Listen Now:
The Smart Take:
There is no such thing as a free lunch – or is there?
Discover the world of buffered ETFs, a fast-growing segment in financial markets designed to offer investors defined outcomes with built-in downside protection.
In this episode, hear Tyler Emrick, CFA®, CFP®, dive into the mechanics, benefits, and potential drawbacks of these complex financial instruments. And be sure to listen to the comparisons of buffered ETFs against traditional investment options and how each may fit (or not) in your diversified investment strategy.
Here’s some of what we discuss in this episode:
- The rapid growth we’ve seen in Buffer ETFs.
- Defining and explaining the Bufffer ETF or Defined Outcome ETF.
- Why are investors using these?
- How similar are they to structured notes and annuities?
- What you need to know that they aren’t telling you.
- Discussion of Morningstar’s “How to Cut Your Losses With Defined-Outcome ETFs“
- Our overall analysis on this investment and whether they work in a long-term portfolio strategy.
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The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Tyler Emrick:
What are buffered ETFs? Do they really protect your portfolio against losses while providing similar upside as investing in socks? Coming up, we dive into these products to see if they’re right for you or too good to be true.
Walter Storholt:
Walter Storholt here alongside Tyler Emrick, CERTIFIED FINANCIAL PLANNER at True Wealth Design. Tyler is also a chartered financial analyst and helps us each and every episode here understand a little bit more about what’s happening in the financial world, what’s pertinent to us as we want to prepare for a successful financial future, and much more. Tyler, looking forward to today’s episode, learning something new, at least in my book, this buffered ETF term. Definitely something that I feel like I’m going to learn a few tidbits about and get a little bit smarter on today.
Tyler Emrick:
You made my day, Walter. You made my day because having a topic that hasn’t ran by your desk and is a little bit new, I’m like, “All right. Hey, we’re on the cutting edge here,” so I’ll take the win.
Walter Storholt:
I’ve heard of ETFs, but buffered is, I think, a new word to me in terms of being combined with ETFs, so that’ll be pretty cool. Before all of that though, life sounds like it’s getting busier and busier for you, my friend, with school back in session here at least in a couple of days or right around the corner. So you and the family must just be ready and raring for summer to wrap up and make this transition into school year fall time of year.
Tyler Emrick:
Yes. Yeah, our kids are all getting to that age, we’re almost there in the preschool stage and getting on that normal school year routine. So pre-kids wasn’t even on the radar, Walt, and then it’s amazing how that changes, and it seems like everything evolves around that schedule now, but we’re getting in the thick of it here come mid-August.
Walter Storholt:
With no kids you’re just moseying along and all of a sudden you see a school bus and you’re like, “Whoa. What? A school bus? Oh my gosh, school’s back. Oh, school, I forgot school is a thing. Okay.”
Tyler Emrick:
That’s right. And it brings back special memories for me. My father actually worked on school buses all his life, so I was in the bus bus garage quite a bit and growing up into it. So every time I see it brings back some good and some crazy memories to say the least.
Walter Storholt:
Here’s a good question for you. Do you remember your bus number? Did you have a different one every year or did you have the same bus number every year and you get that number locked in your brain all these years later? Or has that moved away?
Tyler Emrick:
Well, definitely different bus numbers growing up. From middle school on, actually, I rode into school and my dad was my bus, because I would just ride into the bus garage and then hop on one and walk over to the school. But different bus numbers. Definitely remember my favorite bus driver though, his name was Tiny. A really, really good guy. Definitely stick with him and remember him very fondly. So more so remember some of the bus drivers as opposed to the numbers.
Walter Storholt:
Yes. I remember 714, that was my bus number for many, many years. I don’t know why, but I remember that one. And then just like you, I got along really well with bus drivers. I think it was because I was the first on and the first off, and I would always end up just having chats with the bus driver. Before we’d pick up any other kids, I would just sit in the front seat and chat with the bus driver. And then same thing, I was this last stop, and it was a while after the second to last kid got off, so I’d move up to the front seat and chat with the bus driver some more. And so you started and ended your day with the bus driver, and we got along great, and my parents loved this one story when we came back from the beach, my dad and I had been deep-sea fishing, and I’d been telling my bus driver all about it.
