My 8% Yield Retirement Portfolio (SCHD Does Just 7.9% of It)

[00:00:00]A year ago, I put together a four-fund retirement portfolio built on one idea: never sell a share to pay your bills. It yielded 7% and then the anchor fund, the one everybody trusts, the one that's supposed to be the boring, reliable core of a portfolio like this, did something that made a lot of people question whether it belonged there at all.

[00:00:21]In 2025, SCHD returned 4.33%.

[00:00:27]Its category returned 14.97%.

[00:00:31]It lagged by more than 10 points, more than 10 points in a year when almost everything else was working. People sold it. People made videos about how it was broken. And then this year, year-to-date, SCHD is up 21.95% while that same category has done its peers by 14 points. So today, I'm rebuilding that portfolio to pay 8% using four funds without selling a single share to fund your retirement. I'm going to show you the exact weights, the exact yield off every fund straight from the fund company's own pages, and what that portfolio actually pays you in dollars every month. But I need to tell you something up front because it's the whole point of this video. Getting from 7% to 8% doesn't come from finding better funds. It comes from tilting the portfolio, from putting a lot more money into the two funds that carry the most risk. And when I ran the numbers on what that tilt actually does, I found something that I think changes how you should look at this entire portfolio.

[00:01:37]It's in the last third of this video and it involves the fund you probably trust the least doing almost half the work and the fund you trust the most doing almost none of it. Let's build it. First, the reason any of this matters, the standard retirement advice is the 4% rule. You save up a pile of money, you sell 4% of it every year, and the math says historically that lasts. And the math is fine. I'm not here to argue with the math. My problem with it is simpler than that. It asks you to sell shares on a schedule, regardless of what the market is doing, which means if you retire in a year when your portfolio is down 25%, you're selling more shares to raise the same amount of cash at the worst possible price, and those shares are gone. They don't come back when the market does. That's the one retirement mistake you can't undo, and it has nothing to do with your fund selection or your discipline. It's just when you happen to be born. An income portfolio takes that question off the table entirely. The money shows up whether the market is up or down, and you never have to decide whether today is a good day to sell. That's the whole pitch, but I want to be honest with you from the start. An 8% yield is not free money. Every single thing in this video from here on out is about what it costs you. Fund one is the boring one, and it just had the two strangest years of its life. SCHD is the Schwab US Dividend Equity Fund, and it gets 20% of this portfolio. Schwab's own page lists the 30-day SEC yield at 3.30%, and the trailing 12-month distribution yield at 3.30% as well. Those two numbers agreeing is worth noticing, and I'll explain why later when we get to a fund where they don't agree at all. The expense ratio is 0.06% In real terms, that's $6 a year on every $10,000 you have invested. It's about as cheap as investing gets.

[00:03:36]Now, let's talk about the track record because it's long enough to actually mean something. 2013, up 32.89%.

[00:03:44]2019, up 27.28%.

[00:03:47]2021, up 29.87%.

[00:03:51]But I don't think the up years tell you much. Everything looks good in an up year. Look at the down years instead.

[00:03:56]2015, SCHD lost 0.31% while its category lost 4.05%.

[00:04:04]2018, it lost 5.56% while the category lost the year everything broke, it lost 3.23% while the category lost 5.90%.

[00:04:19]Three separate down years. Three times it lost less than its peers.

[00:04:23]That's not a coincidence and it's not luck. That's what you're actually buying with this fund. It holds Merck, Home Depot, United Health, Amgen, Abbott, Procter & Gamble, Coca-Cola, PepsiCo, Verizon, Texas Instruments. Those are the top 10 and they're about 42% of the fund. So now the honest part about 2025.

[00:04:46]Why did it lag by 10 points? Look at the sectors. Healthcare is 20.77% of this fund. Consumer Defensive is 20.64%.

[00:04:57]Energy is 14.13% and technology is 12.72%.

[00:05:04]That's it. 12% in the sector that drove basically the entire market.

[00:05:09]SCHD didn't underperform because it was broken. It underperformed because it didn't own the rally and it didn't own the rally because it's not designed to.

[00:05:18]It's designed to own profitable, boring, cash-generating businesses that pay you.

[00:05:23]That's the deal. Some years the deal looks stupid. This year it looks brilliant. Up 21.95% against a category doing 7.82.

[00:05:33]Same fund. Same rules both years. But here's the thing. A 3.30% yield doesn't get you anywhere close to 8%. So the second fund has to do something SCHD can't. Before I get to it, let me put a real number on what we're chasing here, because percentages are abstract, and I want this concrete.

[00:05:55]Let's say the goal is about $5,000 a month of income. That's a number a lot of people in this position are aiming at, roughly 60,000 a year, enough to cover a normal retirement on top of social security.

