Advantages and Disadvantages of Investing in Buffered ETFs

For investors looking to mitigate the impact of recent market fluctuations, buffer ETFs are a potential solution. Bruce Bond, CEO of Innovator ETFs, advocates for these specialized funds to provide some protection against market downturns.

In an interview on CNBC’s “ETF Edge,” Bond emphasized the appeal of buffer ETFs, especially for those seeking market involvement with reduced risk. “This approach is ideal for investors who want to participate in market gains without being completely exposed to market downturns,” Bond said.

Innovator ETFs releases new buffer ETFs monthly. For example, their August ETF, trading under the ticker PAUG, provides a 15% buffer against losses.

Bond suggests that investing in the S&P 500 via these ETFs is particularly attractive right now, as it includes 15% downside protection along with a potential upside gain of 12.8%.

He recommends investors to hold their positions in these ETFs until the end of the year. This strategy is based on ETFs that incorporate one-year options that peak in value at the end of the year, after which they are reset.

Not all financial experts are on the same page with Bond’s optimism, however. Mark Higgins, senior vice president at Index Fund Advisors, has expressed concerns about the program itself. Higgins argues that buffer ETFs could be an overly expensive solution to a simple problem. He believes investors should get more used to the natural ebb and flow of market volatility.

Higgins says there are cheaper ways to deal with market uncertainty. The most effective strategy, he suggests, is for investors to avoid frequent portfolio reviews and consult with financial advisors before making major decisions based on reactive emotions.

Higgins emphasized the role of financial advisors in keeping investors stable. “Good financial advice can really be a source of peace for investors,” he said.