As the market continues to experience volatility, investors are seeking ways to protect their investments. One strategy that has gained attention is investing in buffer exchange-traded funds (ETFs). These ETFs provide a level of downside protection while still offering exposure to the market.
According to Bruce Bond, CEO of Innovator ETFs, buffer ETFs can be beneficial for investors who want to participate in the market but are hesitant about the risks involved. These ETFs issue monthly options that provide a specified level of downside protection. For example, the August ETF, ticker PAUG, offers 15% downside protection to investors. This allows investors to gain exposure to the S&P 500 while minimizing potential losses.
Bond recommends holding buffer ETFs for an extended period, ideally until the end of the year. The structure of these funds is based on one-year options, which are reset annually. This long-term approach ensures that investors are protected from market downturns over an extended period.
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 investing in buffer ETFs. He suggests that there are more cost-effective solutions to managing market volatility, such as avoiding frequent portfolio checks and consulting with a financial advisor before making any hasty decisions.
While buffer ETFs can provide a level of protection against market volatility, it is essential for investors to carefully consider their investment strategies. Consulting with a financial advisor and evaluating all available options is crucial in navigating uncertain market conditions. Ultimately, the decision to invest in buffer ETFs should align with an investor’s long-term financial goals and risk tolerance.