Many time-honored principles of investing – buy-and-hold, asset allocation and more – are falling by the wayside as investors turn to alternative instruments such as exchange traded funds (ETFs).
The traditional mix of stocks, bonds, and cash is no longer the code for many investors, as advisors and retail investors are looking at alternative investments. Managed futures and hedged mutual funds are getting much attention, because of their liquidity and their behavior separate from the rest of the investment genre, explains Tara Seigel Bernard for The New York Times.
Many investors who took the “long road” approach are looking at the short-term opportunity in trading, riding the markets ups and downs in stride. The one sure thing amid the market volatility is that the future is uncertain. Many investors are reluctant to place longer term bets and cling to larger cash allocations, anticipating continued volatility.
The need for every investor to have their own strategy and to stick with it will always be there, no matter what tools are being used. Upon entering the market and exiting, there should be a direct approach that is taken, and a strategy that determines when to make those moves. At ETF Trends, we follow the 200-day moving average: when a position crosses the 200-day, we get in; when it dips below or 8% off the recent high, we sell.
Even the simple definition of diversification is changing. Because of the globalization of many companies, the sector allocation is changing has shifted the effectiveness of diversification. ETFs are a sound and affordable way to get the appropriate exposure across many different sectors.
Although the traditional asset allocation and approach may be changing, the basic principle of risk holds true. Investors should only take on as much risk as they are able to handle. This bear market was a good time for many investors to realize exactly what their tolerance is.
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.