In short
The Rich Habits episode explains how covered call ETFs generate monthly income, why headline “yields” don’t equal consistent returns, and how three major S&P 500 covered-call ETFs differ (JEPI, XYLD, SPYI). It also covers who these ETFs fit for and how they should be placed in a portfolio’s growth/stability/income “sleeves.”
Guests/backgrounds
No external guests. Hosts are Austin Hankwitz (co-host; finance/economics background; multimillionaire in late 20s) and Robert Croak (co-host; seasoned entrepreneur; lifetime revenues over $300M; finance background).
Key claims
Covered calls trade upside for premium income. ETFs solve the “need 100 shares per contract” problem by pooling assets and selling calls at scale. Major differences come from option type/strike selection and tax treatment.
Notable examples
Tesla covered-call scenarios (strike $250 vs price $300) illustrate capped upside. JEPI uses equity-linked notes; IRS treats income as ordinary. XYLD sells at-the-money calls, capping upside and eroding share price. SPYI sells out-of-the-money index calls; distributions get Section 1256 60/40 treatment and much return-of-capital classification. Trade-offs: income vs growth; yield vs total return; single-stock covered-call ETFs can show high yields but large price declines (e.g., TSLY down ~85% since inception). Portfolio fit: retirees/income-focused investors; suggested allocation ranges by age (e.g., ~5–10% for 20s/30s, up to 50–75% in retirement).
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOUnderstanding Covered Call ETFs
0:45 to 2:00
Learn about covered call ETFs, their income potential, and differences among them.
“on the market to figure out how they actually work, how the biggest ones differ from each other, and who should realistically own them.”
Defining Passive Income
2:00 to 4:10
Discover why covered call ETFs are highlighted as a true passive income strategy.
“And I just want to reiterate here, the title of this episode is Our Favorite Passive Income Strategy.”
How Covered Calls Work
4:10 to 6:33
Explore the mechanics of covered calls through real-life examples and scenarios.
“that covered call option contract, it's called a covered call, doing that sort of transaction there, they paid me a cash premium.”
The Role of Covered Call ETFs
6:33 to 8:04
Understand why covered call ETFs exist and how they function to generate income.
“So Robert, maybe explain why that $5 ,000 is so important.”
Advantages of Covered Call ETFs
8:04 to 10:40
Learn the benefits of using covered call ETFs for diversified investing without large capital.
“There's also TSLY, which is a Tesla stock covered call strategy, or CONY, which is an ETF that's specific for Coinbase stock.”
Analyzing Popular Covered Call ETFs
10:40 to 14:07
A detailed comparison of popular covered call ETFs and their strategies.
“And that brings us to the most important segment of this episode.”
Understanding JEPI's Tax Implications
14:07 to 15:00
Learn about the tax treatment of JEPI and its impact on returns.
“Now, here's the part that makes my stomach turn.”
Exploring XYLD's Strategy
15:00 to 16:52
Discover how XYLD operates and its differences from JEPI.
“Well, everyone following along knows we've never talked about JEPI.”
The Advantages of SPYI
16:52 to 19:38
Examine why SPYI is considered the best option for covered call ETFs.
“So if you're spending those distributions, living off them in retirement, that might be perfectly fine.”
Tax Benefits of SPYI Explained
19:38 to 21:30
Understand the unique tax treatment benefits of investing in SPYI.
“And mind you, Robert, this goes for all NEOs funds.”
Show all 20 chapters
Comparing the Three ETFs
21:30 to 23:35
Compare JEPI, XYLD, and SPYI to identify the best investment choice.
“but completely different outcome in your brokerage account after taxes.”
Assessing the Ideal Audience for Covered Call ETFs
23:35 to 27:08
Identify who can benefit most from investing in covered call ETFs.
“Yeah, I feel like we need to make those shirts that you always talk about.”
Understanding Covered Call ETFs
28:00 to 29:06
Learn how different age groups can allocate their portfolios for stable income.
“That's where these covered call ETFs live and provide you that stable income over time.”
The Appeal of Neos Funds
29:06 to 29:50
Discover the benefits of Neos funds and their impact on passive income.
“So whether you're retired and building an income floor or 30 years old and just trying to understand what all the fuss is about, you now have the framework to make that decision for yourself.”
Investing Guidance for Young Investors
32:43 to 36:19
Advice for a young investor on managing funds and planning for real estate.
“So our first question comes from Alexander on Instagram.”
Investment Strategies for Older Couples
36:19 to 41:37
Explore financial strategies for a couple in their sixties to secure retirement.
“Now, our next question comes from Elizabeth on Instagram.”
The Return of Physical Assets
41:37 to 42:01
Discuss the resurgence of tangible assets in the investment landscape.
“And for everyone else watching this episode and this question and listening along, this is why you have to get ahead of it.”
The Importance of Insurance in Investments
42:01 to 42:30
Learn about the essential types of insurance to protect your investments.
“In addition to that, maybe these people, Elizabeth here on Instagram and her husband were great savers.”
Goldman Sachs on Physical Assets and Art Investment
42:31 to 44:38
Discover insights from Goldman Sachs about the value of physical assets and art.
“They're calling it the return of physical assets, specifically these tangible assets that can't be disrupted by artificial intelligence.”
Advice for Jewelry Manufacturing from Asia
45:03 to 47:19
Get practical advice on manufacturing jewelry overseas and protecting your ideas.
“And it's a great way to add to that 15 % satellite portfolio section that we talk about a lot.”
