Journal of Financial Planning: December 2025
Jason Barsema is the co-founder and president of Halo Investing (https://haloinvesting.com) where he leads the team and product vision. Jason cofounded Halo Investing in 2015 to provide all investors with access to institutional-grade investment products and has since grown the company to a full-service provider of sophisticated wealth management solutions.
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This year has tossed investors a variety of curveballs. January’s DeepSeek AI announcement from China rattled the artificial intelligence (AI) momentum trade. President Donald J. Trump’s tariff saga culminated in a near bear market, with the Chicago Board of Options Exchange Volatility Index (VIX) spiking to 60 after so-called Liberation Day. A war erupted in the Middle East, and there’s an ongoing battle between the U.S. president and the Federal Reserve Chair, among other hand-wringing issues.
Financial advisers and their clients should probably expect more of the same: volatility, uncertainty, and asset-class behavior that doesn’t match historical trends as the year-end approaches. Perhaps the most identifiable moment of 2025 occurred in the second quarter, when the administration backed off from the very high reciprocal tariff rates announced on April 2. Trump said the bond market got a little “yippy,” meaning that long-term Treasury rates began to sell off amid unease with fiscal policy.
That event served as a crucial reminder that risk-sensitive investors can no longer rely on the perceived safety of the traditional 60/40 stock/bond portfolio. In moments of macro risk, tried-and-true investing maxims, such as Treasuries offering ballast when stocks turn south, just cannot be depended upon. Ballooning deficits may threaten the status of longer-term bonds in a conventional portfolio over the next few years.
As a result, new investment solutions are needed, ones that provide protection when volatility strikes, and ones that can be tailored to individual client goals, so they can stick to them when the next curveball is hurled their way.
Against this backdrop, structured notes have emerged as a versatile tool for addressing some of the most pressing challenges in portfolio construction today. While not a replacement for core allocations, they can be used to introduce a blend of downside protection and upside participation in a way that traditional instruments often cannot match.
The Shifting Landscape
In 2024, the U.S. structured note market soared to a record $149.4 billion in value, according to market data platform Structured Retail Products. That’s a nearly 50 percent increase from the previous year, reflecting the asset vehicle’s growing appeal.
But in 2015, U.S. structured note annual volumes were roughly $40 billion, compared to Europe that was buying nearly 10 times that amount. That’s when stocks broadly advanced and interest rates generally trended lower in the United States, making the 60/40 king. Despite favorable conditions in equity and bond markets, investors work hard for their money and have their own unique goals in mind. Structured notes can “check this box” by offering investors the comfort of a cushion in uncertain times, while being personalized to meet their specific needs.
Bull markets can’t last forever, and the COVID-19 pandemic was a critical turning point. Of course, that was an unpredictable world-changing saga, but from a financial market perspective, it was the catalyst to change the macro investing construct. The biggest bond bear market of our lifetimes occurred in 2022, prompting so many risk-sensitive investors to rethink their allocations. Financial advisers were on the hunt for protective investment solutions, and structured notes emerged as a viable option.
The Next Era of Structured Note Investing
But more shifts are happening, and we can’t be idle. In light of more than $7 trillion in cash on the sidelines and ongoing risk with the cookie-cutter 60/40 portfolio, structured notes can be put to work to further reduce portfolio risk and help all clients navigate turbulent markets more smoothly.
I’ve laid out some examples of how to implement structured notes to address portfolio challenges in today’s volatile markets, and all that may lie ahead in the years thereafter.
Step 1: Identify Investment or Portfolio Challenges
The process begins with a question: What problem are we trying to solve? Is it income stability for a retiree, protection for a nervous pre-retiree, or more efficient use of excess cash?
Common challenges include:
- Hedging equity exposure during volatile markets
- Enhancing yield in the face of declining bond returns and those “yippy” interest rates
- Replacing or complementing alternatives that are expensive, illiquid, or opaque (We like to say that structured notes can be a better “alternative to alternatives.”)
Before an adviser can purchase a note for a client, they must pinpoint specific portfolio challenges. These could include insufficient investment income from the bond slice of their asset mix, sequence-of-return risk for retirees, or the need to hedge stock market exposure amid lofty valuations.
