Transcription
You've likely heard the golden rule for retirement. Save millions and then live off a conservative 4% withdrawal. It's a daunting prospect that keeps many feeling trapped in their nineto-five for decades. But what if I told you that there was a more direct, powerful path to financial freedom? One where you can generate significant life-changing income sooner with less capital than you may have thought even possible. Forget waiting for that traditional retirement age. Today, I'm revealing the game-changing ETFs that can empower you to replace your income and write your own timeline towards financial freedom.
And if you're new here, hi, I'm Stephanie, an ex-tech leader, a serious data fan, and someone who builds income strategies for real life. My style is broadly buy and hold, but I don't chase high yield blindly. I want income that fits my long-term plan. And in this video, I will reveal high yielding ETFs across five categories that income-oriented investors should be watching out for, specifically chosen for their ability to generate consistent monthly income and maintain their overall value. You're going to learn my exact criteria for selecting these funds, the math behind how they can pay significant income, and how to balance them for long-term growth and stability. Plus, you want to make sure that you stay until the end because I'm not only going to talk about the top yielding fund for this video, but I'm also going to dig through the nuances tied to it so that you can make the most informed decision for you and your unique portfolio.
Back in 2022, I started investing in covered call ETFs as a means to supplement part of our income needs while allowing for the core of our index fund portfolio to keep doing its thing. And at the time, my risk tolerance was pretty low. Naturally, I needed to learn and to test this space. And since 2023, we have now meticulously built a portfolio that now generates significant covered call ETF income, currently paying over $4,000 consistently per month and growing. This isn't theoretical. This is our real-world experience. And to genuinely replace your 9-to-5 or part of your income needs, we need more than just good investments.
My criteria for today's list came from analyzing over 190 covered call ETFs that I have been tracking for US investors, and these pay at least monthly consistently. I filtered to the funds paying at least 10% distribution rate, the ones with total returns of at least 15% for the last year, and have positive price returns. So, no NAV erosion. And I break down the pros and the cons of diversification versus alternative investments so that you can decide if these fit your core or your supplementary income needs. And before we continue, as always, I want to remind you that this content is for educational purposes only and not financial advice. All investments carry risk, including the potential loss of capital. Past performance does not guarantee future results. Please consult a qualified financial professional before making any investment decisions.
So, let's make this real. What does high yield actually mean for your income? With a $500,000 investment in a dividend aristocrat-focused portfolio with 2.67% yield, that would generate $13,350 per year. A high-yielding portfolio with 11% yield would be $55,000 a year. And an ultra-high yielding portfolio with 20% yield would produce $100,000 a year. This isn't just theory. We're looking for funds that can realistically generate these kinds of numbers, bringing you closer to your freedom number or the actual decision to start executing towards your retirement. And remember, we're not just chasing the highest yield. As a matter of fact, I use the distribution rate to filter to these funds this time versus the 12-month trailing yield so that you can get a true picture of how these funds are distributing income now versus 12 months ago. We're seeking a balanced approach for sustainable, life-changing income for someone who may be new to covered call ETFs and seriously thinking about getting started.
First up, we need solid diversified foundations for money. That's the S&P 500. And we're not just buying an index fund. We're using a covered call strategy to boost income significantly. T-SPY, the TAP Alpha SPY Growth and Daily Income ETF, while still a young fund at a little over 1.5 years old, is on pace to generate a 14.72% distribution rate. Some would say that T-SPY is for the income extremists because it uses zero DTE, zero days to expiration options on 100% of the portfolio, usually at the money. Meaning, every single morning it sells options that expire that afternoon, very close to the current price. So, while it's delivering high distributions, its overwrite strategy allowed for a little over 2% appreciation over the last year because technically it does cap its upside daily, but it resets every single morning. And in terms of distribution consistently, T-SPY has been running strong even in April last year when the market dropped. And I do think that it's important to acknowledge that last time I did this video, I mentioned GPIX and SPYI in the S&P 500 category. Still solid picks that you can see here below. T-SPY is simply showing its strength on the income side due to how it's structured from an option strategy standpoint. Granted, from a total return, GPIX and SPYI are winning with 18.16% and 17.66% respectively since their option strategies are more optimal for capturing upside driven by the S&P 500. But if your priority is income first, T-SPY has a place in the conversation.
Next, we're going to look at the exposure to innovation and growth of the tech sector via the NASDAQ 100, but again with a focus on income and not just capital appreciation. And the steady Eddie winner is QQQI, the NEOS NASDAQ 100 High Income ETF with a 13.99% distribution rate as of the timing of this video and a 5.45% one-year price return, meaning that it meets our NAV erosion prevention criteria. I say steady because QQQI was the top-performing NASDAQ 100 covered call ETF when I did this video back in December, providing excellent exposure to tech giants while paying a robust and consistent monthly dividend. I also think that it's worth noting that there were three other NASDAQ 100 funds that met my 10% plus distribution rate and no NAV erosion criteria. I like GPIQ for the same reasons I like GPIX: great balance between income, growth, and tax deferment with Roth distributions. And if you have a Roth IRA, JEPQ and QYLD are things to consider since they use ELNs and are less tax-efficient in a taxable brokerage.