And they were talking about how much they liked fish and I said, “Well, let me get you some fish.” And so here my parents are, and the bus never dropped off in front of my house. It was always just in the neighborhood and then I’d walk the rest of the way to the house. Well, on this particular day, pulls up to my driveway, I get out of the car, come running inside the house, mom and dad are like, “Hey.” And I’m like, “Hey, hold on a second.” I’m going through the freezer and they’re like, “What is he doing?” And then next thing they know, they see me running back down the driveway with an armful of frozen fish taking it to the bus driver. And I’m like, “Here you go.” And the bus driver takes off with all this fish. I come running back in. They’re like, “Did you just take all of our fish from deep-sea fishing and give it to the bus driver?”
Tyler Emrick:
Oh, you got a good heart, Walt, let me tell you.
Walter Storholt:
I was like, “Yep.” My dad was like, “Well, I can’t really be mad at you for that. That was pretty nice of you to do.”
Tyler Emrick:
No, that’s great. And it made my morning.
Walter Storholt:
Oh, that’s good stuff, man. Love the bus driver. Cool that you had that connection with your dad too. Well, buffered ETFs. I don’t know how to make a transition from that story, but buffered ETFs.
Tyler Emrick:
Let me get into it. The listeners will hear buffered ETFs or defined outcome ETFs as well. So same thing, essentially.
Walter Storholt:
I like buffered better. That’s a better name.
Tyler Emrick:
Okay. Well, I’ll probably lean on that one. We’ll see how the podcast goes and what seems to pop out more.
Walter Storholt:
Interchangeable.
Tyler Emrick:
But yes, interchangeable. And part of the reason why we wanted to dive into them is because really they’re a relatively new product, I guess. The first ones came about right around 2018 or so, so that’s, I would say, new in our world. And they’ve really seen quite a bit of inflows over the last few years. Some statistics that I’ve seen in doing our research, Kiplinger said there’s about 270 different funds or ETFs that are defined outcome or buffered ETFs, and about 47 billion of assets in those. So it’s a small, small subject still of what amount of assets are actually in ETFs in general. I think that market’s a little over 8 trillion the last number that I’d seen, so certainly well less than 1% of the assets that are in ETFs are in these types of products, but they’re definitely gaining some steam and I’m seeing more and more articles and research being posted about it.
So as with anything, we like to try to be on the cutting edge as much as possible and make sure that if there’s some new best way to do something, we’re taking a look at it and analyzing it and just seeing if it fits into the family’s portfolios that we work with and how we might use them if they make sense. So we’ve done a little bit of that research and we thought, hey, why not have a little bit of a podcast on the topic and just start introducing these because I think over time if they continue to grow at the pace that they are, there’ll be more and more articles, and more and more conversations about them over the coming years.
Walter Storholt:
Excellent. It’s still relatively new in terms of the world and the financial world of these being a thing, so I would imagine I’m not the only one who is unfamiliar with these. So I think this is good.
Tyler Emrick:
Oh, not at all. Shoot, Walt, ETFs I think still in my mind are a little bit on the newer side even though they’ve been around for a number of years now.
Walter Storholt:
People know stocks, people know bonds, and then it starts to get a little fuzzy after that, right?
Tyler Emrick:
Correct. Well, and that might be a good place for us to start is, well, what is an ETF. By definition, an ETF is a pooled investment security that can be bought and sold like an individual stock. So I throw out some weird terminology there, pooled investment security. So what that just means is it’s a way for you to invest in a product or an ETF, and they can take your money and invest in a multitude of different stocks or bonds or any really investment that’s out there, so that way you get the benefits of multiple investments all within one. Very similar to frankly a mutual fund, which many of the listeners might be a little bit more familiar with mutual funds.
