A successful retirement requires you to get many components correct. Sadly, failing at retirement can occur by missing or failing in just one of the many areas required for success. How issues relate to one another can be confusing and complex. Changing market conditions and technology innovations can all be disruptive to existing plans.
There are things in your portfolio that we refer to as “tools.” Tools can be an actual investment or the strategy that convinced you to buy the stock, bond or annuity. What is your process for identifying when changes need to occur in your toolbox?
Exchange-traded Funds (ETF’s) came to existence in the late 1980s. They are cheaper, more transparent, more tax-efficient and easier to trade than mutual funds. There are still investors unfamiliar with ETF’s (exchange-traded funds) more than 30 years later.
The tax code had a major overhaul in 2017 that took effect in 2018. We recently received a call from a person trying to deduct their college-age child on their tax return as a dependent to get a tax exemption. Exemptions are no longer available after the tax change two years ago.
The point is that it takes the average family years to notice when things have changed that will impact their financial future. This article hopes to keep you abreast of some of those changes, but ultimately to suggest you find a resource that helps you along the way.
Relatively new to the scene are investments called buffered ETF’s. They aren’t right for everyone and you should never put all of your money in one type of “tool.” Make sure you are working with a well versed and experienced financial advisor to understand the complexities of these and other investments.
Buffered ETF’s have the ability to help you buffer or minimize the downside market risk of an index like the S&P500. Think of them as an insurance policy with a deductible and a maximum amount of coverage.
Depending on the situation, you may be worried about a market downturn and yet still want to be in the market. Buffered ETF’s are one way to consider doing that.
Just as insurance requires you to pay a premium, buffered ETF’s have a cost to them. The cost of protection to the downside is limiting the growth to the upside. That is known as a “cap.”
There are similar terms used in equity index annuities but these are different instruments. The liquidity feature and tax nature of the buffered ETF’s make them worthy of understanding.
As fiduciaries, we make the determination if investments are right for the families we serve. You will want to look to a professional to help make that decision for you. All investments have risk and are subject to volatility and these are no different. Don’t miss a valuable tool, helping others work toward retirement, for 30 years before you recognize the value they may bring to your nest-egg.
Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see our Disclosure page for the full disclaimer.