10 Ways to Protect Your Nest Egg with ETFs and Common Sense | ETF Trends

Second-guessing your investment portfolio? Did you take a drubbing along with the broader market? In the last year, many investors have gone through the same thing – watching their nest eggs slowly shrink. But with exchange traded funds (ETFs) there’s no reason they have to do this.

The Mole for CNNMoney has been helping consumers make informed decisions. The Mole levels the playing field for the average consumer by providing inside information that industries are loath to reveal. And he (or she) leaves us with a couple tidbits of consumer advice:

  1. Incentives. Financial planners always have an incentive as long as money comes in from their clients. But people need to question those incentives and to keep fees low.
  2. Investment strategy. There is a correlation between sophisticated strategies and low returns. The best way to invest would be to keep it simple. Our strategy involves using the 200-day moving average – when a fund crosses that point, it’s worthy of consideration. When a fund drops below or 8% off its recent high, we sell. It’s simple, and it removes the emotions.
  3. Follow your money. Keep asking your financial advisers questions and do your due diligence. Watch fees – they can erode your nest egg over time. ETFs come with lower than average fees, so ask if they can be included in your portfolio.
  4. If it looks too good to be true, it could be. High returns usually come with high risk. Ask the Bernie Madoff investors – many were wowed by consistently stellar returns, and many seem to have ignored their gut that something was off.
  5. How are others making their money? Ask yourself how your anyone you’re dealing with makes their money. What’s their strategy?
  6. We are our worst enemy. Investors tend to allow their emotions to get the best of them, and it will kill your portfolio.
  7. Second-guess your strategy. Not all strategies are right all the time – for example, buy-and-hold investors have gotten burned in this downturn. Sometimes it’s worth it to step back and see if your way of thinking still works, and make any necessary adjustments. We temporarily reworked our own strategy when many funds fell far below their 200-day moving averages.
  8. Ignore TV experts. Investment gurus, especially the flamboyant ones on TV, are not infallible. Many of them made terribly wrong calls last year. No one’s perfect, but investors shouldn’t unquestioningly follow the advice of the loudest heads on television.
  9. Financial planners are not all savants. Insist on transparency, and on knowing where your money is – with ETFs, this is easy. You’ll always know what you own. When it comes to mutual funds, they only have to disclose once a quarter. So, you might know what fund you own, but you won’t know what’s in it.
  10. Common sense? Can you logically explain your investment strategy? Sometimes we invest by a gut feeling, which is often not in line with common sense, and this is why a strong, solid strategy is important, because it will do the thinking for you.

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.