Too often, retirees rely heavily on dividends from equities and interest payments from bonds for income, but there are avenues for energizing retirement income, including the the Nationwide Risk-Managed Income ETF (NYSEArca: NUSI).
NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
“There are some guaranteed income streams that you can count on, like Social Security or a pension if you’re lucky. Aside from these sources, though, you’re responsible for creating your own income in retirement,” reports the Winston-Salem Journal. “Much of your income will come from money that you take out of your retirement portfolio.”
A Refresher for Income Streams
NUSI is an actively managed portfolio of stocks included in the Nasdaq-100 Index and an options collar. Per index rules, the fund only invests in the top 100 largest by market cap, nonfinancial stocks listed on NASDAQ. A collar strategy involves selling or writing call options and buying put options, thus generating income to hedge some downside risk. The strategy seeks to generate high current income monthly from any dividends received from the underlying stock and the option premiums retained.
“Your dividends will come from the stocks that you invest in and will typically pay out quarterly. Dividends offer you the benefit of an income stream without locking your money up for long periods but your income will fluctuate if the company changes its dividend,” according to the Journal.
NUSI delivers monthly income at a distribution rate of 7.81%, which is well above what investors earn with broad equity benchmarks or safe government debt.
The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses.
Another advantage of NUSI is that it’s a clean, straight-forward strategy, an important facet considering the difficult and often delicate retirement planning process. The exchange traded fund also offers protection in the event equities swoon, adding to its allure for risk-averse investors.
For more on income strategies, visit our Retirement Income Channel.