In The Wall Street Journal, Jason Zweig warns investors about exchange-traded funds offering “bondlike” payouts. He writes:
You know it’s late in a bull market when financial professionals start talking about stocks as if they were bonds.
The latest example: exchange-traded funds that offer “bondlike” payouts.
Most income-oriented investors should be risk-averse. The high yields offered by these new ETFs come with complex, unfamiliar risks.
And they aren’t magic. These funds don’t offer higher returns than the stock market; they just transform stock returns into regular income payments. But in doing so, they expose you to the risk that your high yields—and even your principal—could shrink just when you need them the most.
These ETFs, called autocallable funds, are multiplying fast. At least a dozen have made their debuts since last summer, with combined assets of more than $1.5 billion. Dozens more will roll out soon.
Action Line: If it sounds too good to be true, please do your due diligence. When you want to talk about your retirement, email me at ejsmith@yoursurvivalguy.com.
