The economy still seems to be on shaky ground, however, many believe that it is recovering and are starting to invest once again. By using exchange traded funds (ETFs) paired with a simple strategy for buying and selling, investors can check their emotions at the door.
Most investors know that they should let their emotions drive investment decisions, but unfortunately, it’s in our DNA.
Kent Grealish, FP and a partner in Quacera, a registered investment advisory firm in San Bruno, CA, for Index Universe states that we are psychologically hard-wired to buy high and sell low and that overconfidence, or the thought that one can outperform the market, can override all common sense no matter how much we know.
Grealish espouses the benefits of indexing as a strategy that can be used to control emotional decision making. Most ETFs track an index and don’t attempt to beat the market, thereby addressing those things that can be controlled, such as decision-making that’s based on emotions.
Trend following is another way to manage emotions. (Read about how to follow trends here, and check out our new book). By having a strict but simple discipline when it comes to investing, investors can give themselves the chance to be in for any potential long-term uptrend and out before they’ve ridden a position to the floor. (Our strategy was recently featured in Investor’s Business Daily; read about it here).
By combining both ETFs with a strategy of trend following, investors can be sure they’re leaving their emotions at the door.
For more stories on trend following, visit our trend following category.
Kevin Grewal contributed to this article.
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.