ETFs and Emotions Are Like Oil and Water | ETF Trends

Europe’s debt crisis. High unemployment. A historic revolution in Egypt. Despite the market’s strides in the last many months, there’s still a lot of news out there that’s enough to keep the emotions at a high level. Emotions, however, don’t belong in any sound exchange traded fund (ETF) investing strategy.

Although tuning out your emotions is far easier said than done, with practice, you can do it. Here are a few of the ways:

  1. Make a list of reasons for investing and write them down. Before you trade an ETF, consider your reasons for doing so. Why do you want to buy or sell it? What supports your position?
  2. Have an exit strategy. Don’t form your exit plan after you buy – do it before. If you already know your sell point when you’re buying, it will make it easier to let go when it’s time.
  3. Set up alerts. Having your inbox light up with a sell alert you set previously will help push you in the right direction. We offer our premium members trading alerts; if you’re a premium member, don’t neglect this valuable tool!
  4. Get support from friends. If you’re comfortable, tell your friends and family why you are investing, and then let them know when you are going to buy or sell. They can help remind you of your original intent.
  5. Do an annual portfolio review. Take a look at every  ETF and ask yourself why you still own it. If your answer sounds more like a justification than a legitimate reason, dump it.
  6. Brush up on your investment strategy. By doing your own research and forming a strategy, investing will become less emotional because you will have a simple and easy-to-use discipline that keeps your feelings in check. The ETF Trend Following Playbook is a good place to begin, and it will help clarify some of the details and get you on the right path to non-emotional investing.

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.