Rich Habits Podcast – Episode 157: How We’re Preparing for Volatility in 2026

Hosts: Austin Hankwitz (A), Robert Croak (B)
Guests: Garrett Paolella (C) & Troy Cates (D), Managing Partners at NEOS Investments
Date: February 16, 2026

Episode Overview

In this episode, Austin and Robert are joined by Garrett Paolella and Troy Cates from NEOS Investments to explore how seasoned investors can capitalize on market volatility instead of fearing it. The conversation covers strategies to generate income through volatility, building "side-to-side" diversified portfolios, the rationale behind NEOS' expanding ETF suite—including their new "Boosted" and alternatives products—and practical steps to thrive in a choppy 2026 market. A detailed Q&A segment addresses listener personal finance and investing dilemmas.

Key Discussion Points & Insights

1. Volatility as an Opportunity for Income (02:14–06:18)

• Volatility is a double-edged sword: While it often scares investors, the NEOS flagship funds (SPYI, QQQI) are designed to monetize elevated volatility through rule-based covered call strategies.
• How it works:
  • When volatility spikes (e.g., equity selloffs), NEOS' strategies enable selling calls further out of the money, covering less notional value, while meeting income distribution targets.
  • This allows investors to potentially participate in upward market moves while collecting higher option premiums.
• Real-world examples:
  • April 2024’s market selloff allowed for higher premiums and increased distribution yields for NEOS products.
• Austin's analogy: “You guys are essentially taking the upside price appreciation for the future with the S&P or the NASDAQ and translating that into monthly income for investors.” – Austin, (04:42)

Notable Quote

“When this heightened volatility comes, we don't shy away from it—we look at it and can hopefully take advantage of that heightened volatility as we're rolling those option portfolios.” – Troy, (04:31)

2. Building Diverse, Durable Portfolios (07:09–09:45)

• NEOS’ "solutions toolkit": Includes Hedged, Core Income, Enhanced Fixed Income, Alternatives, and now Boosted ETFs.
• Blending strategies:
  • Assess personal risk tolerance and financial goals before allocation.
  • Approach diversification not just by asset class (stocks/bonds), but also by risk type and financial outcome (income, growth, alternatives).
• Role of NEOS funds: Enable investors to craft custom portfolios for any stage—whether prioritizing income, risk mitigation, or access to alternatives.
• Durable portfolio focus: Prepare for unpredictable market swings and any “black swan events.”

Notable Quote

“We really love to talk to investors about building diversified and what we call durable portfolios because we never know what's going to happen in the markets.” – Garrett, (09:08)

3. The Arrival of "Boosted" (Leveraged) ETFs (10:42–14:33)

• Purpose: For investors seeking greater upside, “Boosted” ETFs add leverage using a synthetic long (put-call combo) plus additional short calls for higher income.
• Risk warning: Leverage increases potential returns in bullish markets but magnifies losses in downturns. Investors must match product risk to personal risk tolerance.
• Positioning:
  • Hedged (conservative),
  • Core (balanced),
  • Boosted (aggressive),
    all within the same product suite.

Notable Quotes

“We're not here to tell you what to put in your portfolio, but we're going to give you the tools and resources and products to make those decisions, no matter what that risk tolerance is.” – Austin, (13:00)

“There's no way that you can generate income and upside…You can't have your cake and eat it too in the financial markets, unfortunately.” – Garrett, (13:37)

4. How NEOS Income/Efficient ETFs Differ from Legacy Index Funds (16:14–19:43)

• NEOS vs. Benchmark Funds:
  • Benchmarks like QQQ offer pure growth exposure; NEOS (e.g., QQQI) overlays covered calls to source monthly distributions from option volatility, not from dividends.
  • Higher volatility assets like NASDAQ 100 can generate larger income premiums each month.
  • Investors can own both "pure" (QQQ) and "income-focused" (QQQI) ETFs for balanced exposure to growth and cash flow.

Notable Quote

“Whenever you generate income, regardless of our products and your overall portfolio, you're usually giving up growth in total return to generate income.” – Garrett, (19:09)

5. Innovations: Weekly Staggered Distributions (20:29–21:34)

• Distribution calendar update: Instead of all funds paying out at month’s end, NEOS now staggers distributions by product suite (boosted, fixed income, high income, hedged)—enabling consistent weekly income if the investor holds across suites.
• Operational and practical upside: Better cash flow management for investors and streamlined operations for NEOS.

6. Tax Efficiency: Maximizing What Investors Keep (22:03–25:54)

• Tax optimization focus:
  • Use of Section 1256 contracts (index options) for preferential tax treatment—60% long-term, 40% short-term capital gains.
  • Active loss harvesting and “return of capital” distributions help defer taxes until fund sale, dropping post-tax yields for investors.
• Practical implication: NEOS strategies often result in higher after-tax income compared to direct covered call writing by individuals.

