Before you actually begin investing in exchange traded funds (ETFs) – or anything else, for that matter – it’s important to first identify your target. Where do you want to be? When do you want to be there? Knowing the answers to these questions will help you set up an effective investment plan.

In order to invest your money you must have a goal in mind. The more specific the better, but even a general idea will help you determine a plan of action. If you’re having some trouble determining what those goals actually are, there are two things you can do, says Trent for The Simple Dollar:

  • Step 1: Envision your life the way you would like it in 10-20 years down the road. What do you hope to accomplish? Are you married? Do you have children? What sort of job do you have? What sort of home do you have?
  • Step 2: Focus on what really makes you happy. When you are detailing your goals, what is it that is making you really happy? The kids, the house or the career? Whatever those key things are that really get your motor running are the very things that you should set as your goals.
  • Step 3: When do you want to achieve all of these things?

Depending on the answer to the last question:

  • 5 years or less: Stick with something low-risk, such as CDs, cash or bonds. Over this short of a time frame, putting money in market-driven assets like stocks and real estate can be considered higher risk.
  • 10+ years: Consider putting a large portion of it in some market-based assets, like stocks or real estate. Over a longer time, the short-term risks of such investments is reduced without losing the potential gains. Check out Vanguard Total Market (NYSEArca: VTI) or SPDR Homebuilders (NYSEArca: XHB).
  • Middle of 5-10 Years: Put most of your money somewhere safe and perhaps dabble a bit in a market-based investment, moving your money out after a few years.

After identifying your goals, your next step should be your strategy. Will you buy and hold? Or will you take a more tactical approach? We follow the trend lines by using the 200-day moving average. This allows us to look for, identify and take part in any potential long-term uptrend, while a stop loss has us out when the trend has ended or paused. Having a set buy and sell signal in place (and putting it to use) will help you remove your emotions, put a cap on your potential losses and help you reach your goals. [How to follow trends.]

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.

Subscribe to our free daily newsletters!
Please enter your email address to subscribe to ETF Trends' newsletters featuring latest news and educational events.