I BEGAN MY CAREER AS AN INVESTMENT ADVISOR in 1986 with Merrill Lynch. One particular day at Merrill left an indelible impression on me. I vividly remember the panic in the office from clients and advisors on October 19, 1987. On that Monday, the Dow Jones Industrial Average crashed 22.6% and it greatly influenced the approach I wanted to take managing money for my clients. It was a powerful lesson to learn about market risk very early in my career.
Throughout my nearly four-decade career I have seen all kinds of markets – boom and bust periods that have occurred far more often than one would have thought imaginable. In addition to the October 19, 1987 crash, we’ve had two other crashes that pushed major stock indices down 50% or more (peak-to-valley). In all, I’ve had to navigate six bear markets that caused stocks to plunge by an average of 30%.
Wall Street has always “sold” the concept of diversification as the solution to market volatility. We’ve been told that if we own a diversified portfolio of bonds, stocks (small-mid- and large-caps), commodities, emerging and international markets etc., our portfolios will hold up in any market environment. Unfortunately, this isn’t true. As recently as 2022, investors learned the hard way that sometimes nearly all asset classes are highly correlated and lose money at the same time. Bonds and stocks were both decimated in 2022. And, during the Financial Crisis of 2008-09 nearly all asset classes crashed together. So, diversification can certainly be helpful at times, but it’s obviously not a perfect solution and there are periods when even broad diversification will fail to preserve wealth.
Given the extreme damage a bear market can inflict on a portfolio, I’ve never thought “buy-and-hold” was an attractive investment strategy, particularly for retirees or investors nearing retirement. So, during my career, I have felt compelled to actively manage risk and do my best to protect portfolios during bear markets, while also having the goal of participating in the upside of the market to the fullest extent possible during bull markets.
I think I’ve done a very good job navigating markets during my long career, but at what cost? Extreme levels of stress, uncertainty, and plenty of sleepless nights.
With the introduction of Buffer ETFs, I’ve finally found an investment vehicle that will give me, and more importantly, my clients, peace of mind. Buffer ETFs provide both downside protection and upside participation in the market – the best of both worlds.
According to Morningstar, Buffer ETFs are one of the fastest growing segments of the ETF marketplace. Assets have grown from $200 million in 2018 to over $35 billion in 2024, and there are now over 160 Buffer ETFs trading on U.S. markets. Their popularity has skyrocketed.
If you want to participate in stock market gains, to a cap, but with a defined level of protection against losses, Buffer ETFs may be a perfect fit for your portfolio.
