Buffered ETFs are a relatively new type of fund that offers a unique risk-management approach. These funds track an underlying index to replicate its performance while providing a "buffer" against significant losses. However, this protection comes at a cost, as the fund's upside is capped at a predetermined level.

As investor interest in buffered ETFs has grown, fund providers have diversified their offerings by tracking various indices and offering a range of buffer and cap levels. Several applications for these funds have also emerged, such as the ability to put cash to use that might otherwise be held out of the market.

Investors in or nearing retirement are particularly susceptible to market volatility, often resorting to holding cash to protect against short-term market fluctuations. While providing protection, this strategy also prevents them from participating in potential market growth.

Buffered ETFs bridge this gap, allowing investors to enjoy market gains up to the defined cap while safeguarding against substantial losses. With this level of protection built into the fund, investors may have more confidence to transition a portion of their portfolio out of cash and back into the market.

Finsum: Investors in or near retirement who fear market downside now have a place to invest that cash they have been holding on the sidelines: buffered ETFS.