An Income Seeker's Guide to Different Tools

There are many ways investors can seek income beyond Treasuries and traditional bonds. This newsletter will explore a few of them.

First, Simeon Hyman, CFA , with ProShares describes how investors can use covered call strategies:

“Investors, a lot of them need income. So you write or sell these call options on stocks that you own and you get paid for that. And that helps people fulfill their income goals. But it also has a little bit of a sacrifice because you're selling the upside of those stocks away. And the managing of that trade-off has been a real challenge for investors. Some are aware of it, some are not so aware of it.

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Asset TV also spoke with Phil Brzenk of S&P Dow Jones Indices at Exchange in Miami about a new strategy for income seekers.?Brzenk explains how the S&P 500 Daily Covered Call Index Family works:

“Yeah, so very excited to have launched this index series in October of last year. It includes the main index, which is the S&P 500 Daily Covered Call Index, which basically tracks the S&P 500 Total Return Index with tracking a shorting of the S&P 500 weekly options on a daily basis. Essentially what this index does is it looks at a dynamic strike selection based on the level of the VIX Index, which measures the future expectations of market volatility. Also, we have two sub-component indices that we created just in terms of providing additional analysis for the markets. And what these track is one, the performance of the call writing program. And secondly, the income stream. How much income are you actually getting in income, meaning both from option premiums and cash dividends from the underlying equity index.”

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Next, let's turn to Asset TV’s recent Retirement Income Masterclass and Midland Advisory for Financial Advisors ' Tom Corner on the role that annuities play in retirement planning:

“I mean, in a nutshell, it's confidence and peace of mind. And Rick in a way touched on that about creating income stream that's somewhat reliable. And where annuities fit into a picture is they can offer that peace of mind and stable and reliable income to retirees. And so as far as retirement planning goes, they very well can serve as an anchor to help create an even more successful retirement income plan. So you think back to how this compares to maybe pension income, social security income and they're stable and they're reliable and they're guaranteed for the lifetime of the client. Incorporating an annuity provides a similar strategy, stable and reliable income guaranteed for the lifetime of the client, which we'll discuss a little bit further as we get into this, which is becoming a more important topic to focus on when we're talking about the distribution phase of life.”

Finally, Michael De Feo with Allianz reflects on how today's guaranteed lifetime income solutions differ from the previous generations in three ways:

“First is cost. Second is the complexity of the strategies. And third, I think, is the perception that there was an irrevocable decision around annuitization. So let me take cost first. Through some efficiencies and product structure and just the sheer scale of the market, products are being designed and brought to market that are really priced appropriately for the in-plan space. Take for instance the Allianz Lifetime Income Plus annuity. Our strategy is offered at 50 basis points, which makes it very compatible to other investment choices within a plan. The complexity of them is that often, participants and plan sponsors were intimidated by just the structure and the nature and how they were implemented and the application process. They were overwhelmed with features and functionality that they either didn't understand or didn't need. And so rather than become comfortable and familiar with them, they just turned them off. Now, products are being designed specifically for the retirement plan space. They have features that can be easily adopted and turned as needed, and so that they don't have the same complexity that they once did. And so these products are designed to sit along other investment options, and so they can be adopted just by a click of a button by a participant as opposed to a lengthy application process, for example. Or it could be fully automated through managed accounts or even target date funds.”