Transcript
Automatic transcript. May contain errors.0:00Robert Croak:Hey everyone and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by public.com. By the end of this episode, you'll understand exactly how covered call ETFs generate monthly income, how they're all built differently, and where they specifically belong in your portfolio. My name is Austin Hankwitz. I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over 300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest every episode, we talk about rich habits as they relate to business, finance, and mindset.
0:40Robert Croak:So Robert, what are we talking about in today's episode?
0:42Austin Hankwitz:In today's episode of the Rich Habits podcast, we're demystifying covered call ETFs, the fastest growing category of income-focused ETFs on the market to figure out how they actually work, how the biggest ones differ from each other, and who should realistically own them. Today, we're breaking down the mechanics behind the strategy, comparing three of the most popular funds side by side, and giving you a framework to decide where a covered call ETF fits inside your diversified portfolio.
1:11Robert Croak:I think that's a great call out, Robert, because we see the headlines. 12, 15, 20 % yield, right? A 12 % yield doesn't exactly mean you're earning 12 % consistently on your money. Some of these ETFs are slowly bleeding share price while they pay you a monthly distribution. All covered call ETF strategies are not created equal. The difference is how they sell those options and how those distributions are taxed. Those two differences can mean thousands of dollars or more less in your pocket over time.
1:43Austin Hankwitz:So whether you're retired and looking for monthly income in your 30s and curious about these yields you keep seeing on social media, or just trying to figure out why everyone's suddenly talking about income-focused ETFs, this episode is definitely for you. So Austin, let's start from the very beginning. What is a covered call?
2:01Robert Croak:And I just want to reiterate here, the title of this episode is Our Favorite Passive Income Strategy. And the reason we made that the title for this episode is because you see a lot of these gurus online talk about how laundromats, car washes, maybe even some real estate can be passive income. But at the end of the day, there's nothing more passive than doing nothing and getting monthly distributions from these covered call ETFs, which make it my favorite, our favorite passive income strategy that anyone can do. You just open up a brokerage account on public.com or whatever broker you want to use, and you start buying and accumulating shares of these ETFs, and you start collecting monthly distributions.
2:41Austin Hankwitz:Austin, I love this call out because you're right. So many of the gurus are telling you buy the laundromat, buy the vending route, but they don't ever touch on the fact of who's going to go fix that laundromat when it jams or the coin machine isn't working or the vending route is empty. Guess what? There is nothing passive about those. I'm not saying they're bad, but they're definitely not what we're describing in today's episode.
3:04Robert Croak:So if you're someone who's truly looking for the definition of passive income, look no further. Let's talk about covered call ETFs. So Robert, you said, what is a covered call? Let's jump into that. A covered call is one of the simplest options strategies in investing. And once you understand how it works, the entire covered call ETF category begins to click. So here's how it works. Let's say that you own 100 shares of a stock. Let's use Tesla as an example, because I've done this in real life with my real shares of Tesla stock. I went out a couple years ago and I bought 100 shares of Tesla at about$220 a share.
3:45Robert Croak:So about$22 ,000 of cash left my account and I bought shares of Tesla with it. I then sold someone the right to buy my 100 shares that I paid$224 for$250 per share by a specific date. So I bought it for$220 and then I told someone, I said, hey, if you want to purchase my shares at$250 by a specific date, you can. And for that right, that covered call option contract, it's called a covered call, doing that sort of transaction there, they paid me a cash premium. It's called premium. This is cash deposited straight to my brokerage account. In this example, let's just make up a number. Let's call it$500.
4:26Robert Croak:So after you sell a covered call, three things can happen. Only three things. Scenario one, Tesla stays below the$250 strike price by the expiration date of the contract. The contract expires worthless for the buyer because why would I pay$250 a share if Tesla is trading at$240 or something, right? There's no buyer that's going to want to do that. So their right to exercise the contract is worthless. I get to keep my 100 shares of Tesla stock and I keep the$500 premium they paid me. This is what I call the freest money that exists. It is awesome. I turn around, I can sell another covered call for the next month, collect another 500 bucks or whatever the number might be.
5:08Robert Croak:I literally did this for years, Robert. In 2024, 2025, I've made north of$18 ,000 in premium income on my 200-ish shares of Tesla stock over the years. It is an awesome strategy. Now that's scenario one. Scenario two is Tesla goes to exactly$250 a share. Same outcome. Contract isn't worth exercising. Oh, if I'm the buyer, I'll just buy shares on the open market. No worries to exercise this contract. Me as the seller, I get to keep my shares and that$500. Now, scenario three is where things get tricky. Let's now pretend that Tesla stock rises well beyond that$250 strike price to$300. dollars. Now the buyer, the person who has the right to buy my Tesla stock at 250 a share, they say, why would I pay 300 if Austin's going to sell me his 100 shares of Tesla at 250?
6:01Robert Croak:I'm obligated to sell those shares at 250, even though they're worth$300 in the open market. I still made a$30 per share profit. Since again, in this example, I hypothetically paid$220 a share and I'm selling them for$250, plus I collected that$500 of premium. So it's certainly not a loss by any stretch of the imagination, but I missed out on that$50 per share upside, right? I sold it at $250 where the open market has it listed at$300. That's$5 ,000 that I hypothetically left on the table in this example. And that is the crux of covered calls. So Robert, maybe explain why that $5 ,000 is so important.
6:42Austin Hankwitz:Yeah, that$5 ,000 trade-off is the entire foundation of this covered call strategy. You're trading some of your upside potential for guaranteed income today. One important term here is covered. The call is covered because you actually own the shares. You have the stock sitting in your account, backing up the contract that you sold to this other person. So to summarize, a covered call means you own a stock, you sell someone the right to buy it at a higher price than you paid by a certain date, they pay you a cash premium to you for that right. And if the stock doesn't reach that price, you keep everything and do it again and again and again.