There are some subtle differences between an ETF and a mutual fund, but for all intents and purposes, the concept is very similar. Hey, you put your money on one of these and then it goes and gets invested across a multitude of different investments based off whatever objective that particular ETF or mutual fund has. So some invest in stocks, some in bonds, some in commodities. Pick your poison, they can invest in anything. So a buffered ETF is a subset of an ETF, so it has a very, very particular strategy or goal. And essentially these investment vehicles use complex option based strategies to produce defined outcome for investors over a predefined period. So I know that’s a mouthful.
Walter Storholt:
Yeah, say that again.
Tyler Emrick:
Yeah, it’s an investment vehicle that use complex option based strategies to produce defined outcome for investors over a predefined period. And probably the most important thing in that definition is defined outcome and predefined period. So as I think about it, the central selling point of these buffered ETF is that they actually offer clients downside protection, typically ranging from the first 10 to 15% of losses, so this is called the buffer, meaning that you can invest in these and you’re going to have some protection against losses. Not complete protection. Some of them might be set up to try to get that, but most of them, again, it’s a range of protection, meaning that, hey, the first 10 or 15% of losses you’re shielded from, you’re protected. So if the underlying investment vehicle, say the S&P 500 in this case, if you were to invest in one of these ETFs and it were to drop by 10%, well, that first 10% you wouldn’t necessarily see any losses from that.
Now, on the flip side, they also cap the gains from the underlying investment as well. So not only do you have some protection on the downside, but you also have gains that are capped to where if the underlying investment goes up, say, by 20%, and the cap on the buffered ETF is 10, well, then you’re going to participate in that first 10% of gains, but anything above and beyond that you’re not going to get. So it’s this almost very narrow range of outcomes that you’re getting from the underlying investment. Does that make sense? Or how am I explaining it so far, Walt?
Walter Storholt:
Yeah, I’m understanding. So buffer meaning we’ve got the downside protection, that’s the buffer, we’ve got some room to mess up in other words, but as a trade-off we’re going to get capped on our gains. So you’re not going to have as high a highs, but certainly not as low a lows, and maybe no lows at all depending on that drop.
Tyler Emrick:
You got it. Exactly. And this concept is not new…
Walter Storholt:
One question for you just to clarify, you mentioned, okay, that first 10% on one product, as an example, would be protected. If it goes to 11 on the downside, does it just nullify that entire 10 and we’re down 11 all of a sudden, or now it starts the clock and we’re down 1%?
Tyler Emrick:
It starts the clock and now you’re down 1%.
Walter Storholt:
Okay, gotcha.
Tyler Emrick:
Great clarification there. And this concept, again, it’s not new. We’ve seen them in the form of-
Walter Storholt:
It sounds like an annuity, to be honest with you.
Tyler Emrick:
Correct, yeah.
Walter Storholt:
Okay.
Tyler Emrick:
The equity-indexed annuities are probably what most listeners are going to be most familiar with or have come across and have been pitched by individuals or insurance salesmen saying this whole idea of you don’t have any losses, but you get a participate in the gains. Maybe a little bit less well-known product that you might not have heard of is a structured notes, which, again, similar concept, same premise. And both of these strategies, the equity indexed annuity and the structured note, they’ve been around for a number of years, so there are some very good research on how these products works and what are the outcomes. And both of them have some pretty substantial challenges. You could rattle off anything from some liquidity constraints, hey, you don’t always get dividends from the underlying investments, these products can be fairly tax inefficient in the form of a structured note, and also you can take on a little bit of a bank risk as well, especially with the structured note too.
And you think back to a 2008 time period where banks ran into some substantial trouble, that’s when that credit risk or some of that other things where your investment might not act the way that you expect it or you might not get your money back, that’s what we mean by credit risk from a bank. But these strategies really sound very good, especially saying, “Hey, you can’t lose, but you can potentially gain.” And generally speaking, especially in the case with these equity indexed annuities and structured notes, when we do our research and analysis on it, generally speaking, not speaking for every single one of them, but the returns on a lot of those analysis are frankly just subpar compared to a typical stock and bond portfolio that maybe doesn’t offer the same guarantees that these products do.
