ETFs That Guard Against Downturns: What Investors Need to Know
In the current financial landscape, ETFs that guard against downturns have gained traction among cautious investors. These funds typically exhibit lower volatility, offering a safety net during market declines. However, there is a notable trade-off; they often underperform in bullish conditions. Here, we explore the implications of this investment strategy.
Performance During Market Selloffs
Low-volatility ETFs tend to lose less in market downturns, providing a buffer against sharp declines. This feature appeals to many investors seeking stability amidst chaos.
Challenges During Bull Markets
- Underperformance: During significant rallies, these ETFs frequently lag behind higher-risk alternatives.
- Psychological Factors: Investors might be tempted to abandon their low-volatility strategies in favor of riskier prospects.
Should Investors Stay the Course?
Long-term Strategy: For those focused on long-term stability, low-volatility ETFs might still be a sound choice, balancing risk and return.
This article was prepared using information from open sources in accordance with the principles of Ethical Policy. The editorial team is not responsible for absolute accuracy, as it relies on data from the sources referenced.