September 28, 2008 at 1:00 pm by Tom Lydon
The market’s meltdown has stock, mutual fund and exchange traded fund (ETF) investors wondering where to go.
Katy Marquardt for US News & World Report put the question to experts in each area. Overall, the consensus seems to be that investors should not panic. We wholeheartedly agree on this point - your emotions can be deadly to your portfolio.
Our strategy, however, is to follow trends and look out for those areas of the markets that are moving and sitting above their 200-day moving average. And when funds drop 8% off their recent high or dip below that long-term trend line, we’re out. It’s a great way to protect yourself on the downside and even perhaps keep some of the returns you made.
When it’s time to get back into the market, be sure to consider your risk tolerance. For example, sticking to the broader funds and wider indexes might be better for an investor who doesn’t have much of a stomach for risk. Meanwhile, narrowly focused funds can be ideal for the investor who is willing and able to ride out a little more volatility.
For a detailed explanation of our trend-following plan for ETFs, read our special report on the subject.
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