There’s been a lot of discussion of the “new normal” in the wake of the market crisis. The notion is busting investors’ assumptions about how they allocate certain assets to their exchange traded fund (ETF) portfolios.
The market has shifted into a new realm and the “normal” that investors once knew is no more. The “new norm” involves saving more, spending less and investing more conservatively in the years to come, explains Will Deener of Dallas News.
The new normal, Deener says, is leading a rush to bonds at the near-total exclusion of stocks. Investors have poured a record $220 billion into bond mutual funds year-to-date, compared to $12 billion in domestic equities. (Read more about the historic relationship between stocks and bonds here).
Investors are embracing bonds because of the losses they sustained in the stock market over the past year and also because bonds have outperformed stocks for the last 10 years. Does this mean that investors are performance chasing by betting the bonds will continue to outperform?
If this is the case, performance chasing a making predictions are losing strategies. A better way to invest in the market is to have a strategy. The trick, though, is that this strategy has to be an easy one, and it has to be one that you’re actually going to use.
We use a strategy of trend following, which relies on the 200-day moving average to determine what positions are taken, as well as when to buy and when to sell. You can read more about the strategy in The ETF Trend Following Playbook.
Fore more stories about trend following, visit our trend following category.
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.