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Why should I consider a buffered ETF instead of a structured note or other hedging strategies?

Buffered ETFs and structured notes both aim to manage risk and shape returns, but buffered ETFs, such as ARK’s Defined Innovation Exposure Term ETFs offer several key advantages that make them appealing—especially for individual investors:

  1. Liquidity and Flexibility
    • Buffered ETFs like ARK DIET trade on public stock exchanges, just like regular ETFs or stocks. Investors can buy or sell them any time during market hours, with no waiting period or penalties.
    • Structured notes, on the other hand, are often tied to a fixed term (e.g., 5 years) and may have limited liquidity or early redemption restrictions.
  2. Transparency
    • With a buffered ETF like ARK DIET, investors can clearly see the defined outcome structure—the buffer, hurdle, and upside participation—before deciding to invest. ARK provides interactive charts to help visualize it.
    • Structured notes can be complex, with opaque pricing and hard-to-understand payoff formulas. Investors often don’t know exactly what they’re exposed to unless they read the fine print.
  3. No Credit Risk
    • Buffered ETFs like ARK DIET are issued by investment firms and held in custodial accounts. They are not dependent on a bank or issuer’s solvency.
    • Structured notes are often backed by the issuing bank, meaning if the bank fails, investors could lose their money—even if the market performed as expected.
  4. Tax and Account Accessibility
    • Buffered ETFs like ARK DIET can be held in retirement accounts (IRAs, 401(k)s) and taxable brokerage accounts.
    • Structured notes may be more difficult to place in tax-advantaged accounts and can have more complex tax treatment.
  5. Ease of Use
    • Buffered ETFs like ARK DIET require no special paperwork or private placement access. Anyone with a brokerage account can invest.

In short, a buffered ETF like ARK DIET can provide a simpler, more flexible, and transparent way to access risk-managed strategies that would otherwise require complex hedging or structured products.