You, like many investors, probably took a beating in the market meltdown and suffered losses in your exchange traded fund (ETF) portfolio. What’s happened has happened, but now is the time to step back and consider where you could do things differently next time.
The silver lining to the recent bear market is that painful experiences remain in our memories for a long time and provide lessons for the future, says Bob Frick for Kiplinger. This time around, when you are allocating your portfolio, also be sure to have a solid investment strategy implemented. (Are you in the rally?)
One of the keys to investing success is to master your emotions, and it’s one of the hardest things a person can do. If hope, anxiety and regret are feelings that have left you with a shattered portfolio, there is a better way to pick yourself up again. (Did human nature put your portfolio through the ringer this past market pullback?)
Why have a strategy? A strategy will take the place of your stomach and your heart. With enough practice, your strategy will be your emotional trump card. When the uptrend is there, a simple, sound strategy will have you in the markets. When the trend peters out, your strategy will tell you it’s time to sell.
Our strategy is the 200-day moving average; when a position is above the line, it’s a buy signal. When a position dips below, it’s a sell signal. By having a firm stop-loss point, you put a cap on your losses instead of riding a position to the floor in hopes that it will “come back.” (Ten ways to become a better investor).
ETFs are an ideal tool for this strategy, too: the fees are more reasonable, you can trade all day like a stock, there are no early redemption fees and you have total transparency.
The ETF Trend Following Playbook explains in more detail how the strategy works.
For 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.