Removing the emotions from your investing, whether it’s exchange traded funds (ETFs) or something else, is one of the smartest things you can do.
Money Coach Alvin Hall turned up on NPR this week and made some excellent and interesting points. Having a strategy and removing your feelings from your money is especially timely, considering that the rocking and rolling of the markets is liable to make one feel kind of seasick.
Hall says people tend to make mistakes in both directions. As the markets are heading up, people often take on more risk than they can handle. This was evidenced by the housing boom, when people were racking up debt they couldn’t afford. On the downside, people begin to panic.
And then there are those inert investors, those who are just too scared to move.
How do you get around all this? We agree with Hall on several points in particular:
- Have a systematic investment plan in place, and have it before you get in. It will be your friend and keep you from making mistakes.
- Have an exit strategy. Decide which number is your exit point, and when you hit that number, get out. Hall employed this strategy when the dot com bubble burst, and we’re thinking he’s pretty happy he did.
- Don’t have regrets. They will always undermine your decisions.
Your stop-loss point is up to you and your tolerance, but we recommend the strategy we use ourselves: only get in when a fund is above its 200-day moving average. Get out when it drops below that or 8% off its recent high, whichever comes first.
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.