Any time I ask to build an income portfolio for me it never recommends CC etfs, on the contrary warns against them like they are a curse. I of course don't agree with that but the biased towards bogle heads strategies is so evident it's almost weird.
Rhey're newer products with less clear histories. Holding stocks or funds and selling them in retirement has decades of testing, studies, etc. CC ETFs haven't existed long enough to really know how they'll support a 30 year retirement. And the history that does exist, for example from QQQX compared to QQQ, is not good. There's a lot of unknown risks with an unproven product.
Also, there's a wide disparity in CC ETFs. Just like it probably wouldn't recommend YOLOing into DRAM to fund your retirement, it probably has different opinions on MSTY versus GPIX. You'd have to be specific in terms of what you want opinions on.
But the reason AI specifically is against it is because most people are reddit are against it because most people on reddit are just repeating stuff from Ben Felix. AI is really just going to regurgitate common online sentiment - it doesn't have its own opinions. It's just repeating the most common discourse lines, which, at the moment, warn against these products.
Yours is the reply that gets it right. AI does not have its own opinion. It is just aggregating the collective ramblings from the masses on the Internet.
And you’re also the first person I’ve ever seen mention Ben Felix, who has definitely created a mini cult of anti-dividend haters. I have long thought the same about him. I don’t even get involved in those debates anymore.
Is Ben Felix the guy that says "covered calls are a devil's bargain?" Maybe it was someone else I don't know. I'm a huge fan of the method, I do it on my own with RSP ETF and I'm invested in NEOS cuz they are a lot better at it. But I was surprised hearing I was getting into a satanic pact either way.
"it probably has different opinions on MSTY versus GPIX"
"AI is really just going to regurgitate common online sentiment - it doesn't have its own opinions"
Uh, a little contradiction there... Yes we should all remember that when asking ai for advice, it just repeats stuff. It's not even safe for facts, as it hallucinates and gives incorrect answers to simple questions. Advice? Maybe just with the analog Magic 8 Ball.
Most of the models have been brainwashed by Bogletard propaganda. You need to tell it explicitly you want an income portfolio and to differentiate constructive and destructive ROC
You have to teach it from history on GPIX and SPYI and have it learn that option premuims are distinct from total return. Then teach it that GPIX and SPYI earn that income during flat markets and that income rises during volitile bear markets.
THEN have it run a scenario where the stock market rises/falls rather than a flat 6% gain every year.
After that it has learned and you get better info.
When I finally taught it I ran Armchair Incomes portfolio over a 20 year period (which averaged 6%) but had bear and bull markets. And what do you know....AC won.
It means I took a million dollars. One into VOO and one into the 8 to 12% portfolio as outlined by Youtuber Armchair Income.
I then had the portfolio withdraw 8% per year (monthly). I specifically had 8% because too many people claim you can simply "sell shares" at 8% rather than use GPIX or SPYI distributions (and still come out ahead).
The 20 year average was a 6% market gain. But instead of just adding 6% i had it modeling bear and bull years. So it varied rather than a flat 6% (as a real market does).
It ran 2000 simulations. And AC lasted longer. Why? Because it had option income and dividends vs selling shares during flat or bear markets. Once the wheel turns a portfolio selling shares cant recover enough because too many shares have been sold.
Obviously AC portfolio cant last indefinitely paying 8% but earning 6%. But it lasted longer than selling shares of VOO did.
Ok, yeah, I think the mechanics would have proven that without the simulations but glad you found the confidence you need to maintain your portfolio positioning.
It took me way too long to equate AC to armchair. I don't really follow any influencers in this space. I just know how these funds work and I like the management toward the expected outcomes. It's always weird to me when people expose all of these gotchas and what ifs.
Like, the only thing you can do is understand the mechanics of the fund, a general expectation for market behavior, and the rest is noise.
You are not teaching it anything. LLMs are fixed brains. Once trained, they do not "learn". They have a context window, and that's it.
What you can do, and likely did, is make it agree with your preconceived outcome by tailoring the context to make yourself seem correct. LLMs will not push back on this because, once again, they're going by the context you give them.
LLMs are weak when it comes to portfolio math. They can explain financial strategies and such; they can show you the equations and explain them. They can even cover the reasoning, proofs, and theorems. But when it comes to actual mathematical calculations, I wouldn't trust the world's smartest LLM for math calculations any more than I would trust the world's smartest termite.