[00:06:07]So, how much do you need saved to produce it? Under the 4% rule, you take the annual income you want and divide it by 4%. $62,400 a year divided by 0.04 is just over 1 and 1/2 million dollars.

[00:06:23]That's what the standard advice says you need, and you're selling shares every year to get it. Now, do the same thing at 8.32%, which is where this portfolio actually lands once I show you all four funds.

[00:06:35]62,400 divided by 8.32% is $750,000.

[00:06:42]Half as much money for the same income.

[00:06:44]Let me run it in the other direction so you can see it clearly. $750,000 multiplied by 8.32% is about $62,400 a year. Divide that by 12 months, and you get about $5,200 a month, every month, without selling a share. That's the entire argument for doing it this way, and that's why 750,000 is the number I'm going to keep coming back to for the rest of this video.

[00:07:12]Now, I want to be careful here, because this comparison gets abused constantly.

[00:07:17]Cutting the money you need in half is not free, and it does not mean this approach is twice as good. The 4% rule is built to survive 30 years of bad luck.

[00:07:27]An 8% yield is not a guarantee. It can be cut, and the funds paying it can lose value while they pay you. So, hold that $5,200 figure in your head, but hold it loosely, because at At end of this video, I'm going to show you exactly where each of those dollars comes from, and I don't think it's where you'd guess.

[00:07:47]Fund two is JAAA, the Janus Henderson AAA CLO fund, and it also gets 20%.

[00:07:54]This is the fund almost nobody in this space talks about properly, so let me actually explain it. A CLO is a pool of corporate loans sliced into layers by risk. The AAA layer is the top slice, the one that gets paid first before anybody else sees a dollar. This fund buys that top layer. Two things follow from that. First, the loans underneath are floating rate, so when interest rates move, the income adjusts instead of the price collapsing.

[00:08:22]Second, because you're at the top of the payment stack, a lot has to go wrong below you before you're affected. Now, let me show you what that looked like when it was tested. 2022, worst bond year in about four decades.

[00:08:35]JAAA's category lost 6.70%.

[00:08:39]JAAA returned positive 0.53%.

[00:08:44]It went up. It went up. In the year that broke the bond market, this fund made money. That's a 7.2 point gap over its category in a single year, and it's the most underreported statistic in this entire corner of investing. If you want to understand how still this thing sits, look at the beta, which is 0.02.

[00:09:04]Effectively no correlation to the stock market, or look at the 52-week trading range. $50.32 to $50.85.

[00:09:14]That's a 53 cent band over an entire year.

[00:09:18]This fund basically doesn't move. The yield is 5.40% and the expense ratio is 0.20%, which is $20 per 10,000 invested. It manages about $28 billion, so this isn't some obscure thing you can't get into. Now, the catch, and it's a real one, stability costs you return.

[00:09:42]Over the last year, JAAA returned 4.96% while its category returned 5.95%.

[00:09:49]Over 3 years, 6.45% against the category's 6.76.

[00:09:56]It is behind, not by a lot, but consistently, and you should know that going in. What you're paying for is the 2022 behavior, and you only get paid for that in years like 2022.

[00:10:10]In every other year, you'll look at it and wonder why you own something so dull. That's the trade. So, where are we? Two funds down, 40% of the portfolio invested at 3.30 and 5.40%.

[00:10:25]That's a blended 4.35% across half the money, which means the other half has to carry almost everything. Fund three is JEPQ, the JP Morgan Nasdaq Equity Premium Income Fund, and this is where the weights start getting uneven. It gets 30%, not 25, and that extra weight is the tilt I promised you in the first minute.

[00:10:48]The yield is 9.95%.

[00:10:51]That's the first number in this portfolio that genuinely moves the needle.

[00:10:56]How it works. The fund owns a portfolio of large Nasdaq companies and then sells options against them, collecting premium, and passes that premium through to you as monthly income.

[00:11:07]The trade is that you're selling away some of your upside in exchange for cash today, and the track record here is genuinely strong. 2023, up 36.23% against a category doing 14.97.

[00:11:23]2024, up 24.89 against 17.59.

[00:11:29]2025, up 15.21 against 10.47, three consecutive years beating its category and not narrowly. Over three years, it's returned 17.99% annualized against the category's 13.35.

[00:11:47]The expense ratio is 0.35% or $35 per 10,000. And now the catch, which shows you exactly what selling upside actually means.

[00:11:59]Over the last one-year period, JEPQ returned 19.01% while its category returned 24.17%.

[00:12:09]It's behind by more than five points, not because it's badly run, but because in a fast-moving rally, the options you sold get exercised and you hand over the gains you would have had.

