Buffered ETFs are having a moment right now. These are not the usual high-risk, high-reward investments. Instead, they’re all about protection. If the stock market falls, these funds help you lose less money. And for many people, especially those nearing retirement, that’s a big deal.
So far this year, investors have put in nearly $7 billion into buffered ETFs. That’s huge. The S&P 500 is down about 10%, so it’s no surprise people are looking for ways to stay in the market without getting hurt too badly.
Buffered ETFs offer just that. They protect your money if the market drops, but in return, they also limit how much profit you can make.
How This Safety Net Works?
Buffered ETFs use something called options to control risk. They buy one type of option that protects against losses and sell another that limits gains. This means if the market goes down 10%, your buffered ETF might show no loss at all. But if the market goes up 25%, you may only get part of that, like 10% or 15%.
One popular ETF, called FFEB, protects the first 10% of losses and lets you earn up to 14.5% if things go well. Some funds even offer 100% protection, but the trade-off is that you’ll get much smaller gains.
These funds usually run for 12 months. If you buy one on day one and hold it for a full year, you’ll get the full buffer and capped return. If you buy in the middle of that year, though, your results might be very different.
Worth the Cost?
Buffered ETFs aren’t for everyone. If you’re okay with market ups and downs and can wait for years, you might not need them. But if you’re closer to retirement or just don’t like risk, these can give you peace of mind.
They’re also cheaper and simpler than things like annuities or structured notes. No surprise, financial advisors often use them as part of a bigger plan, not the whole plan.
In today’s unpredictable market, safe bets like these are gaining ground. Buffered ETFs show that you don’t always need to chase big wins to invest smart. Sometimes, just holding on to what you have is a win.