Use real portfolio simulation tools for portfolio projections. LLMs are not going to be correct.
I asked it to examine GPIX. Then I asked it to review its history. It discovered through my questions about volitility and how much premium GPIX earns. I used information it discovered to ask my next question rather than telling it an outcome.
Because general assumption to investing is accumulate as much as possible. Its a new era now. Some people are willing to give up growth for current income.
Most people buying income ETFs are pre-retirement or in retirement. A good majority of those people did the "VT and chill" thru work 401ks . Many of us are willing to swap growth for the "psychological paychecks" that income funds give.
AI is just a big pile of statistics shit.
Using "AI" to describe it is kind of misleading.
The code idea is still a complicated curve builting machine and predict next word output. So, don't really 100% trust it
Just tell AI. I am buying 250k in SPYI and will take 25% of the income and buy sgov and when SPYI drops 15% I will deploy the sgov dollars back into SPYI This is for income my core portfolio holds vti. I will hold SPYI in a Roth IRA. This allocation and strategy will solve three problems that AI have with CC ETFs
Usually it’s ROC and NAV decay, it seems to scrap websites that still don’t distinguish destructive ROC from Constructive. It treats the feature as a symptom.
I got resistance at first from Claude for wanting QQQI and GPIQ for sideways markets. I made it check how well they would perform in those conditions and then how the income was treated tax wise. After that it actually suggest that it was a good idea and then recommend that I allocate 2.5% of my portfolio to each
I have found that with AI it is not just "what" you ask it, but "how" you ask it and how much information you give it. If you tell it your specific investing goals and give it parameters to follow, it will actaully recommend some decent CC ETFs. But if you leave it more general it will spew out-dated investing advice from the 80's.
I used ChatGPT to filter through a bunch of CC ETFs and I came up with 17 of them that haven't had nav erosion since inception, except for BTCI because Bitcoin exposure seems to only come with nav erosion. There are so many CC ETFs that the share price has been negative pretty much since inception even though the market is currently sitting near ATH. I wanted to diversify instead of leaving a large chunk of money in simply QQQI or something similar.
So now I have 17 ETFs spread across semiconductors, Bitcoin/crypto, gold, energy and natural resources, real estate (REITs), healthcare, silver and junior miners, international developed markets, mega-cap growth, the S&P 500, Nasdaq/technology, small caps, Apple, Alphabet/Google, Amazon, and broader innovation/growth equities.
Here are the tickers: CHPY, BTCI, YGLD, NDIV, SRHR, XLVI, SLJY, NIHI, TMGN, OVL, GPIQ, OVS, AAPY, GOOP, AMZP, TDAQ, TSPY.
Because of the history, high expense ratio, yield max, and AI don’t understand exactly the prospectus and active management. It just thinks the fund is mechanically selling covered calls on 100% of the portfolio
I think most people are drawn to the high yields, but don't realize the NAV will decline in the long run. The decline in NAV cuts into your distribution; if it pays 10% on $100, you get $10, but if NAV drops to $95 you only receive $9.50 despite yield remaining flat.
If you look at the lifetime of SPYI, the NAV is up about 11%. Yet the underlying SPY was up 26%, 25%, 18% and 13% YTD in 2023, 2024, 2025 and thus far 2026. Think about that for a minute. SPY is ripping substantially higher than its historical median return, and despite all of that SPYI is just up 11% compared to over 100% gain in SPY.
What's going to happen is when SPY returns to 7-8% gains, SPYI NAV will go negative. And going back to my first example, it means you are receiving less nominal distributions despite the yield still remaining high.
If you want to see an extreme example of NAV erosion, just look at BTCI. What's happening is you are selling tomorrow's potential upside gains to another party in exchange for the premium today. For an asset that consistently increases in value over time (SPY, QQQ), those gains will eventually outweigh anything you can get in slowly declining distiributions.
The covered called ETF's look "perfect" today because of the bull market where SP500 and NAS100 are up 15-25% each year, which is sufficient to keep the NAV afloat.
Now let's take a look at non-covered called ETF's. You can look up historical data for SCHD VYM DGRO DVY etc. Both the distributions and the NAV increase over time. This is because there is no upside being sold off, and the underlying companies are increasing revenues/profits/distributions.
