Quote:
Originally Posted by loves2read
I think we should take more risk in our portfolio because I think we have another 20 years to live probably (both sets of parents long-lived and no significant health issues) and want to leave an estate for daughter/grandson…
My husband doesn’t like risk—
So our CPA investment analyst suggested these ETFs because they buffer risk…
If that is not the case then enlighten me with your insight
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Your advisor is probably referring to funds such as BJUN, PJUN, and UJUN.
I've heard them called "Buffer ETFs." Read
https://www.investopedia.com/etfs-cu...elloff-4773081
The decision of how much risk to take is a very important one. I suggest you & your husband take a free online investment risk tolerance survey - there are many out there. The two of you really do need to be on the same page, or close to the same page. Compare your results of questionnaires with one another and discuss them.
Also, the decision of how much risk to take is INDEPENDENT of the construction of the optimal portfolio for that level of risk.
I would never include a Buffer ETF in the construction of my portfolio for two reasons.
1) They have EXTREMELY high expense ratios - the management company takes a huge fee off the top, and that comes out of my pocket. The above funds have expense ratios that are nosebleed high .79%.
2) It is trivial to construct a portfolio of a normal low-expense ratio ETF together with another asset class such as a CD such that the total value of the portfolio is buffered in the same way, but I don't end up paying a huge chunk of money to the management company. Instead of putting, say, $100,000 into PJUN I would put $60,000 into the S&P 500 ETF VOO (with an expense ratio of 0.03%) and $40,000 into short term T-Bills (risk-free). At the end of the year, the VOO will have varied up & down, and the T-Bills will have paid you interest and you get guaranteed return of your $40K. The sum of the ETF and the T-Bills will approximate that Buffer ETF but you are way ahead because you didn't pay as much in fees.
My example is just hypothetical - your advisor can discuss the concept with you in more detail, but it is all moot until you and your husband agree on how much risk to take. And there are many tools for portfolio construction and determining how much of your assets to put into various asset categories.
I think Buffer ETFs are a great product for the company that creates them and sells them; they make a lot of money on them.
I wouldn't use them.
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