Mortgage Backed Securities: Can They Affect Your Mutual Fund/ETF Investments?

Even though I am not specifically looking for it, I seem to come across articles dissecting the potential effects of either the SubPrime Loan debacle or the real estate bubble.

This latest one offers a sobering analysis of losses sustained from mortgage backed securities (MBS). While it has been estimated that so far some $100 billion has been lost, the potential is far higher as home prices decline.

I am not bringing this up to dwell on negatives, but to simply make you aware that the consequences of the housing bubble, and the reckless lending practices that accompanied it, can and will have far reaching effects.

If, as the article points out, the sea of losses in the MBS area continues (with a potential of trillions lost), your investments in mutual funds and ETFs will most certainly be affected. While this could be only one of many reasons for a nasty slide in the market, just be prepared and don’t become complacent.

How?

If you manage your own investments, follow my suggested sell stop discipline; or any sell stop discipline for that matter! Yes, it sounds like an old hat. But it’s the only way I know of to keep your portfolio intact if/when this bubble deflates like a hot air balloon.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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