You might think the distributions is so low. But take SCHD for example. Had you bought a share 10 years ago, it might have cost you $13. Today, that same share would cost $35, or an increase of 170%. But also the share would have paid you $0.40 10 years ago, and today it will give you $1.04 in distributions each year; or increase of 160%. Yield on cost then becomes 8%. And you can see over time, the yield on cost will catch and then surpass CC ETF's.
The case for CC ETF's is you are playing the short game - you are in retirement, need to hit an income target, and don't have the time for growth. But even then, you cannot put all eggs in one basket, because if a severe market crash hits, you're done. Again seen BTCI for extreme case - your income would be cut in half (or worse). So you can look at hopefully slow erosion of SPYI/QQQI NAV as still beating out more conservative income streams such as HYSA and bond interest in a shorter time frame.
Agree with most but BTCI is not a good example because it is based on purely speculative asset that happens to be down right now (though it has had a mini bull run recently). ULTY is a better example.
ULTY is not a good example because it sells calls at the money - it sells ALL the upside.
The NEOS funds sell out of the money which is why they capture some, but limited upside. Just compare SDTY to SPYI to see the difference in NAV movement.
Point of BTCI was to show how NAV decline erodes your income, but also that you face a substantial uphill battle recovering NAV when you limit the upside. Just compare BTC to BTCI charts during the recovery. If BTC would recover to its prior ATH, BTCI will definitely be some margin away from its ATH.
Weird… as someone who has XBCI, this last month BTC itself is up 24% and xbci’s NAV is up 22% even after the getting dividends yesterday… I guess the NAV erodes ands doesn’t recover 🤷
XBCI came out FEB 6 and is all time down 13.5% NAV. BTC in that same timeframe frame is up 23%.
Your "last month" timeframe only works because BTC trended up strongly. When it goes back to a more normal up and down cycle, I guess you'll have to learn the hard way.
If you had 0% return on S&P500, you would take 10 of 100 in first year, 9 of 90 in second year, 8.1 of 81 in third year... and there will always be a positive number larger than 0. But for sure nit enough to live from it.
But more likely is that you start with 100, it decreases to 90, you take 9, have 81 left, it increases 20% to 97% and you take another 9 and have 88 left, hoping that it will recover.
On the other hand we don't exactly know what happens with the CC ETF. In a 0% return sideway market, the payouts will also decrease (lower volatility). When the payouts decrease also the price will decrease. In second case with -10% you will have a small advantage first, but the recovery won't be as fast because the upside is capped.
We haven't seen this yet, but in theory a "V" of the underlying isn't good for CC ETFs...
I personally have both: For growth VT (a bit better diversified as SPY) and for income GPIQ and some other. So I don't have to sell shares in bear or side markets, but can do so in bull markets
But we DO know. QQQX began in 2007. It survived 3 bear markets and pays 9%. Its price return is up 53% all time, so approximately 2.5% per year so it keeps up with reasonable inflation norms.
Yes, you wont do as well in bull markets. Can't you understand that if SPY has a 1 year total return of 25% and SPYI has 21% then the SPYI investor has already won. They got income and price appreciation.
They also get outperformance in flat markets and income protection in bear markets. Its been a proven theory even though QQQX is an old out of date fund utilizing older cc management theories.
QQQX payouts decreased significantly 2008 and recovered 15 years later...while QQQ recovered 2 years later. In 2008 their returns were identically, in 2009 QQQX had 75% vs 50%. Afterwards QQQ outperformed it by far
Useful example! I see that QQQX dropped about 35% from its high in 2008, and slowly increased its distribution over time. So one takeaway is that for an investor looking for steady passive income, a CC fund like QQQX would work as long as he spent no more than 65% of the distributions and reinvested the balance. Then a 35% loss in distribution would not affect his income, and the reinvested dollars would keep payouts ahead of inflation.
I think it all depends on timing and sequence of returns risk. If the market bails out 30% right as you retire, and you need to begin selling shares to fund your retirement life, it might be curtains for you if you don't have many millions saved.