Notable Quote

“If you're investing in an income product, how do you make that as tax efficient as you can?...We love to trade those index options because of that tax classification.” – Garrett, (22:08)

7. Alternative Income: Energy Infrastructure ETF (MLPI) (27:13–28:44)

• Role in portfolios: Alternatives like MLPI (energy infrastructure/high income ETF) add non-correlated income, supplementing traditional equity and fixed income exposure.
• Strategy: Leverages underlying dividend yields with an options overlay for enhanced monthly income.
• Rapid adoption: MLPI cited as NEOS’ fastest-growing ETF at time of recording.

Notable Quote

“To add to that, we wanted to bring in our rules-based strategy and option portfolio on top of that where we could give you additional income on top of whatever dividends you were receiving from the underlying names.” – Troy, (27:45)

8. Market Outlook & Investor Mindset for 2026 (32:34–34:24)

• Current market dynamics:
  • Ongoing volatility due to policy, economic data, and election cycle.
  • Sideways and choppy indices, sector rotations.
• What NEOS is watching:
  • Fed rate policy, possible leadership changes.
  • Data trends (GDP, employment).
  • Resilience of the labor market despite headline layoffs.
• Advice: Stick to diversification, understand risk, and avoid chasing overheated trends.

Notable Quote

“Consolidation is a good thing in the overall market…but it’s definitely going to be all eyes on the Fed and economic data coming out…” – Garrett, (33:18)

9. Distribution Integrity: Beware of Overyielding ETFs (36:08–37:31)

• Some ETFs advertise eye-catching (100%+) yield rates: NEOS cautions investors to ensure a fund’s distribution is truly derived from sustainable income, not capital erosion.
• Risks of unsustainable distributions: "Flashy" yields can mask net asset value (NAV) erosion if not supported by true underlying returns.

Notable Quote

“The important part for us is building products that over time, the total return can support the distributions going out…Otherwise you get into a phase where you can't support that and you start seeing your nav erosion.” – Troy, (36:42)

Q&A Segment Highlights

[40:10–53:32] – Listener Q&A with Austin & Robert

• Credit Card Budgeting (42:18):
  • Track spending as the expense occurs, not just based on payment amount. Avoid carrying balances—even at 0% interest, as it builds bad habits.
• Paying Off High-Interest Debt at 61 (Manny O.) (43:13):
  • Use Roth IRA contributions (not gains) for penalty-free, tax-free withdrawal to pay off debt, rather than borrowing through loans or 401(k).
    • “You cannot out-invest high interest debt.” – Austin, (44:07)
• Profit-Taking Strategy (Stephen B.) (47:47):
  • Take profits along the way (“stair-step” selling), especially in volatile single stocks.
    • Robert: “When I get up 50% on a position, I take 25%. When I get up 50% more, I take another 25%...” (48:53)
  • Recognize difference between holding single stocks and diversified funds—be prepared for larger drawdowns in stocks.

Memorable Moments & Quotes

• “If volatility is here anyway, let’s get paid for it.” – Robert, (06:18)
• “We never know what’s going to happen in the markets…You could have a tweet that completely flips the economy on its head.” – Garrett, (09:08)
• “You can’t have your cake and eat it too in the financial markets…” – Garrett, (13:37)
• “Don’t own just one ETF or one fund for your whole portfolio…Use multiple products, helps diversify that risk away.” – Garrett, (18:31)
• “Look at what your estate planning goals are, look at what your risk tolerance is, and pick what fits you—not what your friend says at a cocktail party.” – Garrett, (29:53)
• “You cannot out-invest high-interest debt.” – Austin, (44:07)
• “Take profits along the way. Don’t be greedy. That’s what we’re here for—build wealth, make profits…” – Robert, (51:54)

Timestamps for Key Segments

• Monetizing Volatility: 02:14–06:18
• Portfolio Diversification Advice: 07:09–09:45
• Boosted ETF Explainer: 10:42–14:33
• Distribution Calendar Innovation: 20:29–21:34
• Tax Efficiency Deep Dive: 22:03–25:54
• Energy Infrastructure/Alternatives: 27:13–28:44
• Market Outlook (2026): 32:34–34:24
• Distribution Yield Integrity: 36:08–37:31
• Listener Q&A: 40:10–53:32

Final Takeaways

• Volatility is now a tool, not a threat: Covered call option strategies allow investors to monetize uncertainty.
• Diversification means more than stocks and bonds: Leverage hedged, boosted, alternative, and income products for resilience.
• Product due diligence is essential: Scrutinize income claims and sustainability, especially with “high yield” ETFs.
• Tax optimization boosts real returns: Seek funds prioritizing tax-efficient structures like those at NEOS.
• Take profits in volatile positions: Don’t wait for the perfect top; have a systematic approach to rebalancing gains.
• Stay investor-centric: Align portfolio construction with your personal risk profile, time horizon, and income needs—not hot tips or headlines.

For more insights, visit: neosfunds.com

(End of summary—a must-listen for investors navigating the new era of volatility in 2026.)