Optimized Portfolio | John Williamson, APMA®

I maintain that one can typically extract any given requisite income more efficiently than a covered call "income" fund, even after taxes, from a simple, diversified mix of traditional low cost index funds. Long tweet ahead. Strap in. What do I mean by “more efficiently?” The same income with lower risk or more income at the same risk. Conveniently, we typically see both - more income and lower risk. There will, of course, be some specific short periods of choppy sideways markets when assets converge where I'm wrong on this but I think on average, for any reasonably long horizon, I won't be (even with the newer, fancier iterations of these products). We care about how the portfolio delivers income across the whole decumulation period, not over a snapshot of a month or 2. (Let’s also go ahead and get this out of the way - no one is suggesting you just buy the underlying index and come out ahead. That’s not the argument. I’m talking about using a diversified portfolio for current income today. So please don’t come at me with that accusation.) I've attached a few examples of this concept using older funds with at least a little bit of history. I've described these older products like PBP and XYLD as comparatively more "blunt" - full overwrite coverage and ATM options - compared to newer iterations like SPYI and GPIX that are more nuanced and active, don't write on the whole equity book, and use OTM options. Proponents of covered call "Income" funds reflexively say these older ones are the "worst" examples to use and that I'm being unfair and idiotic in doing so. I do so purely to get a longer observable time period for more robust data, i.e. more observations, which is Stats 101. I'm happy to run the numbers with the newer products too, and I've done that, but most of them are only a few years old at most and haven't even seen the environment in which they'd shine. I make sure to explicitly point this out in all my articles on these funds. The trap the influencers and novices continually fall into is thinking the implementation and management of any given covered call product is what makes or breaks it. It's not. It's the fundamental inefficiency and asymmetry of the covered call trade itself. They think the next iteration of a flashy high-yield covered call product will finally be the holy grail to break the curse and solve the issues. It won't. Ironically, the only way to do so is to remove the covered call trade entirely. I mentioned this in my first blog post on this topic years ago. First QYLD and XYLD from Global X were the new hot thing among yield chasers. Then they moved on to JEPQ and JEPI from JPMorgan, and QYLD and XYLD were viewed with disdain. Now it's ostensibly GPIQ/GPIX from Goldman and QQQI/SPYI from NEOS, which Goldman is acquiring. Now anyone who even mentions JEPQ or JEPI is labeled a moron. But NEOS and Goldman can’t change option math. Meet the new boss, same as the old boss. These products satisfy a psychological desire to avoid liquidating shares. Totally understandable. But appreciate that they are not magically dismissing sequence risk, improving realized Safe Withdrawal Rate, or allowing for earlier retirement. Your favorite finfluencer is probably claiming it’ll do all 3. The marketing materials of these products even sometimes hint at such fanciful abilities. (Previously, it was admittedly arguably logistically harder to liquidate shares too. Fair. But nowadays, the broker can auto-sell for me and transfer cash to my bank account monthly without me logging in or lifting a finger. Same outcome.) Those same people will say this is a new wave of retirement products that opens new doors (“this time is different”) and that I’m just not up to date on the recent research. I think this is pretty silly fundamentally even if only for the fact that markets are still markets. But the irony is we’ve had boatloads of research on this type of product because it’s existed for decades, long before NEOS tacked on some tinsel like 1256 treatment and a long call leg. Those are probably improvements, no doubt, but they don’t move the needle on the elephant in the room I mentioned earlier - the CC trade itself. The “research” they’re citing is marketing literature from the fund provider, who probably pays the influencer anyway. The CC trade necessarily caps upside and doesn’t adequately mitigate the downside proportionately. This is what we mean by “inefficiency” and “asymmetry.” Lower volatility of these products is just less market exposure. You can do that by …owning less of the market. In point of fact, the behavior of the fund often doesn’t look dissimilar from just holding the underlying + cash, which I’ve shown here, and which many smarter than me have also shown. Appreciate the hilarious irony that despite what content creators in this space will tell you, a naive 90/10 underlying/cash allocation often beats the flashy, complex, expensive “income” product by virtually any measure. To add insult to injury, these products always carry pretty hefty fees, comparatively, which almost always easily cancel out any purported tax benefit from ROC, which I’ve also shown: optimizedportfolio.com/roc-c… I sympathize with the novice investors because I believe they want to believe the empty promises. But these products often don't even pass the sniff test. If it sounds too good to be true, it probably is. If a YouTuber is talking about retiring early on 12% yield with only $300k when the conventional rules of thumb fly in the face of that assertion, your spidey sense should at least be tingling and you owe it to your future financial well-being to at least do more research. As an aside, sequence risk is a big factor here that every single finfluencer I've seen hawking these products loves to ignore completely: optimizedportfolio.com/seque… It’s neither obvious nor intuitive that the high distribution rates like 12% are not really returns. Ben appropriately calls it an “illusion.” That’s how you can end up with a fund like QYLD with a distribution rate of 12% and a long term total return of only 9%. The return can be less than the distribution rate. Many don't realize this. In short, these funds often end up having to distribute from their own capital base, because the prospectus says they have to distribute but it doesn't say they must earn more than they distribute. Don’t get caught up in the mental accounting of viewing yield and price return separately. As always, total return is all that matters at the end of the day. That’s what’s paying your bills. To keep numbers nice and round, I used $100k starting and $1k/mo. income (12% distribution rate) for all these. In short, if you want the most income and the most stability thereof, the evidence, even over short recent periods for newer products, shows covered call funds are probably not the way to go (at least not going all in on them). Only time will tell, though, how that claim matches up with one’s personal retirement horizon, but then that’s my argument for diversifying broadly in the first place… Let me know what I forgot or if I can clarify anything or answer any questions, but you’ll probably find those answers in existing posts where I’ve already broken all this down into even greater detail: optimizedportfolio.com/qqqi/ optimizedportfolio.com/jepq/ optimizedportfolio.com/gpiq/