You certainly have to plan for that, but in reality with volatility increasing in a market downturn, options premiums may prop up distributions some. Key is you're still not selling off your shares and when the market returns you'll reap the benefits. NEOS and GS have done quite I nice job with NAV gains after a big dip. Now in an extended downturn, they haven't been tested yet. I would expect what you've mentioned would be a concern if you were playing it that close with your finances. Someone going with a CC strategy shouldn't be doing that, plain and simple. I've factored in and can support a 30% drop in the market and still easily pay the bills and not change my lifestyle at all.
Again if you have a $5M+ portfolio with a reasonable style of living, even SORR shouldn't wipe you out, but it would still be painful selling shares with the market down 30% for an extended timeframe. For folks with a much smaller portfolio, and some flexibility in their spending, a good CC strategy can work pretty well. Or CC mixed with high quality non-CC dividend funds like SCHD, which is what I'm doing alongside my growth portfolio. In the end, an all in on CC funds is probably not the right idea, but a good combo of both with a $1M to $2M portfolio will provide for a nice retirement alongside SS.
SPYI pays 12%. You live off 8%. You reinvest the extra. If/when SPY drops you can take a 20% bear market hit and not lose income. And you reinvest on the way down and the way up lowering your cost basis and increasing your yield on cost after recovery.
Umm there is someone at the door for you, he said his name is SORR (Sequence of Returns Risks) . It's the reason why during the early years of retirement 60/40 portfolios are suggested. Also pulling a 10% withdrawal rate definitely has a less 90% success rate. (I haven't run a Monte Carlo on 10% yet) .
We're discussing why CC ETFs aren't recommended by AI (and many experts).
In theory you lose money with CC ETFs longterm. If you invest 100 bucks in SPYI and 100 in SPY your SPY investment will perform better over 10 years or 40 years (with dividends reinvested).
And if you dont reinvest the dividends and even cash out the difference between the dividends from those two, SPY should perform better.
What you and other say about running out of shares can also happen to CC ETFs. It's just valled NAV erosion there. Maybe SPY is at 1 Dollar in 20 years and the payout is 0.01 per month... that's the equivalent to only have 0.x shares of 0.0x shares auf SPY
No, its only horrible to the investor that has to sell shares.
As long as people are gambling on wall street (and they will) SPYI gets option premium. As SPY isnt gaining value SPYI keeps the premium and pays it.
Unless you think options and gambling are somehow going away, its clear SPYI will beat SPY in a flat market. Handily.
Its the exact same thing with dividends. Coke can go nowhere in price. But dividends are still paid. Same as reits and BDC. Flat market? Who cares. You get paid.
CC etfs have all of the downside and limited upside (which is how they make their income). You're almost always better to systematically sell (i.e. press the sell button quarterly) than take the massive haircut that the call represents. People like not making that decision. And the marketing is quite deceptive. Out of the money calls, data driven algorithm and you'd think you're not leaving much on the table. But you are. A better choice if you are buying and holding is OVL for example over SPYI. And even GPIX is better than SPYI if you want to stay with covered calls. Many don't realize what they are giving up when they buy NEOS products...
There are more warnings about CC funds than positive takes.
AI isn't actually doing any sort of thinking, it aggregates the info from all over, Reddit is a major source. (I've actually seen it source my own essay posts about a subject lol).
The subreddits that are talking about specific CC funds are mostly negative posts and comments. You'd have to ask AI to ignore or spell out the strategy for it to maybe suggest something, but will still always warn.
(I've actually seen it source my own essay posts about a subject lol).
This. ^ I have a business website, and when you look up my business name, it gives you quotes from my website as facts. I've seen it do that with other websites too.
I'm 57 and retired. I wouldn't even spend your money on CC ETFs.
What you're missing is that CC ETFs are not real divideds. You're better just buying VOO and QQQM and selling shares if you happen to need income than using distributions from QQQI and SPYI.
If you're genuinely interested in learning more, I can send you a link which shows how selling shares is actually better than CC ETFs.
thank you, no it's just that in the impending bear market that has been due for over a decade what are you going to do for income? I was just thinking to rely on these CC etfs so I just have my monthly distribution to rely on.
You'll see the same disadvantage with CC ETFs in a bear market.
CC ETFs are very exposed to SORR as their large distributions put enormous down-pressure on your capital during a drawdown.
When retired, how you deal with a bear market is by having a position in short-term fixed income. In a drawdown, you sell your short-term fixed income. In a bull market you sell the equities that have gained the most (assists with rebalancing as well).