So looking at these new buffered ETFs, well, now the point comes, well, all right, how do these fit into the equation now and are they going to be a better tool in the toolbox, and maybe get across or be better and not have the same shortcomings as these products that we’ve used in the past… Or excuse me, not that we’ve used, but that are out there. So that’s really what we’re going to get into when we get in the meat and potatoes of today. So I figured, hey, why not explore here and start with, well, why are people investing in these products and what are they trying to accomplish when they add a buffered ETF or this defined outcome ETF to their portfolio? And, well, just in our definition, I’m sure you could pick off the first one as to why, that downside protection is key.
Walter Storholt:
Well, that’s attractive to anybody, right?
Tyler Emrick:
Yes.
Walter Storholt:
Because everyone’s scared of losing their money in the market and losing your share, especially as you get closer to retirement, that’s more and more of a concern that downside. So yeah, man, if I can be buffered and protected in that way and lessen that sting, it feels pretty good.
Tyler Emrick:
You got it. Yep. There are some other I think advantages that buffered ETFs have when you compare them to those structured notes or an annuity product that’s trying to accomplish the same thing. And that list is a few long here. So they can be easier to rebalance within your portfolio. So what I mean by that is these ETFs trade like a stock, so you can get in and out of them really, frankly, at any time. So you have almost complete liquidity there to maneuver these products in and out of your portfolio as you see fit. So that liquidity is great in making it easier to trade these investments. And then you also are going to cut down on that counter party risk or that credit risk that I briefly mentioned before that some of the other products have inherently with the way that they’re set up.
Walter Storholt:
This is in contrast to an annuity where that’s more like a CD where you’d be locking your money away for X amount of time, and you got to stay in it the entire time to reap the full benefits?
Tyler Emrick:
Correct. Or if you’re trying to change it, hey, I don’t want this anymore, you might have some very high surrender charges is the way that they limit that liquidity. Some of those annuity products do provide a percentage per year that you can move in and out of them, but, frankly, the surrender charges very much prohibit you from going back on any decision that you might’ve made to get into them. Because things change, life changes. You might’ve been in one mindset when you put your money into one of these structured notes or equity index ETFs, and then two or three years later, hey, you might be in something completely different and trying to accomplish something different, but yet that original investment’s got you locked in there. So, yes, you hit the nail on the head there from what we were trying to say from a liquidity standpoint. And really these buffered ETFs are going to shine under a scenario where the underlying investment, and, again, I keep saying underlying investment, but these ETFs can be tracked to anything.
So think of any index, an S&P 500, the Nasdaq-100, the Russell 3000, any of these index that you hear on the news or anything like that, these buffered ETFs, there could be one that says, “Hey, our goal is to track that particular index and then put these buffers and caps on either side to create the actual underlying strategy and the product itself.” So this idea of moderate gain and moderate loss of the underlying investment is where you really are going to reap the full benefit of these buffered ETFs. Now, where the calculation gets a little trickier is when we have big swings in the market that might exceed the cap or exceed the buffer, that’s when the actual outcomes of these ETFs become varied and can really have some pretty substantial downfalls. So let’s peel back the onion a bit and dive into the things that we think you need to really be mindful of and considerate as you’re thinking about these types of products and if they’re right for you or not.
Walter Storholt:
This is where we go beyond the marketing and into the fine print, right?
Tyler Emrick:
Yes, absolutely. You’re 100% correct. And the big thing that jumps out at us when we started to do our research on them is just the cost of implementing a strategy like this. When we read the definition before, we were talking about option-based strategies, so we could probably have 10, 15 podcasts on option trading strategies and probably still not get to the bottom of the details on exactly how option trading work, but in general to implement a strategy like that. And I’m not saying that strategy is bad by any means, but to implement a strategy that uses options trading is going to cost a little bit more from a fee standpoint. For example, iShares is a very, very popular name in the ETF industry. They have a large cap deep buffer ETF. So what that does is it seeks to track the price return of an S&P 500 ETF.