The point here is that structured note investing must be targeted, not a blanket layer added to what may be an already complex portfolio. Including structured notes must be thoughtfully considered, based on each investor’s risk and return objectives, along with their goals.
Structured notes can address challenges by offering tailored risk-return profiles. For a 50-year-old executive with significant U.S. large-cap exposure, who aims to retire early and seeks to de-risk their portfolio without sacrificing growth potential, growth notes may be suitable. A retiree needing a stable income stream with low volatility may benefit from income notes. Let’s double-click on this.
These investors often face a dilemma: how to reduce equity risk without missing out on further upside, especially in tax-sensitive or concentrated portfolios. A financial adviser can select a growth note designed to offer partial downside protection, such as a 10–20 percent buffer, while still delivering enhanced upside participation up to a cap. This protective and diversified solution can be particularly useful for the aforementioned executive, who may have substantial single-stock or sector concentration in their company’s shares or in tech-heavy indices. Growth notes allow them to stay invested with a more favorable risk-return profile, avoiding the sometimes-debilitating choice between being “all in” or “all out.”
Now let’s shift gears. A retiree focused on capital preservation and uncorrelated income may take a different tack. I’m painting with a broad brush here, but income notes are more geared toward individuals who depend on their portfolio to meet living expenses. Income notes are designed to generate attractive, consistent coupon payments even in a sideways or slightly declining market. As long as the underlying asset remains above a predefined level, contingent coupons are paid to noteholders. Unlike traditional fixed-income instruments, which are vulnerable to interest rate swings or the erosion of purchasing power due to inflation, income notes can be structured to provide yield enhancement with a defined outcome strategy. More predictable outcomes can increase investor confidence, reduce sequence-of-return risk, and help maintain portfolio sustainability through retirement.
Zooming out, both growth and income notes can be personalized to match an investor’s specific retirement horizon, risk tolerance, and asset allocation lattice. It’s like having a financial Swiss Army knife at your ready. Whether the goal is tax-efficient accumulation for an early retiree or capital stability for a retiree managing withdrawals, structured notes allow advisers to move beyond cookie-cutter portfolio models and design outcome-based strategies that adapt to evolving market risks.
It’s not a binary call, however. For some investors, particularly those in the transition phase between accumulation and retirement, a hybrid strategy combining growth and income notes may offer the best of both worlds. This approach allows a portion of the portfolio to pursue upside participation with defined downside protection, while another portion generates a steady income stream through contingent coupon payments. This blended method empowers advisers to help clients meet both growth and cash flow needs without exposing them to the full potential volatility of equity markets or the rate sensitivity of traditional bonds. A hybrid allocation may also be preferred from a behavioral viewpoint, as it can give clients more confidence to stay invested throughout the whims of market cycles while addressing multiple portfolio goals within a single strategy.
Step 2: Align Objectives with a Market Outlook and Protection Level
Next, select structured notes that align with the client’s investment objectives and the adviser’s market outlook. This might involve:
- A growth note with enhanced upside and partial downside protection
- An income note with high yield that is contingent on soft barrier performance
- A note designed for sideways markets or asymmetric risk preferences
While there are growth notes, income notes, soft protection, hard protection, barriers and buffers, absolute notes, and catapult notes (and more), the upshot is that structured notes are customizable in many ways. Bullish, bearish, or market-neutral views can be expressed, featuring options such as contingent coupons, autocall provisions, and/or full principal protection.
Customization allows advisers to fine-tune outcomes in ways that exchange traded funds (ETFs) and mutual funds simply cannot match. For example, a capped growth note might be suitable for executing an outlook that calls for moderate stock market growth over the next 12 months. The note may offer enhanced upside participation up to a predetermined cap (perhaps 20 percent) and downside protection down to a barrier level (perhaps –10 percent).
Step 3: Determine a Funding Strategy
Funding a structured note allocation can follow two approaches: a layered approach, where notes complement existing exposures (e.g., selling an S&P 500 holding to buy an S&P 500-linked note), or a replacement strategy (e.g., swapping out high-yield bonds for income-generating notes).
