Before the market downturn, exchange traded fund (ETF) investors had big dreams for their portfolios. Many have since lost time, but there are ways that you can work to get it back.Unless you know Doc Brown, you can’t literally go back in time, but there are lessons to be learned from the past that can get you back on track.
Simon Maierhorfer for ETF Guide says that there are three major lessons to be learned from this past market:
- Lesson 1 : Do not follow the herd. The markets of 2007 were seductive, and it was a real illustration in the importance of having both an entry and an exit strategy. Broad market indicators were up, and the perceived value of stocks, homes and everything else was high. The stock market is the most accurate reflection of perceived value. Any stock is only worth as much as investors are willing to pay – the perceived value. What to watch is the trend lines, and act accordingly.
- Lesson 2 : Capitol Hill is not the be all, end all. Investment sentiment and government opinion lag behind the trend and are trend followers rather than trend setters. In fact, the government’s actions often backfire, such as the 1999 decision to lower the minimal capital requirements for banks. Be wary of the alphabet soup: TARP, TALF, PPIP, and any news that it is working. And do not buy equities based on this news. As in the first point, mind the trend lines, and follow a strategy such as the 200 day-moving average for getting back into the market. Major news events can be watched and considered, but act on actualities.
- Lesson 3 : Act, do not just re-act. Investing is a strategy to secure your future or that of your family’s. It is money that is set aside for future income, and the idea is to further your income as well. The buy-and-hold strategy may not be a fool proof as once imagined, but there are ways to become proactive with your portfolio. Recent market rallies within small time periods are lucrative, but you must watch market trends, have a strategy and stick with it, and most of all, keep your emotions out of it.
What other lessons have you learned in the market downturn? Share your experiences and lessons in our forums.
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.