High-Yield, Lower-Resilience: Why Income Strategies Can Break When You Need Them Most

There is nothing wrong with capturing yield, just don't rely on it as a bullet proof income strategy.

Yield investing has an emotional appeal that transcends asset class. Whether it’s a dividend growth ETF, a covered call ETFs, a REIT, an MLP, or a preferred share fund, the story is the same:

"I’m not touching principal. I’m just living off the income." That framing feels safe, responsible, and implies sustainability. And when some these options have yields that are re 6%, 8%, 10% or more, it’s easy to believe you’ve cracked the code: enough income to fund your lifestyle with room to spare. No need to sell anything or worry about market timing.

But what feels stable isn’t always durable, and in investing, that difference can quietly destroy your plan.

Why Yield Is So Appealing

1. Psychological simplicity – Spending dividends or interest feels different than selling shares. Investors often equate not selling principal with being conservative, even if the underlying investment is volatile.

   
   

2. Smooth cash flow – Monthly or quarterly distributions offer a steady rhythm of income, making budgets easier to manage.

   
   

3. Passive narrative – High-yield strategies are often pitched as turnkey: buy the right ETF or mix of ETFs, collect the checks, live your life. No selling, no drawdown risk, no stress.

   
   

4. Avoiding hard choices – Flexible withdrawal strategies and rebalancing implementation require monitoring, and discipline. Yield lets you avoid the messiness of deciding what to sell and when. It feels automatic.

   
   

There’s nothing wrong with liking income. But depending on it, without modeling its behavior under stress, leads to the kind of fragility most investors don’t see until it’s too late.

The Tools Are Familiar

Let’s take a few popular examples:

• Dividend Growth (SCHD) – A low-cost dividend growth ETF that feels stable and consistent. However, dividend cuts can and do happen in slower growth years.

  
  

• Covered Call ETFs (XYLD, QYLD, JEPQ) – Sell upside to collect option premiums. Income is tied to volatility. Capped upside, full downside less the option premium, but extremely attractive yields. Yields are driven by implied volatility (IV), they can spike in quick market movements, and can drop in prolonged bear or bull market.

  
  

• REITs – Pay from real estate cash flows, but levered and rate-sensitive. Payouts can drop when property values decline or borrowing costs rise.

  
  

• Preferreds & MLPs – Often yield-rich, but exposed to sector-specific and credit risks. Yield cuts are not uncommon.

Investors often mix these together, thinking diversification of income sources equals diversification of risk. But that often isn't the case.

The Plausible Failure Scenario

Let’s say you have a $2M retirement portfolio, and you want $100K/year from it to meet your needs. So you build an income blend:

• 40% dividend growth

• 30% covered call ETF

• 20% REITs or MLPs

• 10% preferreds or high-yield bonds

  
  

Your blended yield is ~7%, and you’re collecting $140K/year. That gives you a $40K income cushion. You feel disciplined. You’re not touching principal. You’ve even told yourself you can scale back spending if needed and have reinvested the extra income in good years past.

Then this happens:

• Market drops 30%. Your $2M becomes $1.4M.

• Covered call income spikes, then drops

• Dividend growth stalls and distributions are trimmed

• REIT cash flows shrink, and one preferred holding defers its payment

  
  

Your yield drops 25%. Now you’re earning 5.25% on $1.4M, or about $73,500 in income.

But you still need $100K, so you start selling shares, at lower prices, from strategies with impaired rebound potential.

• Covered calls cap your upside (by design)

• MLPs may or may not recover, or recover slowly

• Dividend cuts may take years to reverse or rebound slowly

  
  

And that psychological safety blanket, the idea that you weren’t touching principal, is gone. Quietly you impaired purchasing power.

Doesn't Selling From a Total Return Approach Also Hurt You?

At first glance, yes. When markets fall, both yield strategies and total return portfolios take a hit. But the way you fund your spending in those moments can make all the difference.

Same $2M starting point. Same $100K annual need.

But instead of chasing yield, you build a globally diversified 60/40 portfolio yielding ~2.5% ($50K/year) and sell an additional $50K annually to meet your spending needs. You’re not relying on any one asset or fund to “generate” your income.

Then markets drop 30%, and your portfolio falls to $1.4M.

Here’s what’s different:

You fund your withdrawal from whatever held up best. If bonds are down 10% while equities fell 30%, you sell bonds. That does two critical things:

1. You avoid locking in equity losses when they’re most painful

2. You automatically rebalance into stocks at cheaper valuations, restoring your target allocation when recovery potential is highest

   
   

Meanwhile, your spending stays consistent, not because any single asset paid you enough, but because your plan was built around control, not dependence.

Your less at risk of:

• Covered call premiums that shrink

• Dividend or distribution payments that are suspended or reduced in recessions

  
  

And when the market recovers, you recover with it. You didn’t cap your upside. You didn’t sell growth assets at the bottom. You stayed invested in a system designed to flex under pressure.

It’s not that total return avoids losses. It’s that it gives you choices:

• Withdraw funding flexibly

• Rebalance intentionality

• Thoughtful upside participation

  
  

High-yield portfolios often feel smoother, but under the surface, they sacrifice return in good markets, can limit reslicance in bad ones, and don't fully take advantage of recoveries.

Total return requires more planning, more monitoring, more decisions, but it doesn't outsource your security to a 12 month trailing yield number.

The Better Question

Don’t ask: “Can I live off the income?”

Ask: “What happens when the portfolio drops, and distributions drop with it?

If the answer is: “I’ll still be okay”, great.

But if the answer is: “I don’t know” or “I may need to sell anyway”, you don’t have a strategy, you have a hope that distributions cuts will never happen in concert with a prolonged bear market.

Yield can be helpful, steady income is useful, and yield can be part of a portfolio. Incorporate these types of strategies into your portfolio when they make sense, but don't rely on them as bullet proof income. Yield is not the same as safety. You need to take the time to stress test what happens if and when yields dry up. If no one is is stress testing that scenario, you are hoping not planning, or being sold a narrative as opposed to a time tested process.

About the Author:

Carson McLean, CFP® is the founder of Altruist Wealth Management, a flat-fee, fiduciary advisory firm serving clients virtually across the country. With over 15 years of experience at firms like Dimensional Fund Advisors and Morgan Stanley, he helps clients build resilient, transparent retirement plans—without relying on opaque fee structures or fragile income promises.

Disclosure:

This content is for informational and educational purposes only and should not be construed as investment, tax, or legal advice. Always consult with a qualified advisor about your unique situation. Altruist Wealth Management is a registered investment adviser offering advisory services in jurisdictions where it is properly registered or exempt from registration.

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