As the markets and exchange traded funds (ETFs) see-saw – up 300 points there, down 500 points there – you can’t blame investors for questioning what those good days really mean.
The Dow Jones Industrial Average closed last week with a huge two-day rally during which it gained 700 points. But investors rightly paused. Was the crisis over? Or was this just a dead cat bounce?
Monday, the Dow sank another 370 points. What today or tomorrow or next week will bring, nobody knows.
That’s exactly why you need a strategy and a plan.
Investors who are exposed heavily to risk and are choosing to ride out this storm might want to consider our plan. The strategy we follow if we’re in a fund is to exit either when it drops below its 200-day moving average or 8% off its recent high.
While you might lose some in this strategy, you will still manage to protect yourself on the downside and perhaps save a few dollars on Tums.
We cover our strategy in more detail in a trend-following plan story we wrote earlier this year.
This strategy is also covered at length in our book, iMoney: Profitable ETF Strategies for Every Investor.