We often discuss the importance of having an exit strategy when investing in exchange traded funds (ETFs). Recently, we wrote about a disciplined ETF strategy, using the 200-day moving average. After writing about this, a reader came back with a great question,
"What is the strategy to buy back a stock (ETF) once it dips below its 200-day moving average and was sold?"
By establishing an exit strategy and selling an ETF, this helps protect gains as it appears the trend is changing. When we sell something, we look at the cash generated as a "free agent." In other words, it is free to be used for any investment where a trend is developing, be it an asset class, global region or sector. If no areas show an up trend or momentum, we keep the money in a money market fund.
As you manage your own portfolio, you might feel a need to always have a set amount of money designated to a certain investment (i.e. small-cap, China or commodity). If this is the case, then the cash can be held until that certain investment goes above its 200-day moving average or gains 5% from its recent low.
Thanks for the questions!
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.