Displaying items by tag: risk

Derivatives income ETFs are gaining traction as investors seek lower-risk equity exposure with higher income potential, especially in volatile or flat markets. These funds, like Goldman Sachs’ Premium Income ETFs (GPIX and GPIQ), generate income by writing call options, which sacrifices some upside in strong markets but cushions downside performance and produces consistent cash flow. 

This strategy offers “lower highs and higher lows” versus the broad market, making it appealing for those seeking stability and income outside traditional fixed-income vehicles. The funds use dynamic options coverage and diversified strike selection to balance income generation with capital preservation, typically covering 25–75% of the portfolio depending on market conditions. 

Additionally, they offer potential tax advantages through return of capital distributions, which delay tax obligations until shares are sold. 

Finsum: With steady distribution rates and independence from interest rate movements, these ETFs are increasingly attractive for retirement portfolios and income-focused investors.

Private credit has grown so large and intertwined with banks and insurers that it now poses a systemic risk in future financial crises, according to a new Moody’s Analytics study co-authored by economists and regulators. 

The report warns that the opaque nature of private credit and its deepening ties to traditional finance could amplify financial shocks due to increased interconnectedness. Since the 2008 crisis, banks have reduced lending amid tighter regulations, creating room for private credit funds—often lending to riskier, heavily indebted companies—to flourish with less oversight. 

Researchers used business development companies as a proxy for the sector and found their market behavior is now more correlated with broader financial stress than in the past. Although private credit firms argue they are less prone to panics due to their long-term investor base, banks are still deeply exposed through indirect relationships like fund financing and risk transfers. 

Finsum: While private markets tend to be insulated from recessions compared to their public counter parts it’s important to keep this risk in mind when investing

Structured notes, once reserved for hedge funds and ultra-wealthy investors, have surged in popularity among retail clients thanks to bite-sized offerings, generous yields, and downside protection amid volatile markets. 

These bank-manufactured products, linked to indexes or stocks, use derivatives to offer tailored exposure—whether for income, growth, or buffered loss protection—with some notes capping upside while guarding against market drops. Products like Bank of Montreal’s Nasdaq 100-linked notes offer a fixed return if markets rise, and principal protection if they fall, while others—like buffered or contingent income notes—offer periodic income with defined loss limits. 

As volatility climbs, advisors increasingly recommend these notes to generate income without taking full equity risk, with firms like iCapital reporting major spikes in interest following market shocks. 

Finsum: It’s interesting that high level investors are using structured notes like buffer products in this high volatility environment. 

After Moody’s downgraded the U.S. credit rating from Aaa to Aa1, investors sold off government bonds, driving long-term Treasury yields sharply higher. This spike in yields raises borrowing costs for consumers and businesses alike, potentially slowing economic growth. 

Analysts warned that higher rates could ripple across mortgages, auto loans, and business financing, putting pressure on spending and investment. While credit downgrades by S&P and Fitch in past years had limited long-term economic impact, the timing of Moody’s move—amid heightened bond market volatility and mounting national debt—has amplified market anxiety. 

Some experts view the downgrade as a long-anticipated but symbolically important warning about unsustainable fiscal trends. Still, markets showed resilience, with equities rebounding by midday and Treasury yields pulling back slightly from their highs.

Finsum: Are equities investors neglecting the proper risk to US debt right now? Investors should keep close tabs on how this evolves

Target-date funds offer a hands-off approach to retirement investing by automatically adjusting asset allocations over time. These funds balance growth and security by shifting from stock-heavy portfolios in early years to safer investments like bonds as retirement nears. 

Named for the investor’s target retirement year, these funds simplify decision-making and are commonly found in employer-sponsored 401(k) plans. A key factor in choosing one is its “glide path,” which determines whether asset adjustments stop at retirement or continue for years beyond. 

While convenient, investors should compare expense ratios and investment strategies to ensure alignment with their risk tolerance. Three TDF funds to consider are: 

1. Vanguard Target Retirement 2045 Fund Investor Shares (VTIVX) – Expense Ratio: 0.08%
2. Fidelity Freedom Index 2045 Fund Investor Class (FIOFX) – Expense Ratio: 0.12%
3. T. Rowe Price Retirement 2045 Fund (TRRKX) – Expense Ratio: 0.62%

Finsum: Despite their “set it and forget it” appeal, periodic reviews help maintain a well-balanced portfolio.