Exchange traded funds (ETFs) might all seem the same to a new investor, but it couldn’t be further from the truth. For example, an ETF in the real estate sector, such as SPDR S&P Homebuilders (XHB), might be down sharply, while another ETF invested in the energy sector, such as iShares Dow Jones U.S. Oil & Gas Exploration & Production Index (IEO), could be riding high. This example illustrates why having a diversified portfolio is helpful. It also emphasizes why trend following is important. We follow trends (whether an ETF is moving up or down) to determine when to buy and/or sell ETFs, and we follow our investment strategy rigidly.

Also remember that just because certain ETFs are up or down now, they won’t necessarily stay that way. Gary Gordon for ETF Expert did a great post that shows how much ETFs and different types of investments (equity, bond, currency, and gold) can fluctuate over the years.

Tags: Currency ETFs, Homebuilders, IEO, Sector ETFs