In a time when the market is experiencing increased volatility, investors may be looking for ways to protect their investments. One strategy that is gaining attention is the use of buffer exchange-traded funds (ETFs). These buffer ETFs offer a level of downside protection while still allowing investors to participate in the market’s potential upside. According to Bruce Bond, CEO of Innovator ETFs, these funds are designed for individuals who want exposure to the market but are not willing to take on the full risk.
Innovator ETFs issue monthly buffer ETFs, with each fund offering a specific level of downside protection. For example, the August ETF under the ticker PAUG provides 15% downside protection. This means that investors can invest in the S&P 500 through this ETF and have some protection against market downturns. Additionally, there is the opportunity to capture gains on the upside, with the potential for a 12.8% return.
Bond recommends that investors hold these ETFs until the end of the year. This is because the funds are constructed around one-year options within the portfolio. By holding the funds until the end of the year, investors can maximize the benefits of the options. At the end of the year, the options are fully valued, and the funds are then reset for the following year, ensuring continued protection and potential gains.
Despite the benefits of buffer ETFs, some experts remain skeptical of these strategies. Mark Higgins, senior vice president at Index Fund Advisors, believes that investors may be overcomplicating a simple problem by using buffer ETFs. He suggests that there are cheaper solutions to navigate market uncertainty, such as not checking your portfolio too often and consulting with a financial advisor before making any hasty decisions based on fear or surprise.
Higgins emphasizes the importance of financial advisors in providing calm and guidance during times of market volatility. Rather than relying on complex strategies like buffer ETFs, he believes that having a trusted advisor can help investors weather market fluctuations with confidence. By seeking advice and maintaining a long-term perspective, investors can avoid unnecessary costs and make informed decisions about their investment portfolios.