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Buffer ETFs: a strange tale of loss aversion [Members]
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Thanks, I really enjoyed the “Roll your own” twist at the end!
Thanks for the clear guide. I suspect Taleb and Spitznagel would not be buyers.
Great piece (thanks @TA). Terrible products.
A double bargepole methinks.
Close to retirement and feeling a bit risk adverse, then just dial down equities and dial up everything else, especially short to intermediate duration fixed income.
Should you fancy adding something a little bit more complicated and..dare I say it here…, active in approach (but still low, anti, or uncorrelated to equity risk), then there’s always the likes of Ruffer Investment Company (and Capital Gearing), and Brevan Howard Macro Ltd (the defensive Investment Trusts).
Sounds a similar problem to the complex products known as ‘fixed index annuities’ (thankfully, AFAIK, only available in the US). The chapter on FIAs in Pfau’s book (Safety first retirement planning) begins and ends with caveats about how the complexity and terms can hide various sources of unpleasantness.
@DH (#3)
If required, adding guaranteed income beyond the state pension (either in the form of an inflation linked gilt ladder or RPI annuity) can also help with risk aversion.
Worth noting that Capital gearing is currently very bond heavy at >60% (the majority of which range from 5 to 10 years maturity), including a 6% allocation to a single inflation linked gilt (0.125%, 2031), and relatively light on equities (<15%). In other words, not too far from the 'roll your own' included in the article.
Very interesting .. but stupid .. (yes I am that old).
Thanks for the article – sounds expensive .. and no protection from unlimited loss, if I’ve read it right. Why not just buy some options, or just reduce your position if you’re that worried.
Same bad idea, new ETF clothes
I like the elliptical simplicity of the DIY version. Although I have done well from shorting very occasionally, every time I look at trying to use options it brings me out in hives, it seems a very expensive downside protection. Or I have no talent in doing it right, either way I’ve never found something attractive enough to push the button on it. And the ETF format seems downright evil.
Everybody says market returns are fat tailed relative to normal distribution, as the central limit theorem fails as we all run for the exit in crowds, or succumb to irrational exuberance for a great story. I do wonder if the tails are symmetrical on the upside and downside, loss aversion would suggest you might expect euphoria to be different from depression?
Great piece, @TA and saved me the research. This is the kind of detail that really helps. My search for a free lunch continues…