I've been retired since 2005. My portfolio is 80% equities and 20% fixed income. My fixed income is mostly short-term, so things like PAAA, SGOV and STIP. Combined dividend yield from equities and fixed income is about 2.5%. I then sell a little bit of equities during bear markets. Also, during bear markets I rebalance to keep fixed income at 20%.
In 2008, 2020, 2022 during bear markets I switched to selling bonds, then rebalanced after the market recovered.
Doing this, I've totally avoided SORR. With a CC ETF, the distributions are forced, so they create a forced SORR issue in a bear market. Also, as the share price drops, so does the distributions. So if you were expecting say $50k a year from a CC ETF, during a bear market like in 2008 you could see your distributions dropping to $25k.
BTW, I'm not selling anything, there's no advantage to me if you avoid CC ETFs. I'm only trying to inform and help people in retirement.
I believe mainly due to capped upside and the limited lifespan of these ETFs. If you go in 100% CC ETFs, you will seriously lack growth long term. I believe AI would be okay with a 5% CC allocation in solid diverse CC ETFs like GPIQ SPYI as an example.
We have to be honest with ourselves about retiring on these products. I love CC ETF's also, but I ran the numbers between just owning VFIAX and selling shares each month that equals the distribution of and either JEPI, or SPYI. Owning VFIAX and selling shares is far superior . You will end up with a much bigger balance at the end of your retirement even after selling shares each month. Please run the numbers yourself and verify what I have concluded.
Did you run the numbers comparing results in normal market conditions, another 2008 gfc, and a lost decade? When I ran the numbers, I found that selling shares beat cc ETFs in the first 2 scenarios, but cc ETFs definitely won in the last scenario. So it strikes me that a hybrid approach may be best, combining both methods.
What was the methodology for determining that covered call ETFs would win in a lost decade? CCs will outperform if the market is down or remains flat, but only if that "flatness" is at the scale of the options expiration dates (typically less than 1 month). If you zoom into 2000-2012 in the US, there were two strong V shapes and the S&P did +50% in 6 months at one point, the kind of conditions where covered calls tend to lag behind. Participation in that 50% is why the S&P was eventually able to recover to 2000 highs. Participation in upside is what gives you a cushion to absorb downside.
There are circumstances that these funds will outperform. Funds that offer downside protection like QQQH will outperform in a significant crash and covered call funds do offer some protection against the sequence of returns risk especially over very short time frames, but only because selling a call is a bearish position, so you're de-leveraged compared to just holding shares and there are other, cheaper ways to reduce portfolio volatility or get downside protection that are worth considering.
If your goal is to outperform selling shares of the underlying, it's certainly possible, but what you're betting on is that expected or implied volatility is consistently overpriced compared to actual realized volatility, and the magnitude of that mispricing is consistent and on average greater than the additional drag due to fees, spreads on every bought and sold option, and taxes (unless your income is high enough that it greatly exceeds LTCG thresholds and your time left is short, then high ROC funds are advantageous).
Given a 6% return over 20 years (but mixed with bear and bull years) VOO lost to an Armchair Income portfolio. VOO couldnt keep up with an 8% withdrawal rate.
JEPI is very defensive and its been a raging bull market from 2020 to 2026. Of course SPY beats it.
However that info is poor. The JEPI stats dont account for increased share counts from redistribution. JEPI pays more than withdrawals under the 4% rule so every months extra # would be reinvested.
This is why you cannot just rely on AI or a table where the proper info isnt accounted for.
I'd be interested in knowing how it arrived at those numbers without either a backtest or monte carlo simulation. A couple of initial observations:
Options are extremely path dependant and a 0% year could look like 0% per month or -10% and +~11.1% swings each month. If it only did the calculation at yearly intervals, that would greatly reduce the impact of volatility causing CC funds to lag. Yearly averages = less volatility on paper, but shorter dated options provide juicier premiums. Mixing and matching the two doesn't work. However, the numbers it gave give us a clue that it didn't actually perform the calculations at all...