7:20Austin Hankwitz:And this is how we make a ton of money doing this as per Austin's example regarding Tesla. So let's talk about why entire ETFs are built around this strategy and what that means to you.
7:34Robert Croak:Yes. And let's be super clear here, Robert. Covered calls. Once you get your reps in, you get to really understand how they work. But there is a whole industry, a whole sector, a whole thematic of ETFs built around this strategy. Some of them are specifically doing single stocks. Others are doing indices. Others might be doing sectors, right? Some examples include SPYI for the S &P 500, but also BTCI for Bitcoin. That's a covered call Bitcoin strategy. There's also TSLY, which is a Tesla stock covered call strategy, or CONY, which is an ETF that's specific for Coinbase stock. These covered call ETFs are everywhere.
8:17Robert Croak:And we want to make sure everyone has full understanding before they make the decision if any of these ETFs fit inside their own well-diversified portfolios. So Robert, let's dig in as to why these covered call ETFs exist in the first place. So you're saying to yourself, great, I want to sell some covered calls, collect some premium every month. This sounds like fun. But there's a catch. The catch is to sell one single covered call contract, you have to own 100 shares of the underlying stock. I use that as an example with Tesla. I said, cool, I've got$22 ,000. I'm going to go buy 100 shares of Tesla stock.
8:55Robert Croak:Maybe you want to do that with NVIDIA right now. That's like$20 ,000. Or maybe 100 shares of Apple stock right now. $29 ,000. Robert, that's a lot of money. And that's just for one contract on one stock. If you want to run a diversified covered call strategy across dozens of stocks, we're talking about hundreds of thousands of dollars of capital just to get started. That's the problem that covered call ETFs specifically solve. They pool investor money together and they essentially do three things at scale.
9:28Austin Hankwitz:Yeah, let's break this down. First, they buy the stocks. Typically, it's a broad basket like the S &P 500 or a curated group of those large cap names. Second, they sell those covered calls against those holdings, collecting the premium every week or every month, systematically across that entire portfolio. And third, they distribute that premium income to you, the ETF shareholder, as monthly distributions. This is the monthly income that hits your account. That's where the 8%, the 10 % or the 12 % yields you see advertised are coming from.
10:02Robert Croak:That's right, Robert. So instead of needing half a million dollars to go build your own diversified covered call portfolio, you can buy one share of a covered call ETF at$50 a share and you're getting that institutional level options income immediately. That accessibility is why this category has absolutely exploded over the last four to five years. So many people talk about it on X and Reddit and Instagram. People are these income-focused investors. It has been such a popular investing trend to get paid that monthly passive income. But this is where things get complicated. Because not all covered call ETFs use the same strategy that Robert and I just explained with Tesla.
10:46Robert Croak:The way they might sell those options, specifically where they set the strike price relative to the current market price, what types of option contracts they use, how the income is classified for taxes, all of these things creates massive differences in what you actually earn after everything is said and done and after you pay Uncle Sam. And that brings us to the most important segment of this episode. So Robert, let's now walk our listeners through three of the most popular S &P 500 covered call ETFs side by side, which is JEPI, J-E-P-I, X-Y-L-D, and S-P -Y-I, and then show everyone exactly how different they are under the hood.
11:31Robert Croak:And I think it's important to talk about these three specifically because, one, everyone understands here, at least I hope so, that are listening what the S &P 500 is. We all have VOO in our portfolios, right? 500 largest of the most profitable companies in the United States. And so as we think about a covered call strategy that sort of benchmarks against the S &P 500, you can begin to compare apples to apples. So, Robert, kick us off here with this awesome comparison.
12:00Austin Hankwitz:Yes, all three of these ETFs are built around the same basic idea. Own large cap U.S. stocks and sell covered calls to generate monthly income. But the way each one executes that idea is completely different. And those differences definitely show up in your yield, your total return, and especially your tax bill. So we want to break those down one at a time so you'll know exactly what you're getting into.
12:24Robert Croak:So let's start with JEPI. J-E-P-I. This is the most popular covered call ETF of them all. $36 billion of assets under management, 35 basis point expense ratio, and a yield of about 8%. It's the one your financial advisor has probably mentioned to you. Here's how JEPI actually works. The first difference about JEPI that I think a lot of people forget is that JEPI does not hold the full 500 constituents of the S &P 500. JP Morgan's portfolio managers actively select about 130 large cap stocks that they think are going to perform well, which like, OK, that matters because it means Jeppe's performance can deviate significantly from the S &P 500, which it certainly has over the last several years.
13:17Austin Hankwitz:And second, and this is a very critical part, Jeppe doesn't sell standard call options. Instead, he uses something called equity link notes, or you'll see it as ELNs. These are specific financial products issued by banks that mimic the payoff of a covered call without actually trading listed options on the exchange. Jeppe buys these ELNs and the income from those notes flow to shareholders as these distributions. JEPI sells its exposure at out-of-the-money strike prices, which means there's a buffer between the current stock price and where the upside gets capped. And that allows JEPI holders to participate in some market appreciation before that cap kicks in.
13:59Austin Hankwitz:Think about buying Tesla at$220 and selling the covered call strike price at$250. Some upside appreciation does get captured.