[00:12:21]That's not a flaw. That's the mechanism.

[00:12:24]You chose income over appreciation and this is the bill.

[00:12:28]There's one more number here you need to sit with. Look at the sector breakdown.

[00:12:32]Technology is 60.61% of this fund, 60%. It's top 10 holdings are Nvidia, Apple, Micron, Alphabet, Microsoft, AMD, Amazon, Lam Research, Tesla, and Meta. And together, they're almost 42% of the fund. Remember that because it matters in about 6 minutes.

[00:12:55]Now the fourth fund. This is the one that takes us from 7% to 8% and it's the one I have a problem with. SPYI is the Neos S&P 500 High Income Fund and it gets 30%, the same as JEPQ.

[00:13:12]Same idea as JEPQ but built on the S&P 500 instead of the Nasdaq.

[00:13:18]And I want to start with the good because it's genuinely good and it would be dishonest to skip it. Every covered call fund should be measured against the covered call index, not against the raw stock market, because that's the strategy it's actually running. So, here's SPYI against the Cboe S&P 500 BuyWrite Monthly Index, taken straight from the Neos fund page. Over 1 year, SPYI returned 19.02% against the index's 17.34.

[00:13:51]Over 3 years annualized, 15.50% against 12.11.

[00:13:58]Since the fund launched in August of 2022, cumulatively, 70.14% against the index's 52.72.

[00:14:09]That is a 17-point lead over the benchmark it's supposed to track.

[00:14:14]Neos runs this fund well. Anybody who tells you otherwise hasn't looked. Now, here are two numbers from the same page on the same day.

[00:14:24]The distribution rate is 11.99%.

[00:14:28]The 30-day SEC yield is 0.48%.

[00:14:33]Same fund, same date. 11.99 and 0.48.

[00:14:40]That is not an error, and it's not a scandal, but it is the single most important thing to understand about this fund, and almost nobody explains it.

[00:14:50]Here's what's happening. The SEC yield formula only counts dividends and interest. Option premium doesn't qualify as investment income under that formula.

[00:15:01]It's treated as realized gains. So, 0.48% is roughly what the underlying stocks actually pay in dividends after fees come out. Everything else in that 12% distribution is harvested from selling options. And I want to be careful here, because people hear that and assume it means the fund is paying you your own money back.

[00:15:23]That's not what this number proves. What it does tell you is something more useful and more specific. This distribution is not anchored to company earnings. It's anchored to option premium. An option premium depends on volatility. Companies raising their dividends does nothing for this fund's payout. A long, calm, quiet, low volatility stretch in the market shrinks the premium available to sell. And that's the actual risk you're taking.

[00:15:53]That is a completely different risk from the one you're taking with SCHD, where the payout rises or falls based on whether real businesses are making more money.

[00:16:03]Both are legitimate. They are not the same, and you should not think of them as the same. And notice something else while those two numbers are on the screen.

[00:16:12]The expense ratio is 0.68%.

[00:16:16]$68 per 10,000 invested, which is more than 11 times what SCHD charges.

[00:16:23]The dividend yield on the S&P 500 right now is only around 1%, which means the management fee on this fund consumes a very large share of the actual dividend income the underlying stocks generate.

[00:16:37]The strategy has to work for you to come out ahead because the dividends alone don't cover the freight. Last thing on SPY, and this is the honest price of the whole approach. Compare it not to the covered call index, but to just owning the S&P 500 outright. 1 year, 19.02% against the index's 22.32.

[00:16:59]3 years annualized, 15.50 against 20.61.

[00:17:05]Since inception, cumulatively, 70.14% against 96.60.

[00:17:12]In dollars, if you'd put $225,000, which is 30% of a $750,000 portfolio into SPYI at launch and reinvested everything, you'd have roughly $382,000 today. In the plain S&P 500, about $442,000.

[00:17:34]That's a gap of roughly $59,000.

[00:17:37]That is what the income cost you. Not hidden, not sinister, just the trade you made. So, that's the 8%. Now, let me show you what it did to the portfolio because it's worse than one expensive fund. Here's the portfolio. 20% SCHD, 20% JAAA, 30% JEPQ, 30% SPYI.

[00:18:02]Blended yield, 8.32%.

[00:18:05]And I want to show you three things about it that I don't think anybody has put together. The first one is the overlap.

[00:18:13]Pull up the top 10 holdings of JEPQ and the top 10 holdings of SPYI side by side, both from the fund company's own pages. Nvidia is in both. Apple is in both. Microsoft, Amazon, Alphabet, Meta, Tesla, and Micron are in both.

