Will the economy ever return to “normal”? Whatever your definition of normal may be, many don’t think the markets will be returning to it. The new market climate requires a more tactical approach to exchange traded fund (ETF) investing.

As the markets become more volatile, investors are realizing they need to protect themselves in the future instead of riding out the bumps for the long haul. After suffering losses upwards of 50% in their retirement accounts in the recession, how willing are investors going to be to ride out the dips in the future? (Why buy-and-hold is dead).

If you are going back into the market, Jeffrey R. Kosnett for Kipinger has outlined several ways in which your money is never going to be the same again. Here are three:

  1. Less Risk. A typical aggressive portfolio used to allocate about 80% to equities. The “new normal” might see an aggressive portfolio holding closer to 60%-70% in stocks. And someone who accepts only moderate risks may be comfortable with 40% or 50%. It’s going to take time for some investors to become comfortable with big bets again.
  2. More Volatility. We could continue to see swings in the market, especially as we’re still a nation fearful of negative news about the economy. Cope by having a strategy and looking at the big picture. Don’t panic and sell, but wait until you’ve hit your stop loss points.
  3. More Diversification. There will be more variety in the  markets. Some of these new options might be considered highly risky, but they’ll be uncorrelated to ordinary assets. Areas such as currencies, commodities, real estate and energy will be more accessible to retail investors. (How to trade ETFs).

Our last point: investors will recognize the importance of a strategy. We use the 200-day moving average, which has set entry and exit points. You can read more about trend following here.

For more stories about ETFs, visit our ETF 101 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.