Downside risk is a part of investing, whether it’s with single stocks or exchange traded funds (ETFs). There are four strategies that can help ETF investors protect their capital even when the market is not cooperating.

The strategies that can help ETF investors protect their money in a down market are also useful with single stocks, as ETFs are simply a basket of stocks. Hans Wagner for Forbes explains:

1. Know when to sell your ETF: Just like having an entry strategy is important, so is an exit straegy. Moreover, it is pertinent to know when it is time to get out and walk away. An investor should consider selling an ETF when their risk tolerance has been had.

If you can’t sleep at night, it’s time to get out. We have a plan for exiting in increments. Stop orders are a good tool for for closing out a position at a predetermined amount. This keeps your losses at bay. If you need the money for that rainy day, by all menas, use it. Rebalancing a portfolio is also a good time to get out of a troublesome investment. If you expectations have not been met by a particular ETF, don’t beat yourself up or wait any longer. There is surely an ETF out there that can.

2. Allocate your assets: Investors can further protect their assets by allocating assets into  a wide array of classes, such as equity market capitalizations and sectors. These ETFs allow investors to construct portfolios that are consistent with their tolerance for risk and their goals.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.