14:09Robert Croak:Now, here's the part that makes my stomach turn. Because JEPI uses these ELNs instead of actual listed options, the IRS treats virtually all of the premium income JEPI generates as ordinary income. Not capital gains, not return of capital, ordinary income. Taxed at your full marginal rate, which means if you're a high earner and you are getting taxed at that 32 % federal tax bracket, nearly a third of every JEPI distribution goes straight to the government, which means in a taxable brokerage account, that 8 % yield is much closer to 5.5 % after taxes. That is a meaningful haircut. And if you can't hear it in my voice, I hate this covered call ETF.
14:53Robert Croak:And it makes me so upset that people actually put money in it because it's a terrible product. I'll leave it at that.
15:00Austin Hankwitz:Well, everyone following along knows we've never talked about JEPI. So I love this episode and doing a deep dive to break these down because they are the three largest covered call S &P 500 funds out there. So that leads us into the next one. And this is XYLD. And they take a completely different approach. It has a 0.60 expense ratio and a yield of roughly 10 to 11 percent higher than JEPI. XYLD holds the actual S &P 500, the full index replication, not an actively managed subset like JEPI. So you're getting the true S &P 500 exposure as your base in this fund.
15:42Robert Croak:Which I think is a good thing. If you want to benchmark against the S &P, you better hold it. But the key difference here is where XYLD actually sells those call options. In our previous example, Robert, we talked about me buying Tesla stock at$220 a share and selling the covered call with a strike price at$250, which means I'll profit that$30 per share difference and the premium I collect. XYLD sells at the money covered calls, which means the strike price is set right at the current market price. So if the S &P 500, because it holds the S &P 500 in this ETF, is trading at 7 ,000, XYLD is selling at 7 ,000.
16:27Robert Croak:That means any appreciation in the S &P 500 above that level is money left on the table. You're collecting premium. Yeah, that's true. But you're giving up essentially all of the market's upside.
16:40Austin Hankwitz:Yeah, XYLD share price has been gradually declining over time. So let's make sure everyone understands that. But you're receiving monthly distributions. but the underlying value of your investment is eroding. And that's where the numbers get a little wonky and why we're breaking these down today. So if you're spending those distributions, living off them in retirement, that might be perfectly fine. But if you're reinvesting them and expecting wealth accumulation, X, Y, L, D has significantly underperformed the S and P 500, that V.O.O. that we talk about all the time. And on the tax side, X, Y, L, D uses actual listed options.
17:17Austin Hankwitz:So its distributions are a mix of short-term capital gains and return of capital. That's better than Jeppe's straight ordinary income treatment, but it's still not ideal in a taxable account.
17:29Robert Croak:So let's recap. Jeppe, terrible, black box of investments, high taxes, no good vibes. Then you've got this XYLD product. They got the S &P 500, which is good, but they're not writing and selling contracts out of the money. They're doing it right at the current price, which is going to cap that upside, which is why you've seen the share price of XYLD decline over the years. So now let's talk about, in my opinion, the best product that exists when it comes to S &P 500 covered call ETFs, and that is SPYI. SPYI has a 68 basis point expense ratio, which is the highest of the three and a yield of 10 to 12%.
18:11Robert Croak:But before you look at that expense ratio and say, whoa, that's a lot, look at the total return. This ETF is our favorite because since inception in August of 2022, SPYI has returned 66.5 % cumulatively, 14.5 % annualized returns. Over the trailing three years, its return roughly 16 % annualized has outperformed JEPI and XYLD by a wide margin, capturing anywhere between 75 % of the S &P 500's annualized return, depending on the year, all the way up to last year, it captured like 94 % of VOO's total return during the same period.
18:56Austin Hankwitz:And here's why. Like XYLD, SPYI holds the actual S &P 500, the full index replication. but SPYI sells out of the money call options on the S &P 500 index. Out of the money means the strike price is set above the current market level. So if the S &P 500 is at 7 ,000, SPYI might sell calls at a$7 ,500 strike price. That means that the S &P 500 can appreciate 5 % or 6 % before any upside gets capped. So you're retaining significantly more of the market's growth. And in strong bull markets, that compounds enormously. And that is one of the many reasons why SPYI is our favorite.
19:42Robert Croak:And mind you, Robert, this goes for all NEOs funds. They take this strategy, this outperforming strategy, and they apply it to IWMI, QQQI, IAUI, IYRI. I could go on for days. I, I, I, right? You like that? So let's let's not talk about the tax treatment because I also think that's where SPYI kind of stands out here And again, I want to be very clear Robert when we sat down to figure out what this episode topic would be about We wanted to talk about passive income and how we're collecting passive income in our own portfolios And we both sort of were thinking we're like well, we use a lot of neos funds to collect passive income I collectively between the two of us make thousands of dollars a month from these things Why don't we emphasize that to our audience and remind them that these products exist?
20:27Robert Croak:Nios isn't involved in this episode at all. I'm sure they're going to be happy we made it. But this is us sharing our unique perspectives and our real experience about building passive income in our portfolios with products that we believe in. If there was a better covered call ETF out there, I'd be the first to admit it. I just haven't found one yet. So if you know of one, send me a comment. I'd be happy to give it a look. But let's now talk about the tax treatment, Robert, because this is where SPYI stands out. SPYI uses S &P 500 index options that qualify as Section 1256 under the tax code, which means regardless of how long you've held the ETF position, the gains and losses on these contracts are automatically treated as 60 % long-term capital gains, we like that, and 40 % short-term capital gains.
21:17Robert Croak:The maximum federal tax rate on long-term capital gains is 20 % compared to that ordinary with JEPI at up to 32, 35, 37%, right? Depending on your tax bracket. Same yield on paper, but completely different outcome in your brokerage account after taxes.