So I pulled up the expense ratio, that’s just a fancy term for the actual yearly fee of the buffered ETF, and it was just over a half a percent from a fee standpoint, that’s what the expense ratio was. And then I pulled up the actual underlying index that it seeked to track, and we can invest in that index at 0.03% expense ratio per year. So about a half a percent more to use a strategy that provides the buffer and the cap. And I would argue that these iShares, their expense ratios are pretty reasonable within the industry. If we expand our horizon out to some of the maybe lesser well-known names, these buffered ETF expense ratios can get well above 1% range. Morningstar actually did a study, you know how we love to look at their research and use that on the podcast from time to time, from their research they’re estimating that about from a fee standpoint these buffered ETFs are about 70 to 80% higher than just actually buying the underlying index that the buffered ETF is hoping to track, which those are some pretty high percentages.
Walter Storholt:
I better be getting some pretty good value for that.
Tyler Emrick:
Correct. And fees are not the only thing that we look at, but they’re certainly a piece of the pie and we need to be very mindful of to say, “Hey, does that additional cost, 70 to 80% higher, does it truly make enough sense to say, “Let’s add that into our portfolio?”” It’s absolutely a consideration. So cost aside, if we go back and really look in and dive into what is probably apparent to listeners by now, but this idea of a cap on your gains, I think if we peel back the onion on that a bit and say, “Well, what does that really mean?” I think it’s really hard to quantify because, frankly, it’s hard to quantify what does the stock market typically do, what is the actual volatility and how high are the range of outcomes from a performance standpoint on these underlying indexes that the buffered ETFs track. I think it can be eye-opening.
So all I did was I looked back at the S&P 500 and looked at iShares, core S&P 500 ETF, and I just went back to 2019 and looked and said, “Well, what was the return of that index each calendar year?” Okay. So really we’re just trying to get a handle on, as I’m reading these off, hey, if you purchased a buffered ETF and it had a cap at 10% and a buffer of 10%, meaning that, hey, you’re not going to participate in gains over 10% and you’re not going to have any losses up to a negative 10% in a calendar year. I’m going to rattle off these numbers and just think about the difference of what you might be giving up on the high side. So in 2023, S&P 500, this index was up over 26%.
Again, cap at 10, so you’re giving up 16%. 2022, I could forget about 2022, I don’t know about you, Walt, but from a performance standpoint it’s pretty rough. It was down 18%. So you’re going to get a little bit of protection there because, remember, the buffer was 10% down, this was down 18. So in a scenario like we’re running here, you would still lose 8%. You would just be protected on that first 10. So that’s a year where a product like this would’ve really came through and shined. 2022, the index was up over 28%, 2020 it was up over 18, and 2019 it was up over 31. So really going back to 2019, a product like this, 2022 would’ve been the only year where you would’ve actually gotten some protection on the downside to the tune of about 8%.
Every other year you would’ve given up return because that cap would limit it. And that return that you’re giving up is fairly significant if you’re going to go through and add up all the numbers. So this gets back to that idea where the range of outcomes really need to be very muted for a product like this to really shine. And a lot of times, going back through the data, indexes just really very rarely are muted, to be frank.
Walter Storholt:
There’s not a lot of streaks of 2% up, 2% down, 3% up. It’s wilder swings.
Tyler Emrick:
Well, you get pitched a product like this, and this is the thing with equity index annuities where they’re like, “Hey, you participate up to 10%, or that’s the cap.” And then they say, “Well, the S&P 500 is average 10% return per year going back to the 1920s.” And you’re like, “Okay, average in 10%, I get to participate at 10, maybe half the time I’ll be in good shape.” That’s not in actuality how the math works. And the averages can be very, very misleading when you’re breaking down the actual return of these underlying products. So if you’re a long-term investor and you have a longer time horizon, a product like this that has those extra costs, that have the cap on the returns with some of that protection on the downside, that trade-off is very substantial and can really compound over time.
