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Are you worried about market losses but don’t want to miss out on potential gains? A buffered ETF might be the perfect solution for you. Hi, I’m Hunter Brockway, founder of Boke Retirement Strategies, here to guide you to a successful, stress-free retirement while spending more and avoiding being killed in taxes. Recently, we were asked about buffered ETFs, a powerful tool for managing risk while still staying in the market. So what exactly is a buffered ETF? It’s a type of exchange-traded fund designed to protect you from certain amount of market losses. This is called the buffer, while still allowing you to participate in the market gains up to a limit called the cap. Think of this as a way to stay invested without all the fear of big losses. Here’s how it works. The buffer part. Buffered ETFs protect you from a specific percentage of losses like minus 10%, minus 15%, or even minus 20% during a defined period of time, usually 12 months. For example, if the buffer is minus 10% and the market drops 8%, you won’t lose anything.

If the market drops 15%, you’ll absorb losses beyond the buffer, so in this case, the extra 5%. The cap on the flip side, there’s a limit to how much you can gain. If the cap is 12% and the market goes up 15%, your maximum gain is 12%. Know about the timeframe. Buffered ETFs operate in a 12-month cycle and they reset at the end of the period, establishing a new buffer and cap based on a current market condition. Timing your entry is important. You want to invest at or near the start of the period to fully benefit. Buffered ETFs are great for downside protection. They help reduce losses during market downturns, which is especially important for retirees or anyone looking to preserve capital. You can still benefit from the market gains up to the cap. You know your buffer and cap up front. There’s no guessing. You have ease of access. They trade just like regular ETFs on an exchange. They are more cost effective. Buffered ETFs are often cheaper than other structured products or annuities with no surrender charges. So what’s the cap? Of course, there are tradeoffs. You have limited upside.

You won’t benefit from gains beyond the cap. If the market performs exceptionally well, you’ll miss out on anything above that limit. There’s market timing. To get the full benefit of the buffer and cap, you need to invest at or near the start of the outcome period. If you jump in mid-cycle, your buffer and cap may not align with your expectations. There is partial protection. Buffer ETFs only protect against losses up to the buffer limit. Anything beyond that is still on you. These products have more complexity. These ETFs use options strategies, which can make them a bit more complicated than a standard ETF. The fees. While more affordable than many structured products, buffer ETFs have slightly higher fees than traditional index ETFs. So is a buffer ETF right for you? Buffer ETFs can be a fantastic tool for investors who want to manage risk while still participating in the market. But they’re not for everyone. The trade-off between downside protection and cap upside needs to align with your financial goals and risk tolerance. There are alternative strategies to use in order to limit risk in a portfolio and main.

I’m Hunter Brockway, founder of Boca Retirement Strategies. If you’re wondering what investment strategies fit into your financial strategy, I’d love to help. Schedule a call on our website at BocaRetirement.com, head to the free assessment page, look at the calendar, select a date and time that works for you, and we’ll call you then. Bye.