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)


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

If an ETF still has large trading volumes, a price that isn't moving radically up and down with each new trade, and fairly small bid-ask spreads (see the next section), then the market price is likely a better indicator of portfolio's true value than the NAV, and it is safe to proceed with a trade.

Should you 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.

Are ETFs good for buy and hold? ›

Here's an explanation for how we make money . Finding the best long-term ETFs can help reward you if you buy and hold, allowing you to compound your money over time. Even small differences in returns, just a few percent annually, can create an amazing improvement in your total wealth.

How long should you hold onto ETFs? ›

Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.

Should I buy ETFs now or wait? ›

The bottom line is that by averaging into a fund like the Vanguard S&P 500 ETF, you're going to get a favorable average share price over time. A strategy like this is a far better way to invest than trying to decide whether to invest a lump sum now or later.

Should I buy ETFs at all time high? ›

The best way to invest when the market hits an all-time high

But if researching and staying up to date on individual companies and their stocks isn't for you, you can still earn great returns by investing in a simple, broad-based index fund like the Vanguard S&P 500 ETF (NYSEMKT: VOO).

What is the 3-5-7 rule in trading? ›

The 3–5–7 rule in trading is a risk management principle that suggests allocating a certain percentage of your trading capital to different trades based on their risk levels. Here's how it typically works: 3% Rule: This suggests risking no more than 3% of your trading capital on any single trade.

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.

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.

Is there a downside to ETFs? ›

For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.

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.

Is it okay 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.

When should I sell ETFs? ›

A lack of liquidity.

"In this case, an ETF that lacks sufficient liquidity could be sold at a share price that's lower than it should be during a time with market volatility." Considering how large your position is in a particular ETF can help you determine whether a lack of liquidity risks hurting your portfolio.

Do I pay taxes on ETFs if I 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.

How to avoid capital gains tax on ETF? ›

Through everyday redemptions and heartbeat trades, equity ETFs are able to make tax-free portfolio adjustments and avoid generating capital gains until their shareholders sell their shares.

How do you tell if an ETF is a good investment? ›

The three things you want to look for are:
  1. The fund's liquidity.
  2. Its bid/ask spread.
  3. Its tendency to trade in line with its true net asset value.

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.

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 to know if an ETF is good? ›

Before purchasing an ETF there are five factors to take into account 1) performance of the ETF 2) the underlying index of the ETF 3) the ETF's structure 4) when and how to trade the ETF and 5) the total cost of the ETF.

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