And you think about most of the families that we work with, while most of them are long term investors, and we’re not trying to necessarily get into the business of timing the market and having to be perfect, like, “Okay, yep, market’s going to go down.” If I could tell you that, one of these products might shine really, really well, but, boy, is it hard, and that market timing has proven time and time again to be very, very difficult to do.
Walter Storholt:
Yeah, 100%. It’s really interesting to look at the ups and downs and how these caps could really hurt somebody, but are there people that are a fit for this? Or maybe you’ll get into that before the show wraps up.
Tyler Emrick:
Sure. Yeah, I think we will summarize that at the end, because I do think there might be a subset of individuals, especially individuals… Well, let’s just dive into it right this second. If there’s a subset of individuals where you’re just not an investor, most of your money has been in CDs or in cash, maybe after 2008 you sold out of the market and just never jumped back in or maybe did something similar in 2020 when COVID came out and we had that March of 2020 where the market dropped almost 30% in one month. If you’re an individual that’s been on the sidelines for a substantial number of years and very, very safe products, there might be an argument to look into something like this, but even still there’s some other negatives and drawbacks that might preclude you from even making this jump.
If you’re an individual that’s been an investor and you have a good diversified portfolio, that’s when these products really, really are starting to look less and less appealing to you from a, hey, should we add them into the portfolio standpoint. And I think when we get into my last point here about the actual buffered ETFs themselves and some of those maybe pitfalls we need to be mindful of, there is one other big potential negative with the way these actual buffered ETFs work that we definitely need to be mindful of and really add an extra layer of complexity if you’re looking to add these to the portfolio, and that is this idea of a defined outcome period. So if we go back to that definition that we mentioned before, very important comment in there is that, hey, these products worked under a defined outcome period.
Typically, that’s over 12 months, it can be a quarter, but essentially what that means is that when these products start that defined period, that’s when the caps and the buffers are actually set and they’re meant to go through for whatever time period is listed in the objective of the fund. For example, if we have a buffered ETF that is a 12 month buffered ETF with a 10% buffer protection and a 10% cap on returns, that means that at the start of that 12 month period to the end of that 12 month period, that’s when those caps and buffers are in place. So if you’re looking to buy into one of these ETFs, and let’s say that you bought into it today, but the ETF launched a few months ago, so those caps and buffers actually started a few months ago, and when you bought in the index had actually already risen 5%.
Well, when you purchase into that, you’ve only got another 5% until you actually reached the cap, you don’t have another 10%, because the time in the series of that ETF is extremely important, and you didn’t get in at the beginning, so your upside is capped even more than you might expect because the index was up already when you happened to get in a few months later from launch. Likewise, if at the end of that series the index finished up 2%, so you got in, it was already up five, it actually went down a little bit during the time that you were in there, and finished it 2% at the end of the 12-month period, well, you would actually lose the 3% difference because of the timing that you got in. So understanding how the series works with these ETFs and the timing of when they’re added or removed from your portfolio can have substantial impact on the actual outcome of the fund and can actually work completely opposite of why you added it in.
Walter Storholt:
A little bit counterintuitive. I see the challenges piling up a little bit against these products, and I think your illustrations great, for somebody that’s already a market sort of person, this would almost feel like moving a bit backwards, but for somebody who’s never really been in the market, this could be a step forward, a dipping of the toe in the water into the market for somebody who’s been hesitant prior to experienced those wild swings, maybe they’ve got some emotional hang-ups on jumping into the market and riding that rollercoaster.
Tyler Emrick:
Sure.
Walter Storholt:
This is Scooby Coaster.
Tyler Emrick:
Well, you got it right. You start looking at, okay, if it’s a little bit more from a cost standpoint, hey, you’re going to give up potentially quite a bit of returns if the index doesn’t give returns that are in the path that is expected, so they’re outsized or upsized. And then you add in this implementation potential issue and complexity on, well, hey, when do you get out and when do you get in, yes, you can get in and out at any time because it’s an ETF structure, but those caps and those buffers might not be acting the way that you’re expecting them to if you don’t actually use the ETF as intended. So in actuality, you might have to keep it for a period of time for it to actually have the outcome that you expected. So you start adding up some of these cons and it’s like, “Ooh, well, how are we going to add this in?”
