Why I Just Bought This 8%-Yielding S&P 500 ETF

Which asset should most investors put their money into? Warren Buffett has recommended buying and holding an S&P 500 (SNPINDEX:^GSPC) index fund. He has even advised this approach for most of the money his family inherits.

I recently followed Buffett's advice, albeit not exactly in the way that he envisioned. Last week, I bought shares of an S&P 500 exchange-traded fund (ETF) with a mouthwatering distribution yield over the last 12 months of roughly 8% -- the Goldman Sachs S&P 500 Premium Income ETF (NASDAQ:GPIX).

Image source: Getty Images.

Not your typical S&P 500 ETF

Two words in this fund's name provide a big hint that it isn't your typical S&P 500 ETF: "premium income." The Goldman Sachs S&P 500 Premium Income ETF's goal is "to generate a consistent monthly disribution rate generally from options premium and equity dividends."

To achieve this goal, the fund sells call options. Typically, the ETF sells call options on between 25% and 75% of the value of its equity holdings. It often uses FLexible EXchange (FLEX) options, which allow it to customize exercise prices and expiration dates.

However, like standard S&P 500 index funds, the Goldman Sachs S&P 500 Premium Income ETF owns stocks that are members of the S&P 500 index. Its top holdings include five "Magnificent Seven" stocks: Nvidia (NASDAQ:NVDA), Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).

The Goldman Sachs S&P 500 Premium Income ETF's net annual expense ratio is 0.29%. That's higher than well-known S&P 500 index funds such as the Vanguard S&P 500 ETF (NYSEMKT:VOO), which sports a super-low expense ratio of 0.03%. However, the cost of owning the Goldman Sachs ETF isn't bad considering that it's actively managed.

Why I bought this fund

You probably won't be surprised to learn that one of the main reasons I bought the Goldman Sachs S&P 500 Premium Income ETF was for its juicy monthly distribution. I have cut back my work schedule in recent months to focus on some other endeavors and am relying partially on investment income to cover the gap. This ETF is a great fit for me to help supplement my income.

On a related note, I think the current market environment works in favor of this ETF's design. Volatility is likely to remain high, in my view. There's seemingly no end in sight to the Iran war and its resulting high oil prices. The chances that the Federal Reserve increases rates again later this month are 65.9%, according to CME Group's (NASDAQ:CME) FedWatch. The prospects of a dividend U.S. federal government after November's elections could also lead to more uncertainty.

But high volatility is a good thing for the Goldman Sachs S&P 500 Premium Income ETF. When volatility rises, so do option premiums. As a case in point, the ETF paid a monthly distribution of $0.3974 in September, up from $0.3755 in January.

However, the stock market can still deliver solid gains even when volatility is high. There's an old saying that "stocks climb a wall of worry." We've seen that happen so far in 2026.

One of the biggest knocks against covered-call option ETFs is that they forfeit a considerable amount of upside of their underlying assets. The Goldman Sachs S&P 500 Premium Income ETF does a great job of minimizing this problem. For example, it delivered a year-to-date total return of 12.67% as of Aug. 31, 2026, roughly 96.4% of the S&P 500's total return. I like receiving dependable monthly income while not trading off too much of the potential returns I could get from owning a traditional S&P 500 ETF.

A few caveats

Are there some drawbacks to investing in the Goldman Sachs S&P 500 Premium Income ETF? Sure.

For one thing, the monthly distributions can fluctuate. It's possible that the tremendous yield the fund offers now could decline. That could be probematic for some income investors.

Also, the Goldman Sachs S&P 500 Premium Income ETF probably won't keep up with the gains of the S&P 500 in a strong rally. And over the longer term, more upside potential will almost certainly be forfeited compared to owning a standard S&P 500 fund than we've seen so far in 2026.

Finally, like any other asset, this ETF could experience significant declines. Although the call options the fund sells can provide some cushion to major pullbacks, it won't be enough to avoid seeing investing principal fall sharply.

But, for me right now, I'd rather collect 8% monthly income while capturing most of the S&P 500's upside than owning a regular S&P 500 ETF outright while getting a yield of under 1% and being exposed to all of the downside. I suspect that there are quite a few income investors who would agree with me.

Keith Speights has positions in Alphabet, Amazon, Apple, Goldman Sachs ETF Trust - Goldman Sachs S&P 500 Premium Income ETF, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, CME Group, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.