By Spencer Jakab

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"Why risk it?" That's the question posed by one of the largest providers of buffered funds, often called "boomer candy." As the nickname suggests, the fast-growing category appeals to older investors who would face the toughest setback from a bear market.

There are many flavors, from complete protection against losses over a certain time period to a downside limit. What they all have in common is solving two problems-one for customers and the other for the companies selling them.

While buffer funds are popular with baby boomers, losing money hurts at any age. It's part of being human-a survival instinct that helped in prehistoric times when downplaying danger could have taken our ancestors out of the gene pool.

What was rational when saber-toothed tigers roamed collides with what we know about avoiding penury in old age. Without owning risky things like stocks, we'd be left with a fraction of the potential wealth after a lifetime of saving.

Boomer candy threads that needle. Funds typically put the bulk of investors' money in safe Treasury bills and the rest in a "call spread." The fund simultaneously buys a call option on an index like the S&P 500 to capture its gains and sells a cheaper one that kicks in at a higher level to offset the first contract's cost.

That caps the funds' gain in a good year; the pile of T-bills limits losses in bad ones. The bills earn some interest. But in the event of a market plunge, investors might not keep that since it helps the fund break even.

Peace of mind isn't free, and there's also a little extra for the companies that sell the funds. That solves a problem for asset managers.

The traditional approach to diversification meant to limit steep portfolio losses is holding a mix of stocks and bonds, such as the classic 60/40 portfolio. The bond allocation rises over time according to various formulas or rules of thumb, like 100 minus your age.

Intense competition means doing that on your own has become cheap-about 0.03% from big asset managers like Vanguard for stock and bond index funds. Buffer funds typically cost between 0.5% and 0.8%, or 15 to 25 times as much, plus the costs of administering the strategy. Buyers, meanwhile, face occasional tax surprises.

Is it just money down the drain? That depends on the customer.

Someone able to grit their teeth and hang on during market swoons is needlessly harming their returns. Another who can't stomach volatility might cost themselves more by dumping their stocks at the worst time.

Sure, it would be cheaper to pay someone a few hundred bucks to hide your brokerage account password, but it would probably be a tougher product to sell.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

September 17, 2025 11:45 ET (15:45 GMT)

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