Opinion: When to Buy, Hold and Sell ETFs | Canstar (2024)

How do you know when to buy, sell and hold ETFs? In this article, we explore the different strategies you can take when adding ETFs to your portfolio.

Do you ever dream of being like Biff in Back to the Future?

Spoiler Alert (for those of you who have been living under a rock since the 1980s!)

In Back to the Future, Biff travels back in time to give his past self a copy of The Sportsman’s Almanac. This book contains details of future sports results before they happen. Biff’s past self then uses this information to get rich by betting on the outcome of every sports event for the next 50 years.

Imagine what you could do with The Australian ETF Almanac!

If you knew when every market high, low and crash was going to happen in the next 50 years, then knowing when to Buy, Sell and Hold Australian ETFs would be a piece of cake!

Luckily, you don’t need The Australian ETF Almanac or knowledge of the future in order to make smart ETF investing decisions today. These simple guidelines on when to Buy, Sell, and Hold ETFs will help you to be well on your way to making your future self financially secure – without help from Biff!

When to Buy ETFs

The best time to buy ETFs is at regular intervals throughout your lifetime.

ETFs are like savings accounts from back when savings accounts actually paid you interest. Think back to a time when you (or your parents!) used to invest in your future by putting money into a savings account. In a low-interest-rate environment savings accounts are no longer an effective way to invest for your future.

But ETFs are!

ETFs are where you should invest your excess income throughout your working life. I don’t mean money that you are saving to buy a house with, or saving for a wedding. I mean money that you are never going to need again.

Well, at least not until your retirement!

One way to think about it is every three months taking whatever excess income you can afford to invest – money that you will never need to touch again – and buy ETFs!

Buy ETFs when the market is up. Buy ETFs when the market is down. Buy ETFs when we get a new Prime Minister. Buy ETFs when you call your mum each month.

The point is to buy ETFs at regular intervals, not just because you think now might be a good time to buy.

Oh and I’ve got you covered if you don’t know how to buy an Australian ETF.

If you regularly invest, and invest only what you can afford to, then over your lifetime the power of compound interest will make you look like you had a visit from Biff from Back to the Future too!

When to Sell ETFs

In an ideal world, we would all have enough invested in ETFs to live off the dividends in retirement. Ideally, you would never have to sell your ETFs! Unfortunately, this will be true for precious few people. Here in the real world, you will more than likely need to sell your ETFs at some stage in your life. But when is the right time?

The best time to sell ETFs is when you need cash to fund your retirement!

We all need cash all the time. To eat. To live. To buy new cars. To go on holidays. But your ETF portfolio should not be raided for life’s essentials. Stay strong, don’t sell those ETFs just yet, you will need those ETFs for retirement!

Here’s a tip, when you approach retirement age and need to live off your investments, don’t get hung up on dividends. Too often I see investors go chasing dividend returns at the expense of capital gains. In the end, money is money, regardless of whether you earned it through dividends or through capital gains. And investing in ETFs will earn you both!

Money earned through dividends will automatically be paid out to you at regular intervals. But money earned through capital gains will require you to sell your ETFs to put that money in your pocket.

This isn’t something to be afraid of!

→Related article: 4 Financial risks that all Investors should be aware of

Every quarter or every 6 months when you receive your dividend payment, just log into your broker account and sell off a small number of shares in your ETFs to access extra cash. That is the right time to sell your ETFs.

Now I can’t talk about when to sell ETFs without briefly mentioning when not to sell ETFs.

When not to sell ETFs – during a market crash!

This might sound obvious, but emotions run high during events like the global financial crisis or during any stock market crash. Years of smart investing can be undone in a single moment if you are financially pressured into selling your ETFs at the absolute worst time to do so during a market crash.

The way to avoid this is to avoid the perceived pressure.

Don’t invest more than you can afford to, don’t use leverage to invest, and maintain an emergency fund of cash to support yourself for a year so in case you lose your job during the next market crash.

When to Hold ETFs

ETFs should be held throughout your working life and into your retirement.

The best time to Hold ETFs is right now. And tomorrow. And the next day. And next month. And next year. And in 10 years’ time.

How do I know this? Well, I am going to let you in on a little stock market investing secret.

The market always goes up.

Don’t believe me? Take a look for yourself.

Opinion: When to Buy, Hold and Sell ETFs | Canstar (1)

The simple truth is that when you invest in the stock market over timeframes of 20+, 30+ or 40+ years, the market always goes up. It always has.

And I can already hear you asking “Yeah but, will it always go up?”

Only Biff knows that.

But the past tells us that the longer you hold ETFs for, the better your investment returns will be. If the market always goes up over a long enough time period – as it always has in the past – then the best time to hold ETFs is today.

