If you’ve got nervous hands as your exchange traded funds (ETFs) swing up one day and down the next, the best thing you could do is to just sit on them.
Matthew Hougan for Index Universe has a thought for increased market turbulence: maybe it’s time to recalibrate the risk/reward balance in your portfolio? If the world’s economy has become more risky on a long-term basis, should that be factored in when you’re doing asset allocation?
When the markets are volatile, we think it’s best to wait it out if you have a long-term buy and hold strategy. Always look before you leap to be sure you’re not just getting swept up in the frenzy.
In the big picture, Hougan predicts that we’ll continue to see a shift of assets into commodities that will eventually create a bubble. He cites two examples: when the tech bubble burst in 2001, assets went to housing. When that burst last year, assets went to commodities. Will Hougan prove to be correct? Time will tell. After all, it’s all speculation, and in asking ten different experts, you’d likely get ten different opinions.
What if I’m a trader?
Many ETF investors and financial advisors (like us) have taken advantage of trends that have developed in sectors. Increasing allocation to these areas work well as long as the trend remains intact. However, there have always been and will always be bubbles, and the only sure way you can protect yourself is to have an exit strategy always at the ready. If an ETF you’re holding – whether it’s commodities or something else – drops below its trend line (200-day moving average) or falls 8% off its high, let it go, no questions asked.
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.