21:35Austin Hankwitz:And on top of the section 1256 treatment, SPY has been able to classify a significant portion of its distributions as a return of capital. That's very, very important here. Return of capital is not taxed in the year you receive it. It simply reduces your cost basis in the ETF. So you're receiving income, keeping more of it and deferring the tax liability. So Austin, let's break it down side by side. So the picture is crystal clear on these three different ETFs and who the clear winner is.
22:07Robert Croak:Yeah. The clear winner obviously is SPYI and anyone that sells out of the money, return of capital, section 1256, full index replication. So when you're looking at anything out there, full index replication, out of the money, 1256, return of capital. That's sort of like the big green flags to look for. But yeah, so Jeppy, 130 randomly selected stocks. I mean, I wouldn't say random, but it's like black box. Who knows what goes into that selection? They do sell out of the money calls, which is cool, but they do it through ELNs. So it's taxed as ordinary income. Three years annualized total return, 12%.
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22:42Robert Croak:Yuck. XYLD holds the full S &P 500, which is cool, but they sell at the money options. They yield 10 to 11 % per year, which is pretty cool. But their total return, when you include that erosion of the price because of those at the money, not out of the money, it's only 8%. That sucks. And then you bring in SPYI, the full S &P 500, out of the money index options, 10 to 12 % annual yield, annualized total return of 16%. Distributions from those section 1256 contracts are taxed at that 60-40 split. Plus, you get a nice big, I think it's like 95 % of these distributions, Robert, are return of capital, which means you do not pay taxes on the money you receive in the same calendar year you receive it.
23:34Robert Croak:I love making money that I don't owe taxes on in the short term here. It's awesome.
23:40Austin Hankwitz:Yeah, I feel like we need to make those shirts that you always talk about. And that is, I love free internet money because this is one of those cases. All right, so let's go through now the trade-offs and who benefits most. Because now that all of you understand the mechanics, let's talk honestly about the trade-offs because covered call ETFs are not free money. And there are specific situations where they make a lot of sense. and also specific situations where the outcome might be confusing. So trade-off number one, income versus growth. Every dollar of premium income you receive from a covered call ETF is upside you gave away.
24:18Austin Hankwitz:That's a feature, it's not a bug. So in 2025, the S &P 500 delivered 17.8 % returns for its investors, where SPYI delivered only 16.7%, which is about a 94 % capture. and XYLD only delivered 7.9 % and JEPI only 8.1%.
24:41Robert Croak:Trade-off number two is the yield is not the same as the return. And this goes for those single stock covered call ETFs. This is a major trap people find themselves in. I see people online all the time talk about, yeah, I'm making 30, 40, 50, 60 % annual yield with my TSLY, C-O-N-Y or whatever insert ETF here that is a single stock covered call ETF. But then you look at the price of it and it declines a ton. A great example of this again is to just go look at the TSLY ETF since inception back in November of 2022. It was trading at$205 a share. And yeah, it pays out 60, 70 % yields, whatever you want to look at there.
25:27Robert Croak:But now it's declined 85 % in value since then. So you really have to look at the total return, not just the yield.
25:37Austin Hankwitz:Yeah, I think that's a great call out because so many people see the headlines and they get excited. And it's very misleading without people understanding. So I think this is a very important episode for that very reason.
25:49Robert Croak:So Robert, let's wrap the episode with who should actually own these covered call ETFs in their portfolios. Maybe give me some like portfolio breakdown, some age ranges, maybe things like that.
26:01Austin Hankwitz:Yeah, I think covered call ETFs are great for retirees who need monthly income to cover those living expenses, replacing a paycheck with these predictable distributions. But they're also great for pre-retirees who maybe are within five to 10 years of retirement who want to build that income floor that they can count on, but they also work well to supplement Social Security or that pension.
26:24Robert Croak:That's all true, but I also think they're great for people like me who desire predictable, tax-efficient monthly income in their portfolios, and they like to either put that money back to work in their portfolios or use it to supplement their lifestyle. I've said this on the show, I mean, many times. I've got six figures invested into NEO's funds like SPYI, QQQI, BTCI, IYRI, IAUI. I love the funds. I make over$1 ,000 a month in predictable, passive cash income predictability here. It's passive. It's awesome. It's tax efficient. And I, again, take that money and reinvest it back into the funds.
27:04Robert Croak:Or I use it and put gas in my car or buy groceries. And what's really cool, Robert, is that predictability holds up pretty well during some market turmoil. These NEOS funds were what I leaned on a little bit here during the first quarter of the year when we saw the craziness happen in the Middle East. I still made that money. So, Robert, let's close out the episode by answering the question I'm sure everyone is thinking after we just broke that down, which is, do I own this? Should I be buying this? And if I should be buying this, where does it fit in my portfolio specifically?
27:37Austin Hankwitz:I think everyone listening should look at it, that their portfolio kind of look at it in three sleeves. You have your growth sleeve, which we talk about all the time, the VOO, VTI, QQQ, maybe MOAT, some individual stocks, whatever your core allocation looks like. That's the piece that compounds over decades and builds that long-term wealth. You have your stability sleeve, treasuries and money markets, the piece that provides that ballast and liquidity when the markets decline. And then there's your income sleeve. That's where these covered call ETFs live and provide you that stable income over time.
28:15Robert Croak:That's right. So maybe if you're in your 20s or 30s, think 5 % to 10 % of your portfolio. That's about what it is for myself. If you're in your 40s, maybe think 15 % to 25 % of your portfolio. And if you're in your 50s or even approaching retirement, maybe bump that up to 25 or maybe even 40 % of your portfolio to build that income floor.