The Best Time to Buy, Sell & Hold ETFs

Alright let’s break down all that chat into a few simple guidelines on when you should Buy, Sell & Hold ETFs:

  • Buy ETFs at regular intervals
  • Invest excess income that you will not need to touch again
  • Buy the Best ETF’s in Australia
  • Hold ETFs throughout your working life
  • Hold ETFs as long as you can, give compound interest time to work for you
  • Sell ETFs to fund your retirement
  • Don’t sell ETFs during a market crash

Consider this your Australian ETF Almanac in brief. All that’s left is for you to stop making excuses, get amongst it and start investing in Australian ETF’s.

Go on, get cracking!

Your future self will thank you.

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Opinion: When to Buy, Hold and Sell ETFs | Canstar (2024)

FAQs

How do you know when to buy and sell ETFs? ›

When to buy and sell ETF units. To get an ETF price that is more likely to represent its underlying value, place your trades at least 30 minutes after the market opens. It's also better to buy or sell ETFs when the market for the underlying asset is open.

Is it better to hold or sell ETFs? ›

Hold ETFs throughout your working life. Hold ETFs as long as you can, give compound interest time to work for you. Sell ETFs to fund your retirement. Don't sell ETFs during a market crash.

When should I sell my ETFs? ›

A lack of trading activity means the sale is made below the value it would have in a volatile market. Investors can choose to hold their ETFs for a return in action. Nonetheless, a decline in liquidity can mean a drop in value for both the short and long term, which makes investors more likely to sell.

What is the 30 day rule on ETFs? ›

If you buy substantially identical security within 30 days before or after a sale at a loss, you are subject to the wash sale rule. This prevents you from claiming the loss at this time.

How long to hold ETF before selling? ›

For most ETFs, selling after less than a year is taxed as a short-term capital gain. ETFs held for longer than a year are taxed as long-term gains. If you sell an ETF, and buy the same (or a substantially similar) ETF after less than 30 days, you may be subject to the wash sale rule.

How do you know if an ETF is doing well? ›

Since the job of most ETFs is to track an index, we can assess an ETF's efficiency by weighing the fee rate the fund charges against how well it “tracks”—or replicates the performance of—its index. ETFs that charge low fees and track their indexes tightly are highly efficient and do their job well.

What is the 3-5-7 rule in trading? ›

A risk management principle known as the “3-5-7” rule in trading advises diversifying one's financial holdings to reduce risk. The 3% rule states that you should never risk more than 3% of your whole trading capital on a single deal.

Why is ETF not a good investment? ›

ETFs are subject to market fluctuation and the risks of their underlying investments. ETFs are subject to management fees and other expenses. Unlike mutual funds, ETF shares are bought and sold at market price, which may be higher or lower than their NAV, and are not individually redeemed from the fund.

Do you pay taxes on ETFs if you don't sell? ›

At least once a year, funds must pass on any net gains they've realized. As a fund shareholder, you could be on the hook for taxes on gains even if you haven't sold any of your shares.

What are the disadvantages of ETF? ›

Disadvantages of ETFs. Although ETFs are generally cheaper than other lower-risk investment options (such as mutual funds) they are not free. ETFs are traded on the stock exchange like an individual stock, which means that investors may have to pay a real or virtual broker in order to facilitate the trade.

What is the best day of the week to buy ETFs? ›

The best time of day to buy stocks is usually in the morning, shortly after the market opens. Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile.

Can an ETF go to zero? ›

For most standard, unleveraged ETFs that track an index, the maximum you can theoretically lose is the amount you invested, driving your investment value to zero. However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely.

What is the 3 5 10 rule for ETF? ›

Specifically, a fund is prohibited from: acquiring more than 3% of a registered investment company's shares (the “3% Limit”); investing more than 5% of its assets in a single registered investment company (the “5% Limit”); or. investing more than 10% of its assets in registered investment companies (the “10% Limit”).

Is it OK to hold ETF long-term? ›

Nearly all leveraged ETFs come with a prominent warning in their prospectus: they are not designed for long-term holding. The combination of leverage, market volatility, and an unfavorable sequence of returns can lead to disastrous outcomes.

Is it good to hold ETF for long-term? ›

ETFs can be a great investment for long-term investors and those with shorter-term time horizons. They can be especially valuable to beginning investors. That's because they won't require the time, effort, and experience needed to research individual stocks.

Should I buy ETFs at all time high? ›

In fact, records can beget more records. This indicates that there can be some reward in buying at 52-week or all-time highs. The Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) are examples of exchange traded funds that have rewarded investors who bought at a recent highs.

Can I buy and sell ETFs on the same day? ›

Since ETFs are traded on the stock exchange, they can be bought and sold at any time during market hours like a stock. This is known as 'real time pricing'. In contrast, mutual funds can be bought and redeemed only at the relevant NAV; the NAV is declared only once at the end of the day.

Can you sell ETFs whenever you want? ›

If you're interested in selling ETFs, you can do it at any time during regular stock market hours, just like a stock.

Can you buy and sell ETFs throughout the day? ›

Key Takeaways. An exchange-traded fund (ETF) is a basket of securities that trades on an exchange just like a stock does. ETF share prices fluctuate all day as the ETF is bought and sold; this is different from mutual funds, which only trade once a day after the market closes.

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