As a result of the ups and downs of the last few years, exchange traded funds (ETF) investors are feeling a broad range of emotions. But in market rallies, don’t let that stop you from participating.
There’s a general lack of faith in the markets right now that’s evident in the numbers: investors have pulled $18 billion out of stock funds and poured at least $200 billion into bonds, which are prized for safety.
Despite the market’s rally in recent weeks, many are still shy to wade back in, which has analysts and market watchers stumped. [ETF Trend Following: The Herd Alternative.]
Gail MarksJarvis for The Chicago Tribune reports that many continue to mourn what they’ve lost and coddle what’s left from one of the worst bear markets in history. [4 Risks Of Investing In ETFs and Other Things.]
If the stock market continues to rally into the end of the year — as some forecast — more people might feel daring and give stocks a try once again, which is what financial advisors are suggesting. This time around, they are suggesting that people afraid of losing money again consider the balanced approach, combining stocks and bonds in maybe a 50/50 mixture. It shows that different proportions of stocks and bonds behave differently, and people who don’t go overboard do regain what’s lost. [An ETF Trend Following Strategy.]
We suggest having a simple strategy for getting back into the markets, such as trend following. Even through the downturn, there have been asset classes that held up nicely. In rallies, it’s all about picking your spots.
If an ETF falls below its 200-day moving average, or if it drops 8% off its high without going below its 200-day average, it’s a sell signal. It’s a rigorous discipline and is applied to all asset classes, sectors and global regions where there is ETF representation. This provides you with a measure of protection on the downside and some comfort that if the markets turn south again, you will have an exit point.
Tisha Guerrero contributed to this article.
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.