Remember 2007? The U.S. economy had been giving advisors and investors plenty of warning, but the equity market had managed to “climb a wall of worry” and ignore those economic warnings all as the equity markets continued to climb upward.
S&P 500 Index August 2003 to August 2007
Strategists and pundits claimed there was no need for worry. “It’s different this time,” they said. Anyone in the markets at that time remembers how this movie ended, and it wasn’t pretty.
Compare this historical vignette to what is going on in the world today. We can see the evidence of social, economic and political strife across the globe, and some experienced money managers and economists are starting to sound the warning that the market is again ignoring too much of the bad news.
S&P 500 Index August 2012 to August 2016
Some of those same economists and money managers are now asking, “Have I seen this movie before?”
And if they have, they may be asking, “How do we insure ourselves against catastrophic losses?” Or in other words, “How can we change the script so the movie has a better ending?”
Simple ETF Portfolio Protection
While no one can change the course of the market, tools exist that can allow advisors to help investors limit losses on ETFs in their portfolio—tools called exchange-listed options.
Exchange-listed options on ETFs are directional instruments that can allow an advisor to tailor exposure to an underlying security’s upside or downside potential. You may think you don’t know anything about options, but in fact, everyone understands options perfectly well from their experience with home, life and car insurance.