ETF Growth Strategy #5: Define Your Risk
One of my core tenets of portfolio management is that risk must be defined. To do that I always place a sell discipline on every position that I enter so I know where to exit if my thesis does not pan out. Everyone is going to make mistakes or enter an ill-timed trade at some point in their lifetime. The one thing you don’t want to do is let a bad trade turn into a bad investment that languishes in your portfolio and weighs on your returns.
One of the benefits of using an ETF over a mutual fund is that you can place a trailing stop loss on the position that moves higher as the price increases over time. That way you have a floor in place in case the tide turns against you and are prepared for any unforeseen volatility.
As always, the market is continuing to offer up changing dynamics and subtle clues that can be interpreted a number of ways. The one thing I would stress this year is to not get too bullish or bearish as conditions change. There will be a number of opportunities to adapt and prosper if you have a flexible mindset that takes into account both sides of the trade.
If you are an income investor or searching for additional dividend themes, you may benefit from this recent strategy missive as well.
David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. As of this writing, he was long DFE and TDIV. To get more investor insights from FMD Capital, visit their blog.