SPDR Portfolio High Yield Bond ETF (SPHY): A Tier Four ETF

When many investors hear the word "bond," they immediately lose interest.

They picture low yields.

Slow growth.

And investments that can't keep up with inflation.

SPHY is different.

Instead of investing in U.S. Treasury bonds or investment-grade corporate debt, SPHY focuses on high-yield corporate bonds.

These are bonds issued by companies that must pay investors higher interest rates in exchange for borrowing money.

For a Tier Four DGI Crabber, that creates another dependable source of retirement income that's different from anything else in the portfolio.

Key Statistics

Ticker: SPHY
Tier: Tier Four
Investment Style: High-Yield Corporate Bonds
Fund Inception: June 18, 2012
Expense Ratio: 0.05%
Number of Holdings: More than 1,500
Underlying Exposure: U.S. high-yield corporate bonds
Distribution Frequency: Monthly

SPHY provides broad exposure to below-investment-grade corporate bonds while maintaining one of the lowest expense ratios available in the high-yield bond ETF category.

Why SPHY Fits Tier Four

Tier Four is designed to enhance the retirement income already built through Tiers One, Two, and Three.

The objective isn't replacing your dividend portfolio.

It's diversifying where your retirement income comes from.

High-yield corporate bonds provide a completely different source of income than stocks.

Companies borrow money. They pay interest. Bondholders receive that interest whether the company's stock price rises or falls.

That's exactly the type of diversification I want in retirement.

What Does SPHY Own?

SPHY owns a broadly diversified portfolio of corporate bonds issued by hundreds of companies across many different industries.

Instead of owning shares of these businesses, SPHY lends them money.

In return, those companies agree to make regular interest payments.

Because these are below-investment-grade borrowers, they generally pay higher interest rates than companies with stronger credit ratings.

That higher interest income is one of the reasons many income investors find SPHY attractive.

Where This Income Comes From

SPHY's income comes from one primary source.

Interest payments.

Think of it this way.

When a company needs to borrow money, it can issue bonds.

Investors purchase those bonds and become lenders.

In exchange, the company agrees to make regular interest payments until the bond matures.

SPHY owns more than a thousand of those bonds.

The fund collects interest from all of them and distributes that income to shareholders each month.

In simple terms...

Companies borrow money. They pay interest. SPHY collects the interest. Investors receive monthly income.

Why I Like SPHY

One of the reasons I like SPHY is because it gives me exposure to an entirely different asset class.

Notice that there aren't any bonds among my 50 DGI Crab stocks.

That's intentional.

Individual bond investing isn't something I believe most investors need to do.

Instead, I'd rather own a broadly diversified ETF that spreads my investment across hundreds of issuers.

That diversification helps reduce the impact of any single company experiencing financial trouble.

Just as importantly, SPHY gives me another income engine that isn't dependent on dividends, option premiums, rental income, or pipeline cash flows.

It's interest income.

That makes my retirement portfolio more diversified.

Who Is This ETF For?

SPHY is ideal for investors who:

Are building a Tier Four portfolio.
Want dependable monthly income.
Want exposure to high-yield corporate bonds.
Prefer broad diversification instead of selecting individual bonds.
Want another source of retirement income outside the stock market.

For me, SPHY fills a role that none of my equity ETFs can.

Being the Bank

One of the simplest ways to think about SPHY is this:

Instead of becoming a shareholder...

You're becoming a lender.

Companies need capital to grow.

Rather than purchasing ownership in those businesses, SPHY lends them money through the bond market.

In return, those companies pay interest.

It's a completely different relationship than owning stock.

And that's exactly why I like having both.

Some of my retirement income comes from owning businesses.

Some comes from lending to them.

Final Thoughts from the DGI Crab

SPHY adds another valuable income engine to my retirement portfolio.

Broad diversification. Monthly interest income. Extremely low expenses. And exposure to an asset class that behaves differently than stocks.

For me, that's exactly what Tier Four is all about.

If I had to summarize SPHY in one sentence, it would be this:

Become the lender instead of the shareholder.

That's exactly why SPHY has earned its place as one of my favorite Tier Four ETFs.

DGI Crab Summary

Role in the Portfolio: Diversify retirement income through high-yield corporate bonds.

Where This Income Comes From: Interest payments made by hundreds of companies that have borrowed money through the corporate bond market.

Should This Replace My Tier Three Holdings? No. Tier Four is designed to enhance the dependable dividend income you've already built in Tiers One through Three. The exception is investors beginning their investing journey later in life, where building around high-quality income ETFs and reinvesting distributions through DRIP can be a practical way to grow retirement income.