You need to definitely be mindful of how the implementation goes into some of these products. So as we’re wrapping up here and we’re just thinking through and summarizing it in together, I’ll lean on Morningstar again with some of their research and studies on this, because frankly, again, these products have been out since 2018. That might seem like a few years, but it takes time to get data and research and look back over prior outcomes and, hey, did they act the way that they’re expected, did they not? And Morningstar ran a study going back on the S&P 500 and looked at 12-month rolling returns, and this would be comparable to using a buffered ETF that has a series of 12 months or a time period of 12 months. And they were just looking back saying, “Well, hey, what percentage of time would this buffered ETF actually worked and helped, and not?”
And you start looking at some of the percentages of what the S&P 500 did, they shared that about 15% of the time the index had a loss of zero to 15%, so the buffer would actually very much come into play there. But, again, that’s about 15% of the time or 15% of those rolling twelve-month periods where that actually came to fruition. Periods where it lost more than 10% or a little bit higher than 15% of the time, at 17%. And the big kicker here, which is getting back into the caps, about 30% of the time or 30% of the years, going back to 1928, the index returned more than 15%. So about a third of the time, that cap is going to affect you and you’re going to give up return going back over the data. So that’s a very substantial amount of time where a product like this really isn’t acting as you might’ve intended, or you’re giving up quite a bit on the positive side.
So you look at that and you pair that with some of the issues that we had mentioned before, a lot has to go right for these products to make sense. You almost have to have perfect market timing, timing the market at the top to protect you on the downside, there’s that path dependency on the returns of the underlying investment where depending on how high or how low the returns are, the buffered ETF might or might not work, you got the increased cost, and then of course the implementation issues, you’re starting to rack up quite a few cons here that you need to be mindful of if you started adding in a product like this.
So I’m going to be interested to see how these things continue to change over time. They’re definitely a step up from the equity index annuity and potentially the structured note. Do they knock it out of the park? I don’t think they’re quite there yet, but it’s fascinating and certainly love it when we starting to see products that are maybe pushing the envelope a little bit. And it’s always good to make sure that we’re on the cutting edge here and finding out what works and what doesn’t work as we start thinking about building portfolios and figuring out what works for the families that we work with.
Walter Storholt:
I definitely appreciate the perspective and learned a little something new on today’s episode, Tyler.. that there are alternatives out there. If somebody’s in that annuity sales world, like they’re in the middle of getting pitched one of those products, this provides an alternative that accomplishes some similar goals and maybe has some upsides in comparison to that arena, but also great to see that it still also falls into that same old routine that you have led us to be familiar with over the years. There are no magic products. There’s always going to be trade-offs for any of the benefits that you’re going to get, and you guys are great at exposing those and putting it into the context of how you typically use different strategies and products in your portfolios for clients. So great illustrations of all of that today.
And if you are interested in how to put together a proper portfolio and experience success in your financial future, well, that’s what Tyler Emrick and Kevin Kroskey and the great team at True Wealth Design do each and every day with their clients. And if you’d like to see if you’re a good fit to work with the team, it’s very easy to do that. Your first step would be to go to truewealthdesign.com, click the Are We Right For You button, and schedule your 15-minute call with an experienced advisor on the team. Go to truewealthdesign.com and click that button, Are We Right For You. Or you can call (855) TWD-Plan, that’s 855 893-7526 to get in touch over the phone as well. All that contact information’s in the description of today’s show so you can find it easily. Tyler, great explanations today. Thanks for the help, my friend, and we’ll be talking to you again I guess in just a couple of weeks.
Tyler Emrick:
You got it. It was fun.
Walter Storholt:
Yeah, it was. Good stuff. Thanks everybody for joining us. We’ll see you next time right back here on Retire Smarter. Until then, take care.
Speaker 3:
Information provided is for informational purposes only and does not constitute investment, tax, or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
