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.