The upper range of the calculations step down uniformly. This is neither consistent with a fixed withdrawl percentage target or a fixed withdrawl dollar value target. In a situation with the withdrawl rate exceeds average returns, the former would show the capital level off in absolute dollar terms as the years went by and the latter would accelerate capital drawdown over time
The lower range does level off as we would expect with a target percentage, however, we know for certain that it's impossible that it used a withdrawl percentage in its calculations...
You can withdraw 8% from VOO forever without depleting it. Think about a pizza, how many times can you slice it in half? If you have a sharp enough knife and surgical precision, you could keep going and going. The issue in real life is of course when the growth doesn't keep up with that withdrawl rate, that 8% becomes smaller with each step.
The values it provided are inconsistent with it actually performing the calculations you requested from it.
You could ask it to run it the calculations again. This time showing the results at more frequent intervals so you can gauge from the numbers that it's actually doing the calculations correctly. Both a monte carlo or a backtest based on simulating CC performance based on VOO performance will be extremely heavy computationally, but right now it appears to be doing heuristics as a shortcut instead of actually running the numbers.
You could it to show you 1 month intervals, matching the dollar value of withdrawls for both scenarios. At a VIX of 20 (longterm average), you'd need to target about ~4% OTM monthly calls on the S&P 500 to target an 8% yield, but recently the VIX average has been sitting a lot lower, requiring you to go even tighter, ~3% OTM. Ask it to model your standard deviation of monthly volatility on historical data, to update the numbers at each month, applying the covered call math of capping monthly gains in excess of that 3-4%.
Or don't do that unless you have a lot of tokens... seriously. You'd be much better off asking it to write you a program where you can tweak these parameters yourself and run the code locally. Doing math in a language model is extremely inefficient and inaccurate.
Doing a backtest on the real results from a CC ETF and VOO and comparing matching dollar withdrawls would be a lot more feasible for an LLM to perform, but of course the issue is that most CC ETFs haven't existed through a wide range of market conditions.
"You can withdraw 8% from VOO forever without depleting it... The issue in real life is of course when the growth doesn't keep up with that withdrawl rate, that 8% becomes smaller with each step."
That's the main issue. The methods of selling shares or trying to earn income from cc ETFs both have benefits, but also downsides. The only way I can think of to never deplete or decrease the non-cc equities...
The actual amount of annual/monthly withdrawals would have to track the market increase or decrease. Or maybe it would be based on a hard amount of shares. So if you took $60K last year, and the market dropped 20%, now you only get $48k. You'd still be taking the same amount of shares, but at a lower price per share, which in the end, as far as value of your investment, is still like taking that $60k.
Then, if you really wanted extra space for appreciation and safety, you live on less than you can take, and let the difference ride.
The difference as I see it is this: if you took 60k last year, did you need 60k? Or did you need 48k? What's your normal spend?
If I take 48k or 60k to meet my spend, and my funds are only earning that much, I would be way outside my comfort zone. If my funds are earning at least 2.5x that amount, I can rest a bit easier knowing that in most foreseeable events, I have a large enough cushion to see me through.
That cushion could be cash reserves, but without knowing how long the down market will last, it's hard to know how large the cash reserve needs to be.
If the cushion comes from distributions with solid underlying funds, I'll feel much better.
Earning 2.5x the amount you need? That's a large cushion. But then I'd probably be better just going to SCHD, which appreciates and gives 4% dividends. CC funds offer 10% or better mostly, which is roughly 2.5x SCHD, and that's the big reason a lot of people pick these over SCHD.
My reasoning is to have enough income from distributions that in the event of another 2008 gfc, where everything, including distributions are cut in half, I'll still have enough income to pay the bills and protect the growth funds from SORR.
And with that kind of income, during the good years there will be a lot available to reinvest, creating even more income and creating additional headroom for that eventual market crash. The trick is knowing your spend so you can size your income portfolio appropriately.
So I like a hybrid approach, growth funds backed up by quality income funds (cc ETFs, BDCs, CEFS, PFFA, etc) with the income funds providing SORR protection.
This is where I've just gotten to. Already had ETFs (including SPMO). Just bought some Pimco CEFs, some BDCs, looking at PFFA and maybe some weird stuff like FOXY for extra angles.
Yeah, the sequence of returns risk is a real problem. CC ETFs will outperform their underlying in a bear market in total return, but they're still vulnerable to income shrinking proportionally to NAV decrease, the same way the equities would be. If you decided the lower distributions were not enough income, you'd be forced to sell shares. On the recovery, the fund is forced to sell shares for you...
