Wall Street has always been good at turning ordinary investor concerns into complicated new products.
Today, one of those concerns is the enormous amount of money investors—particularly retirees and baby boomers—continue to hold in money-market funds. With short-term interest rates likely to decline over time, Wall Street firms see an opportunity to coax that cash into a rapidly growing collection of actively managed exchange-traded funds that use options and other derivatives to generate income or limit losses.
The Wall Street Journal recently dubbed these products “boomer candy.” Goldman Sachs apparently likes the flavor. The firm has agreed to pay as much as $2.25 billion to acquire NEOS Investments, an asset manager specializing in options-based income ETFs. Earlier this year, Goldman announced a roughly $2 billion acquisition of Innovator Capital Management, one of the largest providers of so-called buffer ETFs.
According to the Journal, assets in derivative-based ETFs have grown at a compound annual rate of approximately 70%, reaching about $180 billion. That growth tells us these products are highly marketable. It does not necessarily tell us they are good investments.
The appeal is easy to understand
These ETFs are often promoted as a way for investors to participate in stock-market gains while generating attractive monthly distributions, reducing taxes, or cushioning losses during a market decline.
Who wouldn’t want more income, less risk and fewer taxes?
The problem is that investments rarely provide something valuable without requiring investors to give up something in return. A buffer ETF may limit a portion of the downside, but it generally caps the investor’s upside. A covered-call strategy may produce an eye-catching distribution, but that “income” comes partly from surrendering some of the portfolio’s future appreciation. Options can alter the pattern and timing of returns, but they cannot repeal the basic relationship between risk and reward.
The high distribution rate featured in the marketing materials should also not be confused with investment return. A fund can distribute 10% or 12% annually without actually earning that amount. Depending on the fund and market conditions, part of the distribution may represent option premiums, realized gains or even a return of the investor’s own capital.
Investors should evaluate these products based on total return after expenses—not simply on how much cash arrives each month.
Complexity comes at a price
Morningstar data through July 31, 2026, show that the NEOS ETFs generally carry expense ratios ranging from approximately 0.38% to 0.98%. Its principal equity-income ETFs charge about 0.68% annually. Many of Innovator’s buffer and defined-outcome ETFs charge between 0.79% and 0.89%.
By comparison, traditional index-based ETFs are widely available for a small fraction of those costs. Even many factor-based ETFs providing exposure to value, quality, size or other long-term return characteristics can be purchased considerably more cheaply.
A difference of less than one percentage point may not sound significant, but annual expenses compound just like investment returns—only in the opposite direction. The higher hurdle becomes particularly important when a strategy is already sacrificing some of the market’s upside to purchase downside protection or generate current distributions.
Investors should therefore ask a simple question: Does the product’s long-term benefit justify its added complexity and cost?
For many of these funds, there is not yet enough history to answer confidently. Most of the NEOS offerings do not have five-year track records, and numerous Innovator funds are similarly young. Investors are being asked to commit long-term capital to strategies that have largely been tested during a relatively favorable period for stocks.
The early results are not especially persuasive
The available performance record illustrates the potential opportunity cost.
The NEOS S&P 500 High Income ETF returned an annualized 14.80% for the three years ended July 31, 2026, compared with 19.32% for the S&P 500. Its year-to-date return was 7.95%, versus 10.14% for the index.
The only NEOS equity fund in the Morningstar report with a five-year record, the NEOS Nasdaq-100 Hedged Equity Income ETF, returned an annualized 7.35% over that period. The S&P 500 returned 12.86% annually.
That annual difference of 5.51 percentage points produced an enormous cumulative gap. An investment compounding at the fund’s reported return would have gained approximately 43% over five years, while an investment compounding at the S&P 500’s return would have gained roughly 83%.
The comparison is not perfect—the fund follows a hedged Nasdaq-100 strategy rather than the S&P 500—but that is also the point. Investors did not receive ordinary equity-market returns because they did not own an ordinary equity portfolio. They bought a more complicated return pattern involving options, higher expenses and surrendered upside.
The strategy may look comparatively attractive during a particular bear market. However, retirement is not a one-year event. A retiree may have a 20-, 25- or 30-year investment horizon, making the long-term cost of repeatedly giving up appreciation potentially substantial.
What happened to ordinary asset allocation?
Rather than trying to manufacture a single product that simultaneously provides growth, income and protection, investors can assign each part of their portfolio a specific job.
Cash and short-term bonds can fund near-term spending. High-quality fixed income can be aligned with intermediate-term liabilities. Diversified equity ETFs and carefully selected individual companies can provide long-term growth. Factor-based strategies can broaden diversification and reduce dependence on the largest stocks in a capitalization-weighted index.
This is the essence of liability-driven asset allocation: match safer assets to reasonably foreseeable spending needs while allowing long-term capital to remain invested for long-term growth.
Such a portfolio may not generate a contrived 12% monthly “distribution rate,” but it can create whatever cash flow the investor actually needs through interest, dividends and periodic rebalancing. Selling a modest number of appreciated shares is economically no less legitimate than receiving an options-generated distribution. The important measure is total return, taxes, risk and whether the portfolio can support the investor’s spending—not the label placed on the cash payment.
This approach is straightforward, transparent and generally inexpensive. It also avoids asking one investment product to perform several conflicting jobs.
Products are sold; plans are built
None of this means options-based ETFs or buffer funds are inherently bad. They may serve a limited purpose for an investor with a clearly defined time horizon, unusual tax considerations or a behavioral need for explicit downside limits. But they should be evaluated as specialized tools—not as substitutes for a thoughtfully constructed financial plan.
Wall Street’s culture has historically rewarded firms for creating products that gather assets. A fiduciary’s responsibility is different. We must determine whether an investment improves the client’s probability of reaching a financial goal after considering expenses, taxes, liquidity, opportunity cost and the available alternatives.
Before reaching for the latest variety of “boomer candy,” investors might consider something less exciting but more durable: good-quality stocks, low-cost diversified ETFs, high-quality bonds, sufficient liquidity and an asset allocation tied directly to their future liabilities.
Old-fashioned asset allocation may not be as easy to market.
But it has the considerable advantage of being designed around the investor rather than the product.
Source note: Fund expenses and returns are from the supplied Morningstar reports, with performance through July 31, 2026. Goldman’s acquisitions and the derivative-ETF market figures come from the Wall Street Journal.