When it comes to retirement planning, it’s common for investors to need some assistance here and there. For those looking to do some of the legwork on their own, the Nationwide Risk-Managed Income ETF (NUSI) is a prescient exchange traded fund to consider.
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. The fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
NUSI is one of the few exchange traded funds designed to deliver both income and downside protection under one umbrella. With markets seemingly overdue for a correction, NUSI is a relevant consideration today.
“There are a couple ways to estimate how much you might spend each year in retirement. You can use an income-planning worksheet to help identify your large expenses and project future spending,” writes Christine Russell for The Ticker Tape. “Or you can use a general guideline such as 85% to 90% of your ending salary. Of course, the actual amount needed will vary depending on your lifestyle, financial situation, and other factors.”
NUSI: A Prime Income Contributor
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 against some downside risk. The strategy seeks to generate high current income from any dividends received from the underlying stock and the option premiums retained.
“To know if you’re on track for retirement, you’ll want to identify any income you’re likely to receive besides your savings and investments,” according to The Ticker Tape. “Most likely, you’ll have Social Security and possibly a pension or an annuity. All three offer the potential for lifetime income, so you may want to earmark them for your essential expenses. Other possible sources of income include alimony and rental income. Of course, those aren’t guaranteed to last a lifetime.”
NUSI pays out in covered calls, not bonds or equities payments.
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 bought on a share-for-share basis to generate income via premiums derived from the sale of the call options. However, the covered call strategy caps upside potential and provides limited downside protection, so it is ideal for investors with a neutral-to-bullish outlook.
For more on income strategies, visit our Retirement Income Channel.