Retirees are swapping bonds for a high-yield ETF that pays nearly three times more every month, but the real job of a bond allocation has nothing to do with income.
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A $300,000 position in the NEOS S&P 500 High Income ETF (BATS:SPYI) pays about $2,935 a month. A matching amount in iShares Core U.S. Aggregate Bond ETF (NYSEARCA:AGG) pays $1,050 a month. That gap helps explain why SPYI has become a favorite with retirees, and why some now use it in place of their bond allocation.
The fund took in $5.15 billion in net inflows through late September, including $806 million in the final month of that period, bringing total assets to $12.40 billion. The trouble starts when you ask what the fund does in a stock crash, because a bond allocation is there to protect you in a crash.
Where an 11.7% Yield Comes From
SPYI owns S&P 500 stocks. The largest positions are Apple (NASDAQ:AAPL | AAPL Price Prediction) at about 7% of assets and Microsoft (NASDAQ:MSFT) at 4%. The fund sells call options on the index and pays out the premium every month.
Over the past year, SPYI paid $6.34 per share against a recent price near $54. That works out to a trailing yield of 11.7%, while AGG yields 4.2%.
When the fund sells those calls, it gives up any gains above the strike price for the premium. When stocks fall, the premium offsets losses only by the amount collected, so the fund falls almost as hard as the stocks it holds.
2026 has rewarded SPYI holders, though.
SPYI has returned 13% this year, while AGG is down 3%. The gap widened in September, when SPYI gained 0.11% and AGG lost 3%.
AGG now sits 4% below its late February level. A $300,000 position in it has lost $8,010 this year.
That loss comes from duration. When interest rates rise, fixed bond payments are worth less, and the bond’s price falls. The longer the maturity, the bigger the drop.
How 16.8 Months of Income Vanished in the 2025 Crash
From February 19 to April 8, 2025, SPYI fell 16% with distributions reinvested. On a $300,000 position, that was a $49,410 loss.
The loss wiped out more than a year of monthly checks in a single spring. It is 16.8 months of income.
Over the same period, AGG gained 1%, or $2,640 on the same amount. Bonds earn their place in a retirement portfolio through what they do when stocks fall. Their yield matters less.
Selling at the Bottom Locks In the Loss
SPYI closed back above its February peak on June 25, 2025. That recovery only helped holders who never sold.
This is called sequence of returns risk, and a bad market in the first few years of retirement does far more damage than one in year fifteen (we built a free guide around exactly that problem, here). Two retirees with the same average return can end up far apart if one withdraws heavily during a crash, because shares sold at the low miss the rebound. Bonds that hold their value give you something else to sell.
From February 25 to March 30, 2026, SPYI fell 8% while AGG slipped 2%. Two drops like this within a year show how the fund is built.
Where SPYI Fits in a Retirement Portfolio
As a bond substitute, SPYI falls short. It matches bond income but carries stock market risk. A retiree who moved a bond allocation into it has raised their stock exposure without noticing.
As a stock income holding, it has done its job. If you want monthly cash from part of your stock allocation and accept S&P 500 drawdowns, the fund has delivered.
For the role bonds actually play, AGG is the better tool. It lost money this year, but in the 2025 crash it rose while SPYI dropped 16%. In this year’s late winter fall, it lost only a fraction of what SPYI did.
That steadier behavior in a drawdown is what lets you fund withdrawals without selling stocks at a loss. SPYI belongs in the stock bucket, and a core bond fund belongs in the bond bucket.
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