Next up, we have the covered call ETF that leverages the Russell 2000. It's a compelling option right now because of the reductions in interest rates, low small-cap versus high mega-cap valuations, and volatility. Small-cap companies like the ones in the Russell 2000 rely heavily on borrowing to grow, and a lot of their debt is at a floating rate. So when interest rates are high, smaller companies get crushed. But as the Federal Reserve cuts rates, these smaller companies get massive immediate relief on their balance sheets, which directly boosts their profits. Combine that with the fact that small caps have been trading at a massive discount compared to their sky-high valuations in big tech, and you get the perfect setup for a rotation into small caps driving up the volatility in the space as well. And that's where IWY, the NEOS Russell 2000 High Income ETF, has been benefiting. IWY leverages a tax-efficient out-of-the-money call strategy on top of its Vanguard Russell 2000 ETF holding, giving it a 14.69% distribution rate as of its February 60-cent per share distribution. And add that to the fact that NEOS prioritizes capturing upside when their underlying assets rally, IWY saw 8.53% growth over the last year. So for those who are looking to create diversified positions away from the larger pool that's been driving the market momentum, this could be for you.
And that's what leads me to my next topic, gold, which gets a lot of traction in the comments. So, let's talk about it. Over the last year, gold has increased by 76%. And funds like IGLD took advantage. IGLD, the F-Shares Gold Strategy Target Income ETF, currently has a 21.03% distribution rate as of its early March distribution and has increased in price over the last year by 41.82%. And while gold is famous for being a dead asset that traditionally pays zero interest, IGLD actually changes that. IGLD doesn't actually hold gold bars. Instead, it uses a synthetic strategy by combining long call options and short put options on the GLD ETF. So this is going to mimic the price action of gold almost perfectly, but it frees up the fund's cash to be tucked away in US Treasuries. So that adds an extra layer of interest on the income on top of the gold exposure. So to turn that gold exposure into a massive monthly paycheck, IGLD sells short-term covered calls. But they aren't just selling these calls blindly. They're using a target income approach. So every month, the managers are aiming to generate a yield that's approximately 3.85% higher than the current one-month Treasury bill rate, plus the fact that volatility for gold is up over the last year. They are currently generating a higher premium than they were in the past. And here's the most important part for your upside: IGLD uses a partial overwrite. In a massive gold bull market like the past year, this really is a lifesaver because they leave a portion of the fund uncovered. You aren't completely stuck with capped upside if gold increases dramatically. So net-net, I don't expect this rich distribution to continue forever. But a fund like IGLD does generate income consistently over the long term.
Now, while index diversification and alternative assets like gold, commodities are part of balanced investing, I felt like it was important to cover how well these four niched funds are doing at the time I pulled the data for this video. This is the high-octane section of the covered call world where providers like YieldMax allow you to take focused bets on single sectors or even single stocks to generate cash flow. These funds like GDXY, SOXY, BIGY, and GUY all operate on the same engine. They're using a synthetic option strategy to create a long position in a specific underlying asset, and then they harvest the massive income by selling call options against that asset. But I want you to notice the difference in what they're actually targeting. GDXY is a bet on the volatile gold mining companies, resulting in a staggering distribution rate of over 100%. GUY allows you to collect over 39% by focusing solely on the risk of a single stock, Google. And conversely, funds like SOXY and BIGY are managed to target a more stable 12% target income yield focused on concentrated pockets like the semiconductor sector with SOXY or the top 50 US giants with BIGY. The pro here is clear: unmatched income potential. If you are right about the sector or stock, you can really create life-changing income. But the con is in the exact point: no diversification. In an income-oriented portfolio, this really increases your risk. So if you're 100% focused on income, for example, from GUY, and Google has a terrible year or gets broken up in some way because of regulations, your cash flow could evaporate and your principal could be crushed simultaneously. So when you choose a niched option, you are trading the safety net of the broader market for a shot at a higher yield. And you have to understand this trade-off. These niche funds should only be used as satellite holdings, so like high-yield kickers to an already diversified portfolio, never the core of your retirement income plan.
And as a reminder, all of the data, the analysis, and the charts that I use for my research, they come from a tool and a partner that I really trust called stockanalysis.com. If you use the link in the description below and the code "steph" (that is S-T-E-P-H), you will get 10% off your subscription.
So, in summary, with these five categories of ETFs, you could build a portfolio with a high percentage of yield for some substantial income, maintained or growing total return if structured properly, limited risk through diversification and smart covered call strategies, and more importantly, minimal NAV erosion because you understand how to properly select these covered call ETFs with sound fundamentals and maintenance. If you want to learn more about covered call ETFs, their tax implications, and what they're like for retirees, be sure to check out my Covered Call ETFs playlist right here. And if this video helped you see the path to replacing your 9-to-5, hit that like button and be sure to subscribe to the channel so you can keep watching real, honest, and actionable information on how to give yourself permission to be wealthy.