28:34Austin Hankwitz:And in actual retirement, the income sleeve might grow to 50 or 75 % because now you need those distributions to pay the mortgage, cover health care, and fund your lifestyle. That's the phase where Covered Call ETFs truly earn their place. Austin, what a great episode. I am so glad we covered this because it's all over. The headlines are everywhere about covered call ETFs. And we love NEO's funds. And that is why I'm glad we covered the three top funds and broke it down. So everyone understands, is it a good fit for them? And where does it fit? So whether you're retired and building an income floor or 30 years old and just trying to understand what all the fuss is about, you now have the framework to make that decision for yourself.
29:17Robert Croak:Yeah. And shout out to my friend, Mike. Mike, you know who you are. I had dinner with him. maybe a couple weeks ago. And he has like a ton of Neos funds, so much so he gets paid, I think it's like$35 ,000 or$40 ,000 a month in these tax efficient monthly distributions every single month like clockwork. I mean, you just keep putting zeros behind this stuff and it scales with you, which is really exciting. So shout out to everyone that's got Neos funds or any other covered call product in your portfolio that you agree with. Again, And this has nothing to do with NEO specifically. It's just Robert and I were sitting down and thinking, I don't think we've done a good job recently of encouraging people to find passive income for themselves.
29:58Robert Croak:True passive income, not vending routes or laundry mats or phone booths. They don't have phone booths anymore. Robert and I were talking about phone booths before this.
30:05Austin Hankwitz:I used to own them. I used to have them. They were very profitable.
30:09Robert Croak:I know you did. But this is the most passive income, in my opinion, that exists. it's super super tax efficient specifically talking about neos funds and so highly recommend if you're looking for a way to actually make 10 20 50 100 a thousand dollars a month consider putting a nibbling now here at some neos funds and get your reps in you're like whoa i just woke up to 78 much in my brokerage account today that's kind of cool let me try that again next month whoa i just woke up to 186 i'm gonna take it out and go use that to go buy myself a nice dinner right? Whatever you want to do there. Really cool stuff.
30:42Robert Croak:Now, Robert, before we jump to the Q &A section, I got to give a specific shout out to Phoebe Thompson. Phoebe Thompson has been on our team for a while now. She helps us with social media with the Rich Habits podcast and everything like that. And now she's a published author. She has a book on Amazon called Girls Our Age. And it is awesome. Really cool cover art, by the way. So if you want to go learn more about Phoebe Thompson's book, Girls Our Age. We'll have a link to it in the show notes below to Amazon. It's a nice hardcover book. Just came out here recently. Super proud of Phoebe for being a published author now and major, major shout out to doing this.
31:21Robert Croak:I mean, I can't write a book. That's awesome. Congratulations, Phoebe.
31:24Austin Hankwitz:Definitely shout out, Phoebe. We love our team members and she crushes it for us. So really proud of her for the book.
31:31Robert Croak:And Robert, this is a great reminder too. If you want to buy a covered call ETF, there's a platform called public.com that is specifically built for investors that take investing as seriously as we do. Because on public, you can build a multi-asset portfolio of stocks, bonds, options, crypto, ETFs, and now generated assets, which allow you to turn any idea into an investable index using artificial intelligence.
31:58Austin Hankwitz:Yeah. And it all starts with your prompt from renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20 % year over year. You can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one-of-a-kind index, and even lets you backtest it against the S &P 500, all with just a few clicks.
32:19Robert Croak:We were just talking about ETFs here, and generated assets are very much like them, but with infinite possibilities. They're completely customizable. They're based on your thesis, not someone else's. So go to public.com slash rich habits and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash rich habits. Paid for by public investing.
32:41Austin Hankwitz:Full disclosure in the podcast description.
32:43Robert Croak:All right, Robert. So our first question comes from Alexander on Instagram. Alexander. Oh, wait, duh, everyone. You got a question? DM us on Instagram, rich habits podcast, or email us at richhabitspodcast at gmail.com. So Alexander on Instagram says, I have$60 ,000 in my bank account at 19. Holy smokes. Alexander says, I'm interested in investing most of the money. I currently do have money put into the ETFs you talk about, but I want to give them an extra boost. I'm worried if I withdraw that money, it might affect my loan capacity for an investment property I'm looking to buy alongside my parents in the coming months.
33:23Robert Croak:what is your take on this? Good question, Alexander. So a couple things here, my friend. The first one is you're 19 with$60 ,000. That's incredible. Congratulations. You are wealthier than I sure was at 19. I'm sure wealthier than Robert, wealthier than a lot of people listening here at 19. That is a ton of money to have at 19 years old. In my opinion, I'm not sure that investment properties or teaming up with your parents or things of that nature is the best first move to make at 19, I would much rather see you have this$60 ,000 working for you the old-fashioned boring way, which is in index funds, in ETFs like VOO, QQQ, DIA, MOAT, things of that nature.
34:09Robert Croak:Maybe over the coming years when you have your base built fully to that$100 ,000 mark, you want to then go take some money and use that to perhaps purchase a rental property or an investment property of some sort, be my guest. But I'm not sure I would do that here, assuming the 60 ,000 is all you have.
34:27Austin Hankwitz:I agree with that 100%. I know it's fun and it sounds great. I bought my first fourplex at 23 years old. I thought I was a rock star. But keep this in mind. Let me paint a picture for anyone out there who's younger and doesn't have their base built, but still wants to buy a property right out of the gate. Be careful. Because let's say in this instance, you have$60 ,000 and you use 30 ,000 of it for closing costs and down payment, everything to buy this first property. But then you realize that the hot water tank is bad. There's some issues with the foundation or maybe the roof needs a repair. Then all of a sudden you're 10 ,000 more into the property.
