ETF Trends
ETF Trends

Like so many exchange traded fund (ETF) investors and really bad dates, the government rescue plan needs an exit strategy, too.

The Federal Deposit Insurance Corporation (FDIC) declared the government needs an exit strategy for the huge financial rescue plan so that banks and other financial institutions are not falsely “propped up” for the long term. 

FDIC Chairman Sheila Bair made the comments at a conference since her agency has agreed to potentially inject $1.4 trillion into financial markets to care for debt, reports Marcy Gordon for the  Associated Press.

The objective is to keep the government guarantees from becoming a type of crutch, and that natural selection must be part of the plan to allow the weakest institutions to fail. Therefore, just as investors have exit strategies, it makes sense that the government would, too.

An exit strategy does not necessarily mean that you need to bail on your entire portfolio, it simply means there are steps in place should the markets go further south.

For instance, if you’re wondering what to do now and are worried about continuing market declines, take out one-third of your equities now and if the remaining two-thirds fall 5%, sell another third. Watch the trends within the market and be prepared to get out while you can.

Our usual exit strategy is to sell when a fund declines 8% off the recent high or drops below the 200-day moving average.

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.