I Don’t Care About NAV, I’m an Income Investor 🤦
If you have been in the passive income space for any amount of time, you will inevitably run into someone saying they do not care about NAV because they are an income investor.
Before getting into that argument, there is something worth pointing out because people sometimes use the term NAV when talking about their own portfolio. Your personal portfolio value is not really NAV. It is your capital, account equity or portfolio value. NAV, or Net Asset Value, is an accounting term used for a fund and represents the value of the fund’s assets minus its liabilities, usually expressed on a per-share or per-unit basis.
When someone says “I don’t care about NAV, I’m an income investor,” what they usually mean is that their primary objective is the cash flow the investment produces. They are not necessarily concerned about maximizing capital appreciation or watching the market price move up and down every day.
Where the argument becomes counterintuitive is that NAV is part of what supports that future income stream. The fund is using its underlying assets to generate returns and ultimately make distributions to shareholders. If that asset base is being persistently depleted because the fund is distributing more than it is economically earning, eventually there is less capital available to generate future returns and distributions.
Saying you do not care about NAV at all is very different from saying you are willing to accept some NAV volatility because income is your primary objective.
You can absolutely be an income investor and prioritize cash flow. But completely ignoring the value of the underlying assets producing that cash flow is where the problem starts. If a fund’s NAV is declining over time and that eventually results in lower distributions, ignoring NAV is going to create long-term problems. Income investing still requires the investor to monitor NAV and understand whether the fund is preserving enough of its asset base to support that income through different market cycles.
In addition, this is where some people get mixed up between managing the fund’s NAV and managing their own capital. As an investor, you cannot personally repair a fund’s NAV. Other than choosing not to invest in the fund, selling it, or reducing your exposure, the NAV is controlled by what happens inside the fund.
What you can manage is your own capital. If a fund chooses to overdistribute, it is effectively transferring some of that asset value out of the fund and into the hands of shareholders. The shareholder then gets to decide what to do with that cash. They can spend it, invest it somewhere else, or reinvest it back into additional units of the same fund.
But reinvesting that distribution does not replenish the fund’s NAV. It increases your personal share count and may increase the amount of income your account generates, but it does nothing to restore the NAV per share that was lost. Those are two completely different things: the fund manages NAV, while the investor manages their own capital.
