It’s often said that many retirees are overly frugal, particularly early in retirement. That approach isn’t uncommon because no one knows exactly what their lifespans will be, but they do know what their financial resources are.
Obviously, more income means retirees can enjoy life more, but that income is getting harder to find in today’s low-yield environment. Enter 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.
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. NUSI is becoming all the more important in today’s climate.
“Most research retirement spending has focused primarily on retirement asset levels (i.e., whether assets are being depleted and the extent the depletion would be considered optimal) or used surveys of retiree households, but has not also considered pre-retirement spending (i.e., the retirement liability) when noting the effect,” reports ThinkAdvisor.
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.
NUSI is important for other reasons, including as an income supplement vehicle.
“Most households are not on track to replace pre-retirement income. We estimate only 18% of retirees have enough retirement wealth to maintain pre-retirement spending levels using a relatively conservative replacement metric,” according to ThinkAdvisor.
The Nationwide Risk-Managed Income ETF uses an options trading strategy called a protective net-credit collar to generate income. The options strategy sells an upside call option and uses a portion of the proceeds received to buy a put option to hedge downside risk on an underlying portfolio of securities.
A covered call refers to an options strategy where an investor writes or sells a call option on an asset which they already own or buy on a share-for-share basis to generate income via premiums derived from the sale of the call options.
For more on income strategies, visit our Retirement Income Channel.