Over the years we have often sent out messages to clients during market declines or corrections. These are inevitable, but right now we are actually experiencing a fairly sustained period of price growth. This began in 2023 and has continued for the first 5 months of this year. Knowing that pullbacks of 10% or more occur in nearly half of all calendar years, we are always looking for ways to prepare and protect portfolios. I thought it would be encouraging to share a little more detail on one such investment.

The linked marketing flyers (Allianz, Advisors Asset Management) highlight ways in which investors can help guard against market volatility. You may not be familiar with all of the terms used, but essentially, these securities provide exposure to stock indexes while building in a degree of downside protection. An Exchange Traded Fund (ETF) is the type of security described, but we often use what we call Market-Linked Bonds to achieve the same end. Like all bonds, these have a maturity date and can be structured to provide partial to full protection (subject to the credit of the bank that issues the bond). The most common structure we use has “Buffered” protection which means that the position will not sustain a loss when negative returns occur down to the buffer level. So, if a bond has a 10% buffer and the stock index it is connected to declines by -11%, owners of the bond will only be down -1% from their original investment. There are some tradeoffs that include liquidity and often a “Cap” on the upside of returns, but I thought you would appreciate knowing that there are ways to partially protect portfolios that we are actively incorporating.