometimes surpassing SPY.
• Concentration Risk: ADX typically holds around 98–100 securities, compared to the 500+ in the S&P 500. This makes it more concentrated in top tech holdings (e.g., Nvidia, Apple, Microsoft).
• Fund Structure (CEF vs. ETF): As a Closed-End Fund, ADX can trade at a premium or discount to its Net Asset Value (NAV), which adds a layer of price risk not found in index ETFs.
• Income Risk: ADX focuses on distributing a high yield (around 6-8%), which depends on capital gains. If the portfolio does not perform, the dividend may be less stable than that of an S&P 500 index fund.
• Management Risk: Unlike the passive tracking of the S&P 500, ADX relies on managers to generate alpha.
• Expense Ratio: ADX has an expense ratio (approx. 0.49%) which is higher than low-cost S&P 500 ETFs like SPY (0.09%)

I don't consider 100 concentrated but that's just me. Alot of top investors like to focus on 10-20 holdings rather than spread too wide. And as a long term investor volatility isn't a concern either. CEF's with discount is actually not a risk but a pro. You have more cushion. Finally expense ratio doesn't really matter to me as long as I get superior returns. I'd rather pay a little more for great house than pay less for a meh house.

 

[mrfeh]

I don't consider 100 concentrated but that's just me. Alot of top investors like to focus on 10-20 holdings rather than spread too wide. And as a long term investor volatility isn't a concern either. CEF's with discount is actually not a risk but a pro. You have more cushion. Finally expense ratio doesn't really matter to me as long as I get superior returns. I'd rather pay a little more for great house than pay less for a meh house.

Just pointing out there are risks above and beyond an S&P 500 fund.

 

[Diogenes]

Just pointing out there are risks above and beyond an S&P 500 fund.

Some of us might note, that an S&P 500 fund is at least on first blush insufficiently diversified. It lacks midcaps small-caps, and ex-US stocks. A true buy-and-hold "cheap indexing approach" would hold at market-cap a global fund, or assemble such a thing by components.

 

[mrfeh]

Some of us might note, that an S&P 500 fund is at least on first blush insufficiently diversified. It lacks midcaps small-caps, and ex-US stocks. A true buy-and-hold "cheap indexing approach" would hold at market-cap a global fund, or assemble such a thing by components.

Which is why I hold ex-US and small cap value funds.

But none of that is relevant when comparing ADX to an S&P500 fund, which was the topic.

 

[eniacpalm]

As always, no free lunch:

The Adams Diversified Equity Fund (ADX) is an actively managed closed-end fund (CEF) with a risk profile similar to, but slightly higher than, the S&P 500 (SPY). While it offers high income and has historically outperformed the S&P 500, ADX carries risks from concentration (fewer holdings), potential NAV-to-price discounts, and reliance on tech-sector performance, often showing slightly higher volatility than the index.
Seeking Alpha +4
Key Risk Comparison: ADX vs. S&P 500

• Volatility & Risk-Adjusted Returns: ADX has shown slightly higher standard deviation (volatility) than the S&P 500. However, its risk-adjusted returns (Sharpe ratio) have historically been strong, sometimes surpassing SPY.
• Concentration Risk: ADX typically holds around 98–100 securities, compared to the 500+ in the S&P 500. This makes it more concentrated in top tech holdings (e.g., Nvidia, Apple, Microsoft).
• Fund Structure (CEF vs. ETF): As a Closed-End Fund, ADX can trade at a premium or discount to its Net Asset Value (NAV), which adds a layer of price risk not found in index ETFs.
• Income Risk: ADX focuses on distributing a high yield (around 6-8%), which depends on capital gains. If the portfolio does not perform, the dividend may be less stable than that of an S&P 500 index fund.
• Management Risk: Unlike the passive tracking of the S&P 500, ADX relies on managers to generate alpha.
• Expense Ratio: ADX has an expense ratio (approx. 0.49%) which is higher than low-cost S&P 500 ETFs like SPY (0.09%).

All key considerations. For me, it's not a buy and hold forever, just like SPY is not a buy and hold forever fund. However, if I am considering SPY or one of its equivalents, I would choose ADX due to its total return. The 1and 3-year volatility is essentially the same (.18 - 1 year and .15 - 3 year - for both).

S&P top 8 which are also in the top 7 for ADX (note that google class A & C count for 2 positions in the top 8 for the S&P, while ADX only holds class A , so the top 7 of both), S&P the top 8(7) positions count for 32.7% of its weight, while the top 7 of ADX counts for 37.1%. So yes, it is a little more concentrated. Note within ADX's top 10 is PEO, which is a sister fund (and basically a hedge) which concentrates on energy and materials.

The fund structure - cef vs etf, looking at Total Return, so not a concern for me.

Income Risk - I do invest some for income, but this is not a fund that I invest in for income, once again Total Return.

Management Risk - its hard to argue against management creating alpha with their proven record

Expense Ratio - who cares - Total Return

I would note - that I prefer GAM over ADX , with has a lower volatility and higher returns.

 

[jtmax]

All key considerations. For me, it's not a buy and hold forever, just like SPY is not a buy and hold forever fund. However, if I am considering SPY or one of its equivalents, I would choose ADX due to its total return. The 1and 3-year volatility is essentially the same (.18 - 1 year and .15 - 3 year - for both).

S&P top 8 which are also in the top 7 for ADX (note that google class A & C count for 2 positions in the top 8 for the S&P, while ADX only holds class A , so the top 7 of both), S&P the top 8(7) positions count for 32.7% of its weight, while the top 7 of ADX counts for 37.1%. So yes, it is a little more concentrated. Note within ADX's top 10 is PEO, which is a sister fund (and basically a hedge) which concentrates on energy and materials.

The fund structure - cef vs etf, looking at Total Return, so not a concern for me.

Income Risk - I do invest some for income, but this is not a fund that I invest in for income, once again Total Return.

Management Risk - its hard to argue against management creating alpha with their proven record

Expense Ratio - who cares - Total Return

I would note - that I prefer GAM over ADX , with has a lower volatility and higher returns.

View attachment 62588
View attachment 62589

GAM is pretty darn good for return with a long track record of success. The fees are ridiculously high but as you said, who cares if you get a good return.