If You Have These ETFs, Social Security’s Insolvency Probably Doesn’t Matter

It’s no secret that Social Security has been lurching towards insolvency for several decades. Thanks to profligate spending by Congress, massive fraud luckily identified by DOGE, millions of undocumented migrants illegally stealing benefits, and a lack of any alternative plans from legislators has some economists projecting insolvency by 2034. 

Retirees who are living off their IRA or 401-K nest eggs are luckily able to treat Social Security benefits as supplemental to their investment income. Should Social Security be declared insolvent, benefits are likely to be cut, which can devastate some retirees’ lifestyles if their portfolios aren’t yielding big enough income to cover the shortfall. 

While many investment vehicles, stocks, bonds and funds all vie in the marketplace for investors, two (2) ETFs that can provide high yields, diversity of asset class focus, and large institution gravitas may be worth consideration as portfolio additions. One is the bond oriented Fidelity Enhanced High Yield ETF (NYSE: FDHY). The other one tracks Dividend Aristocrat equities, which are large-cap stocks with a 25-year or longer unbreakable streak of annual dividend increases. This one is FT Vest S&P 500 Dividend Aristocrats Target Income ETF (CBOE: KNG).

Fidelity Enhanced High Yield ETF

Fidelity Investments’ huge menu of funds has something for nearly every level of risk tolerance and investment goal profile investor.

Individual investors often view bonds from the perspective akin to watching paint dry, due to their relatively incremental price changes compared with stocks. However, professional bond traders trading large blocs of bonds can often generate impressive returns when managing profits in basis points. While higher yielding bonds are often commensurate with higher risk of default, active portfolio management mitigates that risk to a significant degree. 

The Fidelity Enhanced High Yield ETF (NYSE: FDHY) is actively managed by Fidelity’s Benjamin Harrison, Jared Beckerman, and Rahul Bhargava. They use the ICE® BofA® BB-B US High Yield Constrained Index for their benchmark. Focusing on high yield, below investment grade bonds, FDHY will hold a minimum of 80% of “junk” bonds in its pursuit of higher income while managing default risk. Average duration is 1-5 years. Retirees will be heartened by FDHY’s monthly dividend payments. Morningstar gives FDHY a Silver rating. 

Bond categories: Corporate: 93.79%; balance in cash

Rating Breakdown: BBB: 3.15%, BB: 45.73%, B: 52.48% (includes leverage)

Top 5 Largest Holdings:

• LiveNation Entertainment, Inc. 4.75%cpn:  1.25%
• Enova Int’l Inc. 9.125%cpn: 1.00%
• Wayfair 7.75%cpn: 0.97%
• Mineral Resources Ltd. 8.50%cpn: 0.96%
• CoreWeave Inc. 9.25%cpn: 0.94%

FT Vest S&P 500 Dividend Aristocrats Target Income ETF

KNG is an ETF that tracks Dividend Aristocrat Fortune 500 stocks and contains a covered call component for added dividend boost.

Founded in 1991 by Robert Van Kampen, First Trust is headquartered in Wheaton, Illinois. After creating previous firms bearing his name, Van Kampen founded investment banking firm Nike Securities, which later acquired the Unit Investment Trust assets of Clayton, Brown, & Associates. The businesses were subsequently combined under the First Trust brand following Van Kampen’s death in 1999. Its menu of ETFs are popular with individual investors, notably because First Trust deploys actual customer service reps to deal with customer inquiries, eschewing the use of computerized, pre-programmed call responses. 

Dividend Aristocrat stocks are those companies with a history of paying increased dividends for a consecutive minimum of 25 years. Companies with the wherewithal to annually increase a dividend for over 2 decades or more invariably have a strong business model with savvy management and a sufficient profit growth trajectory to afford the dividend hikes. Unsurprisingly, the vast majority of US Dividend Aristocrat stocks are members of the S&P 500.

The FT Vest S&P 500 Dividend Aristocrats Target Income ETF (CBOE: KNG) is an Exchange Traded Fund  that is geared to track the CBOE S&P 500 Dividend Aristocrats Target Income IndexMonthly Series. However, while most Exchange Traded Funds are passively managed and automatically make changes to mirror those of the underlying index, KNG also deploys a covered call option writing strategy to boost returns. 

As a result, FT Vest S&P 500 Dividend Aristocrats Target Income ETF will likely pay a higher annual dividend than what its underlying index might automatically calculate out to total. A snapshot profile of KNG appears as thus:

Sector wise, KNG’s top 5 heaviest weighted industrial areas are:

• Industrials – 22.49%
• Consumer Staples – 22.23%
• Financials – 12.93%
• Materials – 12.05%
• Health Care – 10.64%

The top 5 weighted holdings in KNG are:

1. Albemarie Corp. – 1.88%
2. Expeditors Int’l of Washington – 1.83%
3. Cardinal Health – 1.80%
4. C.H. Robinson Worldwide – 1.79%
5. Nucor Corp. – 1.71%