For a balanced portfolio, funding can be drawn equally from equities and fixed income, ensuring minimal disruption to the overall asset allocation. This flexibility helps maintain consistent exposure while enhancing the risk-return profile.
Structured Notes Versus Buffered ETFs: Understanding the Differences
Also known as defined outcome funds, buffered ETFs have gained popularity in recent years. Like structured notes, they aim to provide a degree of downside risk protection, but there are essential differences that all investors should be aware of.
Tactical and Timing Flexibility
First, buffered ETFs are set-and-forget vehicles. They reset annually and don’t adapt to market dynamics. By contrast, structured notes, especially within a professionally managed portfolio, can be tactically timed to enter markets at favorable volatility levels, potentially offering better upside capture and improved downside protection. Moreover, a note within a professionally managed portfolio terms or liquidates and reinvests opportunistically, unlike buffered ETFs, which are capped for the outcome period and may miss performance above the cap.
Advisers and clients can have a professional portfolio team expertly buy and sell individual structured notes and/or actively manage a tailored strategy of notes via a separately managed account (SMA). Like any SMA, retail clients may tap this sleeve as part of their broader portfolio, especially when considering “alternatives to alternatives.”
Customization
With structured notes, terms are not just framed in light of market conditions. They are also tailored to the investor’s unique needs: maturity date, underlier, cap, buffer, and income profile can all be adjusted. Buffered ETFs, on the other hand, offer limited customization and typically reset only once per year.
Implementation and Liquidity
Buffered ETFs trade as a single unit, limiting an adviser’s flexibility, but can be advantageous for those who seek smaller investment sizes. Many buffered ETFs can be purchased for $25 a share, as opposed to structured notes that can be purchased at a $1,000 minimum investment size. That being said, most advisers use structured notes to layer on top of existing long equity exposure across the portfolio, thus the $1,000 minimums are typically not an issue for clients.
While liquidity is often touted as an advantage of ETFs, the liquidity premium can be a costly trade-off if it’s not truly needed by the client. For portfolios already flush with liquid assets, that premium may not be worth paying. Structured notes can also offer daily liquidity, but are primarily designed for investors who prioritize protection and participation over small minimums.
Lastly, investors should be aware of who’s doing the hedging on buffered ETFs. Some buffered ETFs “outsource” the hedge (options that provide the protection), and these hedges are often actively managed. If the options are mismanaged, bad things can happen. With structured notes, the hedge is managed by the bank that issues the note, which are traditionally the largest investment banks in the world.
The Z-Shift: Rethinking the Efficient Frontier
Structured notes are superior to buffered ETFs. While the behavioral benefits of notes are plentiful, emerging insights into the mathematical advantages make the argument all the more robust.
At Halo, our team has developed what has been coined the “Z-shift,” an improved risk-return dynamic reshaping the portfolio opportunity set. Rather than moving linearly up the risk curve to chase higher returns, structured notes let advisers shift portfolios both right and up simultaneously, adding diversification and capital efficiency, while reducing downside volatility.
This is achieved by decoupling downside protection from correlation (unlike bonds, which often move in tandem with equities during crises), customizing market exposure to match client-specific goals, and reducing drawdown frequency, which is especially important for investors entering retirement.
Final Thoughts: A Smarter Way Forward
Uncertainty remains the word of the year. The VIX is all over the place, investors are on edge (as evidenced by all that cash on the sidelines), and there are even cracks forming in the high-yield debt / private credit markets. Stomaching all the macro worries and recession calls is not easy, especially for folks nearing or in retirement.
This is a perfect environment for structured notes to be considered. The 60/40 portfolio works sometimes, but it has also fallen flat just when protection is needed most. It’s about impact. It’s about personalization. And most importantly, it’s about empowering advisers to deliver better client outcomes in an uncertain world. Structured notes offer a dynamic, transparent, and client-friendly solution that doesn’t require sacrificing simplicity to gain sophistication. This is exactly why structured notes have been a 20 percent allocation in my own portfolio for nearly 20 years.
The time to consider them isn’t when the dust settles. It’s today, while markets remain volatile, clients remain anxious, and the need for better solutions has never been more urgent.