There are two primary types of investors: those who are in it for the long haul, come what may, and those who don’t plan to stay in any position for too long. To which investors are exchange traded funds (ETFs) best suited? Well, that’s a trick question.
The duration that you hold an ETF is really up to you, your investing style and your ultimate goal. However long you choose to hold an ETF, though, know that they work seamlessly with any strategy you have.
Walter Updegrave for CNN Money says that the many ETFs that give exposure to smaller areas of the market may be alluring to investors who want to jump from sector to sector. [ETFs To Cope With Market Uncertainty.]
Other ETFs, such as inverse or leveraged, are actually intended to be used for day trading and were never intended to be a buy-and-hold product. Basically, how you invest in ETFs is up to you. You can use them as frequent trading vehicles or you can buy them as long-term investments within a broadly diversified portfolio. [Why Young ETF Investors Are Cautious.]
Be aware of the dangers of too-frequent trading, though. One of the biggest is that many trades come with commissions, which eats into your returns if you’re racking them up too quickly.
However you’re using ETFs and whatever your goals may be, it’s best to have a plan and a strategy in place. We use a simple trend following strategy, which uses the 200-day moving average as a buying and selling guide. You can read more about trend following here.
Tisha Guerrero contributed to this article.