Exchange traded funds (ETFs) are an essential tool in every investor’s toolbox because they offer another option for portfolio diversification, which helps protect against market volatility. The advantage of ETFs is that they allow investors to buy a sector or region and not be exposed to the market via one stock, says Mary Ann Milbourn for the Orange County Register. Unlike mutual funds, ETFs can be bought or sold throughout the day, and they provide transparency. Whether it’s stocks, fixed income, commodities, currencies or regions, there’s an ETF for it.

ETFs are not immune when rough market conditions occur like they have lately. That’s why it’s important for investors to have an exit strategy. Our plan is simple: Whenever an ETF goes below its 200-day moving average or drops 8% from its high, sell.

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.