Most buy-and-hold investors are usually invested in broad-based, plain vanilla funds. Analysts do not recommend exiting these funds and trying the trade the market’s swings. Specialized leveraged and niche funds carry extra risk, according to the report. [10 Tips To Manage Risk with ETFs]
“Synthetic products like leveraged and inverse ETFs are not appropriate for buy-and-hold investors,” advised North American Securities Administrators Association, “because an ETF may reset each day and its performance may quickly deviate from the underlying index, currency or commodity basket its attempting to mirror.” [Have an ETF Investing Plan to Avoid Trading on Emotions.]
The recent market sell-off has stretched risk tolerances with many investors learning real losses are different from theoretical ones. Having a balanced ETF portfolio strategy with clearly-defined exit points in place before markets get volatile is key. [Have a Plan to Avoid Trading on Emotion]
Tisha Guerrero contributed to this article.