What four words could do the most damage to your exchange traded fund (ETF) portfolio?
“This time it’s different.”
Jonathan Burton for MarketWatch notes that fortunes have been made and lost on that one little phrase. Remember the tech-stock bubble of the late 1990s? How many times did you hear investors say that? Plenty, most likely.
It’s important to remember that all throughout market history, there have been bubbles and cycles that have burst and turned. But there is no such thing as a “new era.” Cycles have always, and will always, continue to exist for a time before they end and a new cycle begins.
How can you protect yourself? First of all, don’t rationalize. Don’t believe that things are different and don’t find reasons to stay in (or get in) against your better judgment.
Second of all, have a plan ahead of time. We are big advocates of the trend following strategy, which involves getting in when a fund moves above its 200-day moving average and getting out as soon as it drops below that mark or 8% off the recent high – whichever comes first.
It’s the only way you can be sure that you’re in while the trend is up, and out soon enough that your gains are protected.
To read more about our trend-following strategy and how to use it, have a look at our special report.