Displaying items by tag: risk

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.

ETF issuers are continually innovating to meet the demand for buffer strategies, appealing to financial advisors and clients who prioritize downside protection, even if it limits potential gains. Often dubbed "boomer candy" for their popularity among retirees, buffered ETFs offer a sense of security akin to a safety net for nervous investors. 

The market for these ETFs has grown exponentially, with over 200 options managing nearly $46 billion in assets, a significant leap from just $200 million in 2018. These strategies typically shield against initial market declines, like the first 10%, while capping upside returns and are often tied to indices like the S&P 500. 

Variations now include funds offering complete downside protection or innovative approaches like Calamos Investments’ product, which protects bitcoin’s price, but caps gain at 10%. 

Finsum: Investors looking for stability particularly as they are aging could benefit from these strategies. 

The Bloomberg Compact Index Series offers a novel approach to index investing by balancing exposure across all market sectors with a limited number of securities. Unlike traditional market-cap-weighted indices, these indices minimize concentration risk by equally weighting the two largest stocks from each sector, resulting in reduced volatility and higher risk-adjusted returns. 

They simplify the process of monitoring and rebalancing by maintaining a straightforward, transparent methodology with fewer securities. This streamlined structure also enhances sector diversification by including only top-tier companies based on their market cap and primary revenue sources. 

Additionally, these indices are designed to be more resilient during market downturns, featuring high-quality companies that can better withstand economic fluctuations.

Finsum: This is a really interesting strategy and speaks to the wealth of opportunities in custom and direct indexing markets.

BlackRock has introduced a 'buffer' ETF, the iShares Large Cap Max Buffer Jun ETF (ticker: MAXJ), designed to offer a 100% downside hedge for cautious investors. This ETF tracks the S&P 500 using options with an upside cap, aiming to protect against losses for about a year.

 Buffer ETFs are beneficial as they help maximize returns while providing downside protection during volatile market periods. 

They are especially attractive to investors wary of market volatility and economic uncertainties, such as inflation and potential interest rate hikes. BlackRock's extensive reach and marketing capabilities could help it catch up with competitors in this space.

Finsum: BlackRock’s pioneering in quantitative strategies puts them in a good position to maximize the abilities of buffer ETFs

Buffer ETFs have grown rapidly since 2018, now totaling 159 with nearly $38 billion in assets. They attract financial advisors by offering downside protection for the first 10% to 15% of losses while allowing market gains, making them popular during volatile periods like 2022.

Experts point out that these ETFs are easier to rebalance and offer daily liquidity compared to structured notes and annuities. However, buffer ETFs cap potential gains, limiting profits when the market rises, and their performance can be affected by market timing.

They typically have a defined 12-month outcome period, and buying or selling mid-series can negate initial protections and caps. Despite their benefits, buffer ETFs have higher fees and might not pay dividends, making them less suitable for long-term investors compared to direct equity investments.

Finsum: Sometimes it’s worth paying higher fees or sacrificing a little alpha to hedge some volatility