Turning a Life Insurance Check into a Paycheck

For those who have recently received a life insurance payout, the $250,000 lump sum can be a daunting task to manage. The national average 12-month CD is 1.71%, and even the 10-year Treasury is only 4.73%. These low returns do not replace the steady income that a working spouse used to bring home. However, three exchange-traded funds (ETFs) can help turn this lump sum into a monthly deposit that behaves similarly to a paycheck.

Understanding the Three ETFs

The three ETFs in question are the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ), the WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ:DGRW), and the Janus Henderson AAA CLO ETF (NYSEARCA:JAAA). Each of these ETFs has its unique characteristics and benefits that can help create a stable income stream.

JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

The JPMorgan Nasdaq Equity Premium Income ETF is a covered-call fund that owns a large-cap growth basket and sells options on the Nasdaq 100 to generate income. Top holdings include NVIDIA, Apple, Micron, Alphabet, and Microsoft. The fund pays monthly and has a recent distribution of $0.70497 per share, with a trailing 12-month total of $6.52319. At the recent price of $59, a $100,000 allocation buys roughly 1,695 shares, generating a monthly income of around $0.44 to $0.70 per share.

WisdomTree U.S. Quality Dividend Growth Fund (DGRW)

The WisdomTree U.S. Quality Dividend Growth Fund screens U.S. companies for return on equity, return on assets, and expected earnings growth, then weights them by cash dividends paid. The expense ratio is 0.28%, and distributions arrive monthly. The trailing 12-month total of $1.2027 per share is modest compared to JEPQ, but the trade-off is capital appreciation. DGRW is up 10.88% year to date, 14.08% over the past year, and 267.04% over the past decade.

Janus Henderson AAA CLO ETF (JAAA)

The Janus Henderson AAA CLO ETF holds AAA-rated tranches of collateralized loan obligations, which functions as one of the calmest income vehicles on the market. Top positions include OCP CLO Ltd, Octagon Investment Partners 51, and KKR CLO 35. The expense ratio is roughly 0.20%, and the fund earns its keep by staying quiet. Year to date, the price is up 3.07%; over one year, 4.86%. The August distribution was $0.207666 per share, with a trailing 12-month total of $2.695647.

Combining the Three ETFs

By combining JEPQ, DGRW, and JAAA, investors can create a portfolio that provides a stable income stream, capital appreciation, and a floor underneath both. JEPQ provides a high yield, DGRW offers growth for later, and JAAA acts as a stable floor. Distribution amounts on all three vary month to month, so it's essential to treat the annualized figures as estimates, not promises.

What to Watch Next

There is no rush to convert the life insurance check into a paycheck. Investors can consider parking the money in a high-yield savings account or short Treasury bills while they meet with a fiduciary. When ready, combining JEPQ, DGRW, and JAAA can provide a stable income stream that behaves similarly to a paycheck. It's essential to remember that none of these ETFs are guaranteed, and distribution amounts can vary month to month.

Conclusion

Turning a life insurance check into a paycheck can be a daunting task, but with the right combination of ETFs, it can be achievable. JEPQ, DGRW, and JAAA offer a unique set of characteristics that can help create a stable income stream, capital appreciation, and a floor underneath both. By understanding the benefits and risks of each ETF, investors can make informed decisions and create a portfolio that meets their needs.