For most of 2009, investors felt hunger pangs for more risk in their exchange traded funds (ETFs). As we enter the New Year, we could see more of the same. Three possible risks are in sight right now, and this is how you can keep yourself from getting burned.

In 2009, the markets were locked in a tug-of-war between risk taking and risk aversion. The shift had a major impact in determining the direction of global markets, says Brian Rich for Money and Markets. [Risks associated with ETF investing.]

In 2010, there are three big risks out there all investors should have on their radar. Rich says they could throw us off course:

  • Sovereign Debt Crises: Sovereign debt is rising, and Dubai was one of the first countries to sound the alarm. Greece quickly followed suit, while Spain, Italy, Ireland and Portugal are being eyed. Debt problems can be contagious. [Will Dubai’s troubles blow over?]
  • Asset Bubbles: Bubbles have always been with us. Relative outperformers in the downturn, such as China, Canada and India are flooded with liquidity, the main ingredient of a bubble. The key is knowing how to spot them and act quickly. [How to spot and avoid bubbles.]
  • Protectionism: This is the most major threat to our economy and a recovery. China’s currency policy is the largest threat, presenting the most risk that may loom ahead.

The best way to cope with these and other risks is to have a strategy with a stop loss. We use the 200-day moving average to signal when we should buy and when we should sell. For more details about trend following, read The ETF Trend Following Playbook. [Why not start the new year off with a new strategy?]

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.