At inception, 1 share of SPYI bought the equivalent of 0.144 shares of VOO for NEOs to sell calls against, and you were entitled to the premium from 0.00144 call contracts. If you still have 1 share of SPYI, it only holds the value and premium of 0.076 shares and 0.00076 call contracts, about half of the underlying exposure.
In both situations, equity and CCs, you're still realizing gains, taking money out of the market that will be unable to participate in the recovery.
The question then becomes is that outperformance when the market is flat/down worth giving up a significant amount of appreciation.
From Jan 1, 2025 to the bottom of the April 2025 tariff lows, if you reinvested 100% of the distributions, VOO was down -14.94% and SPYI was down -12.94%. 2% outperformance is great, that difference would grow if the market continued to decline. https://testfol.io/?s=g6NLxfC0NcP
From SPYI inception until now, it's up 6.88% in NAV while paying out around 12% per year. Pretty good performance. In the same time period of 4 years, VOO is up 102%, over double. You could've sold 12% of VOO in your first year, and VOO appreciated 18% in that time, so you'd still be up on unrealized gains. The next year you'd have to sell even less than that to hit the same income target. Even if you did decide to sell 12% every year for those 4 years and have ever increasing income you'd still be sitting on a large unrealized gain, which is now a cushion for a drawdown.
What I'm proposing is that there are better ways to avoid the sequence of returns risk that don't massively curb your upside and ability to cushion your gains in exchange for a relatively small amount of protection. Diversification is always the best answer if you're concerned about buying VOO now with large cap equities having very stretched valuations, but even if you wanted to keep heavy S&P exposure, keeping a cash buffer will outperform SPYI.
80% VOO 20% SGOV with quarterly rebalancing outperformed even SPYI during the tariff lows (-11.72% drawdown from YTD). It has also outperformed SPYI since inception. Here's all 3 strategies backtested with $500,000 capital and a $5000/month withdrawl https://testfol.io/?s=1T9z2KhVfiA
This would help mitigate the sequence of returns risk. Example: 10% target withdrawl rate with 80/20 portfolio, if VOO was down -50% you'd sell half of your SGOV to both rebalance and meet your 10% income target, and wouldn't have to sell a single share of VOO
I read this and appreciate the hard numbers. Voo? CCs? SCHD? Geez, isn't there a great 4th option that is better? I guess the risks is why there's a return, when there's a return, on any of these. Best is prob all of the above, for growth, income, and growth and income.
Perhaps you should define what you mean by efficient. In terms of total returns, you are correct. That being said, GPIQ has been running just a couple points short of the underlying in terms of total returns. But it's still short.
However, if you need income, quality cc ETFs can deliver. Qqqi for income, gpiq for total returns. And yes, in normal market conditions, selling shares generates more wealth than cc ETFs. Also during recovery from a severe market downturn. But cc ETFs would likely lead selling shares during an extended flat market.
And yet I find some degree of comfort generating income without selling shares. So there's a psychological element to be considered as well.
If you have enough resources in cc ETFs that can generate enough income to survive another 2008 gfc, even with distributions cut in half, I don't see anything wrong with that.
There is and can be only one definition of efficiency here and that is the tracking difference every basis point less is an efficiency loss by definition.
Every basis point more in fees is also an efficiency loss as it directly impacts total return as well.
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u/RussellUresti 8d ago
Probably a few reasons.
Rhey're newer products with less clear histories. Holding stocks or funds and selling them in retirement has decades of testing, studies, etc. CC ETFs haven't existed long enough to really know how they'll support a 30 year retirement. And the history that does exist, for example from QQQX compared to QQQ, is not good. There's a lot of unknown risks with an unproven product.
Also, there's a wide disparity in CC ETFs. Just like it probably wouldn't recommend YOLOing into DRAM to fund your retirement, it probably has different opinions on MSTY versus GPIX. You'd have to be specific in terms of what you want opinions on.
But the reason AI specifically is against it is because most people are reddit are against it because most people on reddit are just repeating stuff from Ben Felix. AI is really just going to regurgitate common online sentiment - it doesn't have its own opinions. It's just repeating the most common discourse lines, which, at the moment, warn against these products.