The jolt markets have received in the wake of Standard & Poor’s U.S. credit downgrade is a reminder of the importance of having an exchange traded fund investment plan in place before markets go haywire.
Having an objective, rules-based plan including stops lets investors avoid making decisions in the heat of the moment in volatile markets, and also gives them a chance to capitalize on opportunities in oversold markets.
Last week, the Dow decreased 5.8%, the S&P 500 plunged 7.2% and the Nasdaq plummeted 8.1%, reports Jeff Macke at Yahoo! Finance. The markets have been in free fall on worries over the Eurozone debt crisis and the U.S. credit rating. Also, recent economic data points to a soft patch.
In this kind of market environment, Macke argues that while investors shouldn’t ignore their losses, they shouldn’t be using the recent events as an excuse to radically change their investment styles. Instead, investors should decide how much they are willing to invest and how much risk, and put in some money a little at a time.
We like to keep it simple with a trend-following approach using the 200-day moving average and other indicators to reduce risk in client portfolios. [ETF Trend Following Plan.]
For more information on investing in ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.