Been playing around more with this ROC calculator for fun. A few observations: 1. Fees matter. (Duh, dude!) Assuming equal returns and 100% ROC (both extremely generous), turning point for most scenarios is right around 0.35%, which happens to be the fee of some popular income funds, e.g. $JEPQ and $ROCQ. 2. $GPIQ is the cheapest I've seen of these popular products at 0.29%. It needs at least about 95% ROC to win most scenarios. 3. Even for higher brackets, higher index portfolio yield, and 100% ROC, funds that cost more than about 0.50% don't win. Some popular products like $QQQI cost more. I'd encourage you to play with each variable individually from one extreme to the other to see how exactly that impacts the results, and try to set the parameters to match your favorite fund. optimizedportfolio.com/roc-c…

Reminder: Your retirement bills don't care about the following terms. "yield" "premium" "cash flow" "distribution" "dividend" They care about your total return, because that's what determines how much you can spend at the end of the day, regardless of what your strategy is.

Added a checkbox to the ROC calculator for basis step-up for heirs since that has been a common rebuttal. It helps the ROC-focused fund's case but, as usual, not as much as people seem to think. Remember that boring index funds get a stepped up basis too. optimizedportfolio.com/roc-c…

I wonder if $TDAQ investors or TappAlpha themselves realize it's pretty great, relatively speaking, to be short volatility during the day but not overnight.

Finally got around to updating my 4% Rule blog post to include sections on what it is and is not, Bengen's latest opinions and allocations for 4.7%, and why yield is not a withdrawal rate i.e. why high-yield funds don't magically improve SWR: optimizedportfolio.com/4-per…

I sometimes mention the corners of the style box themselves can be a source of diversification. Using live funds for S&P indexes for US. large cap growth and U.S. small cap value, correlation of both monthly and annual returns has been right at 0.6 for the past ~15 years. That's how you can end up with stuff like this:

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Income investors have grown accustomed to 10-12% yields now (which is itself wild). $TDAQ's is 18%. It's NDX + short 0DTE calls + big payout. "Is it real?" seems to be a common question, and understandably so, so that's the title of my new review of it: optimizedportfolio.com/tdaq/

Always the most random tweets that blow up for me.

