Since Jack Bogle came up with the idea, it’s been difficult to beat a market index portfolio for total return. This approach can work well over decades of saving & investing for retirement. But we can feel differently about things as we get older. After a lifetime of picking up a regular paycheque, we’d really like a regular paycheque in retirement too, eh? And if there isn’t a nice pension ready to deliver that paycheque, income investing might have appeal.

Interest rates & bond yields have declined over the past couple of decades, so not much income to be had there. Even old-fashioned dividends have declined, particularly in the US equity market, as valuations increased. Some years ago, fund companies realised the boomer retirement market was in search of bigger income streams. In response, they created covered call funds with higher distribution yields. More recently, fund creators are adding some leverage. This not only boosts the distribution yield, but it also boosts the potential to recover the some of the return that covered call writing tends to lop off. Here’s one example of how this might work …

This is a simple comparison between HYLD (Hamilton Enhanced U.S. Covered Call ETF) & VSP (Vanguard S&P 500 Index® ETF). Hamilton describes HYLD as having an “overall sector mix broadly similar to the S&P 500®”. Since it’s hedged back to the Canadian dollar, we are comparing it to VSP, from Vanguard Canada, which is also hedged. The equivalents from iShares (XSP) & BMO (ZUE) would also work for this. HYLD has only been around since February 2022, so it’s far too short a time to say how it will fare over the long-term. For this exercise, I trimmed off the first year’s performance for HYLD. Because it contained some third party funds that might have impacted performance. These were gradually replaced by Hamilton’s own funds & performance improved. Though it shortens the timeline, I think it is a fairer comparison for guesstimating what it could look like going forward.

With all dividends & distributions reinvested from March 2023 up to July 25th, 2025, the result sees VSP compounding at a shade over 21.6% annually & HYLD comes in at 20.9%. Over that time HYLD actually took the lead occasionally but, for the most part, they tracked very closely together. I think it’s fair to call it a tie. For a $100k investment, VSP would have grown to about $160.5k, while HYLD would have turned into about $158.2k. In contrast, the yield from VSP is only about 1%, while HYLD is currently throwing off almost 13%. Despite the huge difference in yield, the total return is virtually identical.

Each investing strategy brings its own unique challenges for a retiree. The “growth” investor has to decide how many shares to sell to augment the income. The “income” investor has to decide how much of the distribution should be reinvested to ensure the success of the portfolio into the future. That’s a bit of a challenge for either one, so we’ll start by paying out $1,000.00 a month. That’s a simple annual withdrawal rate of 12% based on the starting value. And, to keep pace with inflation, we’ll adjust the income stream over time. Since the annualised growth rates were over 20% for both funds, that sounds reasonably conservative, eh? With this arrangement, both funds deliver an identical income stream of just over $29k to the investors over the almost two & a half year period. After all withdrawals, HYLD has an end value of $122.2k, with $124.2k in VSP. Again, little to no difference. This is a great outcome for both investing strategies.

Along with a great monthly cheque, the other important thing here is that the remaining value of both portfolios, after all withdrawals, is well up from the original $100k invested. Using the Bank of Canada’s inflation calculator, a portfolio value of $100k at the start of 2023 would equate to a value of about $107.5k in 2025. Since both funds are well ahead of this number by the end of the comparison, that bodes well. In fact, we could have started with a $1,400.00 dollar monthly withdrawal & the end values of both funds would have been in line with the inflation adjusted portfolio value needed for the future. But my crystal ball was broken back in 2023, so I took a safer path! 😜
That larger withdrawal amount would have been a withdrawal rate closer to 17%. Wow!

Some huge words of caution about this example: 12% is not a typical withdrawal rate over the course of a 30 year retirement. High yield percentages can not automatically be used as a withdrawal rate either. It may be possible for a time, but we also need to keep an eye on the underlying share price. And on the trajectory of the income stream. Is it going up or down? Are we keeping up with inflation? Unfortunately, we have to plan for an uncertain future. We can’t depend on the markets delivering consistently incredible returns over a long retirement timeline. Indeed returns are very uncertain over any future timeline, long or short. Look at the total return profile of your portfolio, not just the yield. In this case, there are older S&P 500 Index® funds that can be back-tested to show how precarious retirement life can be. At times, withdrawal rates much closer to 4% were required. It will be interesting to see if some of the newer funds can do better.

There are some very good reasons that the 4% Rule (of Thumb!) was used as a baseline for evaluating retirement plans. These days, a financial planner will use some pretty sophisticated software to plot out what’s possible for a given set of circumstances & predictions. In addition, the plan may produce higher or lower income streams based on individual investor choices. Financial plans should be reviewed regularly. Each new year starts with the new return estimates. Along with age revisions (money needed for fewer years with each passing year!), revised needs & wants, etc. And, of course, the current portfolio value is now the new portfolio value for planning the rest of the retirement journey. An investor that is willing & able to tolerate large income swings from one year to another may be able to sail closer to the wind on higher withdrawals. As would a retiree with a large guaranteed income stream from pensions, for example. Without that safety net, it can be far more challenging. The superb performance of the US markets for the past decade or more might have us believing that there are unicorns & leprechauns underneath all the rainbows & sunbeams. Tread very carefully. For most of us, it’s likely worth shelling out for a professional financial planning review to see what’s possible. The good & the bad.

One last thing: regardless of which strategy you favour, it’s usually worth listening to the other point of view. I know both growth & income investors that are killing it with their chosen strategy. Then there are some that aren’t quite sure how well, or how poorly, they are doing. We can all learn something new, eh? There may even be circumstances, both data driven & psychological, that encourage using a combination of strategies to navigate retirement. It’s usually worth taking the time to see a different perspective. And it might help to Benchmark Your DIY Portfolio against one of those recommended by experts & professionals in the field. Knowing how your portfolio behaves may help with engagement during the financial planning conversion.

Happy retirement spending!

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Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.