[00:18:32]Eight of the 10 largest positions in these two funds are the same eight companies. The same eight. You are paying two separate management fees, one of them, $68 per 10,000, to own substantially the same basket of stocks with two different option overlays on top. That's 60% of your retirement portfolio in two funds holding the same thing.

[00:18:55]The second thing is what that does to your actual exposure. JEPQ is 60.61% technology, and it's 30% of the portfolio. SPYI is 38.29% technology, and it's another 30%. SCHD is 12.72% technology at 20% weight. Add that up and roughly 32% of this entire portfolio is technology. And because JAAA holds no stocks whatsoever, technology is about 40% of every dollar you have in equities. This is a portfolio being sold to you by me as a diversified retirement income solution and 2/5 of the stock side of it is one sector. That's not a reason to abandon it. It's a reason to know it.

[00:19:46]The third thing is the one that actually changed how I think about this. Let's take that about $62,400 of annual income and ask where it comes from.

[00:19:57]SCHD at $150,000 invested and a 3.30% yield produces $4,950 a year.

[00:20:08]JAAA same 150,000 at 5.40% produces 8,100.

[00:20:16]JEPQ 225,000 at 9.95% produces 22,387.

[00:20:24]And SPYI 225,000 at 11.99% produces 26,977.

[00:20:34]So SPYI alone is 43% of your paycheck.

[00:20:38]JEPQ and SPYI together are 79% of it.

[00:20:42]And SCHD, the fund with the 12-year record, the one that protected you in 2015 and 2018 and 2022, the one you actually trust, generates 7.9% of your income. 7.9.

[00:20:57]Sit with that. The fund you trust most is doing almost none of the work and the two funds doing nearly all of it own the same eight stocks and pay you out of option premium rather than earnings.

[00:21:09]One more cost figure before I give you my verdict. The weighted expense ratio across all four funds is 0.36% which is $36 per 10,000 invested. On $750,000, that's $2,707 a year, roughly half of one month's income gone to fees every year forever.

[00:21:33]So, here's where I land and I'm going to give you a straight answer instead of telling you it depends. If you are retired right now and you need cash flow this month, this portfolio is defensible and I'd run it. You're buying a paycheck and paying for it with capped upside and that's a rational trade when you've stopped accumulating. But, run it knowing that 79% of that paycheck rests on option premium, which means it rests on volatility, not on earnings.

[00:22:00]If you're five or more years from retirement, do not run this waiting.

[00:22:05]There's no good reason to accept the drag of two covered call funds while you still have a decade of compounding in front of you. Go heavy SCHD, let it work and revisit this when you actually need the income. If you're building this in a taxable account, SPY's tax treatment is one of the genuine reasons to prefer it over cheaper competitors, but confirm how the distributions are being characterized before you commit 30% of your money to it because that treatment is the main thing you're paying the extra fee for. And if you know you can't sit through a technology drawdown without panicking, this portfolio is not what its name suggests it is and you should walk away from it now with your eyes open rather than find out in a bad quarter. The last thing I'll say is about the weights because that's the real decision here. If you just split it evenly, 25% in each of the four, this portfolio yields 7.66%.

[00:23:00]That's a better balanced portfolio, less concentrated, less dependent on option premium, less technology. The eighth percent, that one extra point of yield, cost you a 60% allocation to two funds holding the same eight companies. On $750,000, that extra point is worth about $414 a month. $414.

[00:23:26]My honest answer is that for most people it isn't worth it, and the 7.66% version is the one I'd actually build.

[00:23:33]But if you need eight, now you know exactly what you're trading for it, which is more than anybody told me when I built the 7% version a year ago.

[00:23:43]For reference, at 8.32%, $250,000 pays about $1,733 a month. $500,000 pays about $3,467, and $750,000 pays about $5,200.

[00:24:01]And go back to where we started. SCHD lagged its category by 10 points last year, and leads it by 14 this year, and it's still the anchor of this portfolio, even though it only pays you 7.9% of the income. That's not a contradiction. That's what an anchor is for.

[00:24:20]So tell me in the comments which version you'd actually run. The even split at 7.66% or the tilted one at 8.32.

[00:24:29]And more importantly, why? I read them all, and the disagreements are usually more useful than the agreements. If you want to see what this looked like a year ago at 7%, that video is linked below, and it's worth watching the two back-to-back to see what actually changed. And if the math in this video was useful to you, a like genuinely does help. It's most of what decides whether YouTube shows this to the the person sitting there trying to work out the same problem. If you want more of these, where I actually run the numbers instead of reading you a yield off a website and calling it research, subscribe. That's the whole channel. No hype, just the numbers. Now, the part I have to say, and I do mean it, I'm not a financial advisor, and this is not financial advice. This is me showing you my math so that you can go check it. That's it.

[00:25:21]I'll see you in the next one.