Investors may finally be lured out of hibernation as the Federal Reserve left interest rates unchanged 0%, a move that is intended to continue to whet the investor appetite for risk and exchange traded funds (ETFs).
Many investors feel that the “easy money” has been made in the stock market, and the lower interest rates have left plenty of new opportunity. Investors may be shy, but the conditions are fertile for many to come out of hiding and wade back into the market. A number of ETFs and market areas are up off the March 9 lows by 70%, 80% and even more than 100%. To continue to sit out is to miss the potential for more. [10 steps to better ETF investing.]
Gail MarksJarvis for The Chicago Tribune reports that the lower interest rates have allowed investors to pour money into stocks, high-yield bonds, commodities and precious metals.
While some fear that bubbles are beginning to form, strategists are more concerned about the possibility of performance chasing. [Why trend following is a better strategy.]
Jeremy Siegel for Time reports that history shows that excellent returns are available to stockholders who survive such rough patches. In fact, following the 13 10-year periods of negative returns stocks have suffered since 1871, real returns over the next 10 years have never been negative and have averaged more than 10% per year.
Why limit yourself to single stocks, though? ETFs are a good tool to capture the market’s rally:
- They lower risk by holding a number of stocks focused on a sector
- They add diversity to your portfolio
- On average, they cost less than mutual funds
If you remain skittish about entering into the markets, take a step back and think about your strategy. Set points at which you will buy, hold and sell, and then stick to it. The best investment strategy in the world does no good when it isn’t used. [How to begin a solid ETF investment strategy.]
For more information on strategy, check out The ETF Trend Following Playbook.
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.