Reminded of this a lot recently. 😌

I've tried to explain this to people who think that concentrating in Apple, Nvidia, or whoever's at the top at the moment is a good idea. You want to own them on their way to the top, not after they arrive.

I genuinely don't understand why people buy income products during accumulation when they're explicitly for decumulation (hence "income"). Why not just switch to them at the point when you actually need to start using the income? This makes no sense to me. Someone enlighten me, please.

With these LLMs, what you get out is highly sensitive to - and thus only as good as - what you put in. (That's why writing prompts themselves is a skill.) AI output will look impressive and sound confident even if it's pretty nonsensical. Just look at those graph titles. I'm not picking on this person specifically; I see this kind of thing often. I'm picking on the AI mostly and showing how it can take illogical comparisons and spit out something that looks totally legitimate and trustworthy and then also cavalierly draw unsupported conclusions from it. This is why I often say the LLM is often confidently incorrect. And it is happy to confirm the bias that the user is unknowingly injecting in the prompt. The issue, of course, is stuff like this looks profound and authoritative to the uninitiated. This one has 76 saves. Many may take something like this at face value to inform future strategy and get bad outcomes. (Now admittedly, this particular one probably isn't too dangerous, but you get the idea.) Ideally, you still need someone competent feeding the AI and interpreting its output, regardless of application. I've had several clients in my industry (not finance) ask me to review AI reports and they were all mostly nonsense. In my limited use, it has also told me quite a few things that were factually incorrect.

Reminder: Only one of these potentially results in homelessness. xitter.twitterapi.xyz/OptimizedPort/status/2…

Reminder: Safe Withdrawal Rate (SWR) still exists whether or not you want to acknowledge its existence. As such, by definition, it cannot be "an old school approach." Apples and lawn mowers.

This is like saying "as soon as I find out someone is cautious, competent, and qualified, I ignore them."

Goldman is acquiring NEOS because they like to make money, not because they think the products are good for investors. Dan Bortolotti on ep 379 of the @RationalRemind podcast: "...when it comes to financial technology, it's very rarely a benefit to the average consumer. It's only a benefit to the company that creates these products."

I've always kinda hated the framing of posts like this because they imply the "paycheck" must come from yield alone, which is silly. In point of fact, a pretty naive 80/20 mix of low cost index funds beats the "cheapest" choice here, at least since its inception through today.

$CSHI has delivered about 0.8%/yr. above T-bills. In my newest post, I explain how it works, where that premium came from, some not-so-obvious risks, how (not) to think about an allocation, and how it compares to a plain T-bills fund like $SGOV: optimizedportfolio.com/cshi/

Reminder: While the strategy under the hood remains unchanged for $OVL, the big jump in distribution rate is a recent marketing decision in January 2026 that potentially greatly impacts the whole NAV erosion conversation, so we can't just look at the recent bull market history to indicate the future. ROC (Return of Capital) is an accounting classification for taxes. ROC per se does not equal NAV erosion. They can overlap and interact, certainly, but they're 2 different things. NAV erosion simply means a fund has to pay out more than its total return. That eats into its own capital. Thus its Net Asset Value (NAV) drops, hence "erosion." As such, a fund does not get to choose and "use" the type of ROC that does not result in NAV erosion. It's up to, again, the distribution versus whatever the market does. With some hand waving, OVL's prospectus basically already hints at expecting to see some erosion at times, at least temporarily. No one can say with certainty that NAV won't erode, just like no one can say with certainty that it will. Ironically, the way to lower the likelihood of so-called "destructive" ROC that erodes NAV is to lower the distribution rate (and fees). That's why I opined that OVL arguably made way more sense with its older, lower, modest yield around 3%. In this context, NAV erosion happens if OVL's total return is less than its distribution rate of about 10%, which is entirely possible. For the newer $OVQ that just launched, it's 12%. This is why I always say it's important to fully understand what you're buying. I explained all this and more - including the specific prospectus verbiage - here: optimizedportfolio.com/ovl/ optimizedportfolio.com/ovq/