With all the news and uncertainty going on in the markets, many investors are wondering what to do with their exchange traded funds (ETFs) and their portfolios. Here are some questions that we’ve received from readers and wanted to share with all of you.
Now that the Dow has suffered its largest one-day point loss ever, as an ETF investor, what do I do?
We use and recommend a trend-following strategy, which involves being in those areas of the market that are trending higher and being out when they’re not. We get in only when a fund is above its 200-day moving average, while we get out when a fund drops 8% off its recent high or below the 200-day moving average.
Right now, very few areas are trending higher, and as a result we’re 100% in cash. We’re waiting for this storm to pass.
What if I’m a buy-and-hold investor?
Obviously, buy-and-hold investors are in it for the long-term, riding out those peaks and valleys. However, the recent market activity has to be making even the sturdiest buy-and-hold investor a little seasick as they wait for the markets to move higher once again. If you have this strategy, you don’t necessarily have to take this if it’s become too much for you. If it would make you feel more comfortable to sell all or part of a position while the volatility continues, do so. When the trends appear again and you’re ready, get back in.
How do I know when it’s time to get back into the markets?
Going back to our trend-following strategy, we wait until funds have moved above their 200-day moving average before we consider them. We look at other things too, such as diversity within the holdings, expense ratios, trading volume, fundamentals of the sector or area the fund represents, and so on. But above all else, a fund has to be above its long-term trend line.
What we don’t recommend doing is chasing performance, running from area to area, looking for the “hot” fund or trying to call the bottom of a tanking sector. For more detailed information on this strategy, read our trend-following report.
Is my money safe at the bank?