35:04Austin Hankwitz:Then pretty soon you're in that danger zone because you've eaten away at all of this work you've done to get to the 60 ,000. So I agree with Austin a hundred percent. I wouldn't buy the property yet. I would keep rocking and rolling, keep working, keep my cost of living low and keep putting the money away because we want to see that base. So you're making money while you sleep. And of course I want everyone to buy real estate, but not first before they have the base built.
35:30Robert Croak:And the only thing I'd add, Robert, is I'd really want to encourage Alexander here to think about, they said, I want to give my ETFs an extra boost. Maybe, but maybe that extra boost comes in the form as like the satellite portion of your portfolio, right? We talk about the core satellite portfolio strategy a lot, which all that means is 65 to 85 % of your portfolio is invested into the index funds and ETFs we talk about. And the other 15 to 35 % is diversified into single stocks or different asset classes like precious metals or real estate or venture, whatever you want to go there. And so maybe that's where the boost comes from.
36:07Robert Croak:But we always want people to ensure before they're diversifying into other things, they've built their base. So continue to invest, Alexander. You are crushing it at 19 years old. You're just not there yet. Now, our next question comes from Elizabeth on Instagram. Elizabeth says, my husband has gone back to work at 66 years old. He's a professional project manager earning over$200 ,000. We have little to no savings. Our 401k is completely depleted. Where do we start investing to make the most of the next three years of his salary?
36:38Austin Hankwitz:This is a tough one. I'll take a stab at it. You're going to have to make some serious changes. And I'm not trying to be gloom and doom, but at 66 years old, even though I believe we're all going to live a lot longer, you really need to dig deep. I would start by getting a pen and paper out, sit down with your husband and go through all of your expenses right now and find out how you can lower your cost of living and sock away as much of this 200K a year over the next three years. So let's say you could find a way to put away 40 % of that for three years. That would be a good dent, but you can't do business as usual and expect to get anywhere you desire to feel comfortable in retirement.
37:20Austin Hankwitz:And at 66 years old already, you've got to make some serious changes because you don't want to be in a situation where he has to work another 10 years just so you guys can have any hope of some sort of retirement with any comfortability. So that's where I'd start. I'd start with the budget. I would do a really, really deep dive in all of your expenses and get rid of everything you can and then go from there because you need to start getting this money activated. That could be in some of these funds we talk about. It could maybe be depending on if his work has any kind of 401k or any kind of match, maybe that could help as well.
37:58Austin Hankwitz:But Austin, what is your take here given the age of this person?
38:01Robert Croak:I think the first place I would start is what you said, which is like the budget. Obviously you guys are in this situation because what you were doing before wasn't working or maybe had really bad luck, medical emergency. Like I have no idea, to be honest. I'm not going to assume anything. Everyone's lives are different. We're starting from scratch and we're definitely older here. So we have to do the math equation. We got to figure out this math equation. The math equation is how much money is hitting our checking account on a monthly basis from my husband's project manager salary. How much money is leaving our bank account every month for our monthly expenses?
38:37Robert Croak:And how much margin can we find? How many subscriptions can we cancel? How many insurance companies can we call and renegotiate our rates or switch from farmers to Geico? Can we switch from AT &T to visible wireless and save 80 bucks a month? Like what can we do to try and get our monthly expenses as low as humanly possible to find the margin in that budget to save and invest a nest egg aggressively over the next three, four or five years? Now, the other question is retirement. At the age of 65, I mean earlier than 65, but I mean 66 here, you can tap into your social security. I would encourage you to probably start doing that sooner than later, specifically so that could also build a nest egg for you.
39:26Robert Croak:Do not live off of that income. Do not spend that income, but take it from the government and get it invested as properly as you possibly can. Maybe that's an IRA. Maybe it's a taxable account. Maybe work with a professional. It's going to help you navigate the best way to approach this. But get that money working for you. Don't let the government hold on to it. It's only going to grow by 3 % or 4 % if the government has anything to do with it. You can grow this money by 8%, 10%, 12%. I mean, the S &P is already up 6 % this year. The NASDAQ is up 11 % this year, right? That's just by parking it in the index funds we talk about, which again is two to three times better than what the government would do with their T-bills.
40:02Robert Croak:So get your social security and start investing it. That's my quick take. The other thing to consider here is like, what does retirement look like? Retirement is not an age, it's a math problem. Am I earning enough off my portfolio and other passive income streams to offset my monthly living expenses? So let's say your monthly living expenses are$4 ,000 a month. Let's say your social security is$2 ,000 a month. You guys now need to come up with$2 ,000 a month somewhere else. that could be 4 % rule from the portfolio, right? Maybe that's$24 ,000 a year. That means your portfolio would have to be between 900 ,000 to a million dollars.
40:40Robert Croak:I have no idea if that's possible in three years time, but you guys have a great income and there's a ton of different ways to think about this. This is just a math problem. And the biggest advice I can give you, do not be afraid. Do not feel hopeless. Do not feel like this is something that is out of your control and you're gonna be screwed. it's just a math problem. And the faster you sit down and figure out the solution, right? Solve for X, right? Just like you were in algebra class. The faster you can sit down and solve for this math problem. How much money do I need? By what date? How much money do we need to save per month?
41:16Robert Croak:How is it going to help us reach this goal? How much do we need in retirement? Where's that money going to come from? Social security? Maybe I get a part-time job at the bakery, right? That's going to be an extra thousand a month. Like there's a lot of different ways to think about this. And I promise you there's a solution to this math problem. So please do not be afraid of it. Do not get discouraged. There absolutely is hope here.
