When it comes to exchange traded fund (ETF) investing, do you have a strategy that you follow no matter what the market throws your way?
When you hold a position and it’s in a long-term uptrend, you don’t have to think about selling it. But what about on the downside – is there a point at which you’d let go? Having a stop loss (and sticking to it) is one of the most important things an investor can do.
Dr. Steve Sjuggerud for Daily Wealth notes the importance of a stop loss. While investors want to be part of uptrends, especially long ones, at some point when the trend reverses itself (all trends come to an end sooner or later), those investors will want to protect their gains and limit their losses. Stop losses can assist with this.
Entry and exit strategies remove the emotional aspect of investing, which often shows itself in the form of rationalization. Thoughts such as “If I sell now, it could come back” are the bane of many investors. But having strategies dictates that if a stock or fund is not “working,” then you get rid of it and don’t give it another thought. Knowing that there’s a cap on how much you can lose can be reassuring to investors.