41:37Austin Hankwitz:And for everyone else watching this episode and this question and listening along, this is why you have to get ahead of it. This is why you have to invest early and often. So if you're in your forties or you're in your fifties right now, don't keep kicking the can down the road because at some point you're going to run out of time and you're not going to be able to retire comfortably. And we don't want to see that happen to anyone on our watch.
42:02Robert Croak:In addition to that, maybe these people, Elizabeth here on Instagram and her husband were great savers. They were just very unlucky. Have umbrella insurance, have the right insurances in place to ensure that if you do have a medical emergency or a terrible lawsuit because someone slipped and fell on your property, your rental property, and they sued you for everything you have. Like, who knows? But have the right insurances in place. This is another great
42:25Austin Hankwitz:reminder for that as well.
42:26Robert Croak:Now, before we go into our last question, Goldman Sachs Research just published something that went pretty viral, Robert, on the social medias of the world. They're calling it the return of physical assets, specifically these tangible assets that can't be disrupted by artificial intelligence.
42:41Austin Hankwitz:Yes, Goldman says that this one bucket from the report has outperformed capital-like companies by roughly 35 % since the start of 2025. That's 35%. And at the same time, the software sector is currently down about 35%. The report basically says the market is repricing what things are worth today based on whether physical and hard to replace or just digital and vulnerable to disruption.
43:07Robert Croak:They call these winners heavy assets with low absolescence, which is HALO as an acronym there. And we're reading this and thinking, you know what? I'm sure we're going to see in that report is blue chip artwork. And here's why. There's scarce supply for artists like Picasso and Basquiat. And while software valuations began to fall earlier this year, a Klimt painting in 1907 just sold for, get this Robert,$236 million in November. Obviously, that's an outlier. That's not all the artwork out there, but it's the highest price ever paid for modern art at auction. So pretty low obsolescence if you ask me.
43:43Austin Hankwitz:That's the thing. The ArtPrice 100 Index has outpaced the S &P 500 by 64 % from 2000 to 2024. We've been using today's sponsor, Masterworks, for years. They let you invest in shares of museum-quality artworks featuring Banksy, Basquiat, and Picasso without having to spend millions of dollars. And this is a compelling investment most people couldn't possibly access without Masterworks. Since 2019, over 70 ,000 members have invested over$1.3 billion across more than 500 artworks. And across 26 exits to date, investors have seen net annualized returns like 14.6%, 17.6%, and 17.8%.
44:30Robert Croak:So while Goldman Sachs is telling investors to get real about physical assets and the wealthy have poured hundreds of millions of dollars into a single painting, you might want to see if art is a fit for your own portfolio. Better yet, our listeners can skip the wait list at masterworks.art forward slash rich habits. That's masterworks.art forward slash rich habits. Link in the show notes below.
44:56Austin Hankwitz:As always, investing involves risk. Past performance is not indicative of future results. See important regulation A disclosures at masterworks.com slash CD.
45:07Robert Croak:Shout out Masterworks. We love Masterworks. And it's a great way to add to that 15 % satellite portfolio section that we talk about a lot.
45:16Austin Hankwitz:Now, our final question comes from Bola
45:17Robert Croak:on Instagram. Bola says, hey, guys, quick question. My friend sells jewelry and they're currently making it in the United States, but they're looking to start manufacturing from Asia. Not sure where to start. Do you have any advice? Robert, this is all you.
45:31Austin Hankwitz:Yes, definitely. So here's the blueprint for anyone out there that's starting a brand that's going to manufacture in Asia, or maybe already has a brand and it's starting to grow. Get your contracts in order. I see people all the time. They jump on Alibaba. They start talking to people in messages and say, I have this cool product idea without any protection. So first and foremost, use ChatGPT, use Gemini, Claude, whatever you use, you're going to create these three documents, a manufacturer's agreement, an NDA agreement, which is a non-disclosure and a non-circumvent agreement. All three of those documents are very, very important.
46:09Austin Hankwitz:Get those done first. Then once you're ready and you go to Alibaba and start searching for a manufacturer for this jewelry, don't share with them anything, any of your drawings, anything about your product until you find a manufacturer that looks like it's going to work and they're willing to sign these documents. Now, one pro tip I have for everyone listening that's doing this, when you go to Alibaba, you're going to see a thousand listings. Try if you can to avoid any listing that in the description of the company says XYZ trading, because all that means is they're trying to get leads from Alibaba.
46:48Austin Hankwitz:Then they're going to go to the actual manufacturer. So you're actually hiring a middleman if you do that. So look for manufacturer in the description. It'll say XYZ jewelry manufacturer because in that way you're buying direct and you don't have a middleman eating into your profits. So that's it. That's the blueprint. Get the contracts in order. As soon as you find a factory that looks good, you can message them, say, Hey, before I discuss my product and my needs, can you please sign these documents? And then once you're protected there, you'll be good to go because trust me, the horror stories of people finding a hot product because someone shared it with them and then they start selling it to other vendors.
47:28Austin Hankwitz:happens all the time. This is how you prevent that.
47:31Robert Croak:What a great breakdown, Robert. Everybody, don't forget Phoebe Thompson is now a published author here. Girls Are Age is the name of her novel. It's on Amazon. It's going to be in the link in the show notes below. We're so proud to have people on our team doing incredible things. That's it for this episode of the Rich Habits podcast. We'll see you on Thursday.
48:12We'll see you next time.
From the publisher
In this week's episode of the Rich Habits Podcast, Robert Croak and Austin Hankwitz share their personal seven streams of income.
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