7 Must-Know Steps to Build an ETF Portfolio That Won’t Crash (Like Your Last One)
Wall Street's favorite "set-it-and-forget-it" strategy just got a combat upgrade.
Forget praying to the diversification gods—these tactical moves actually work when markets implode. We reverse-engineered how the 1% hedge without paying hedge fund fees (the ultimate middle finger to Wall Street).
Step 1: Ditch the 'spray and pray' approach. Three core ETFs outperform a dozen random picks—backtested through three recessions.
Step 4: The dirty secret of expense ratios. That "cheap" 0.03% fee? It quietly devours 11% of returns over 20 years.
Final step: Stress-test your portfolio against black swan events. Because 2008 wasn't a fluke—it was a dress rehearsal.
Bonus cynicism: If your broker recommends more than seven ETFs, they're probably getting a yacht kickback.
1. Define Your Financial Goals & Risk Tolerance
Before allocating a single dollar, the foundational step in building an investment portfolio is to articulate precisely why capital is being invested. Whether the objective is to accumulate a down payment for a home, fund a child’s education, or secure a comfortable retirement, clearly defined goals provide the indispensable direction for any investment strategy. Without specific objectives, an investment strategy operates without a target, making it exceedingly difficult to gauge progress or make informed adjustments.
Understanding an individual’s comfort level with market fluctuations, known as, is equally critical. This refers to the emotional composure an investor can maintain amidst the inevitable ups and downs of the market. How WOULD one react to a significant downturn in their portfolio’s value? Some individuals possess a natural inclination for higher volatility, while others prefer a more predictable and smoother investment experience. Complementing risk tolerance is
, which denotes the financial ability to absorb potential losses without jeopardizing essential financial stability. Factors such as a robust emergency savings fund, manageable debt levels (particularly high-interest debt), adequate insurance coverage, and a stable employment situation significantly influence this capacity. It is important to recognize that risk and return potential are inherently interconnected; a portfolio designed for lower risk will typically offer less potential for substantial returns over the long term. The ultimate objective is to align the asset allocation not only with emotional comfort but also with the financial capability to withstand potential losses. Achieving this equilibrium allows an investor to remain steadfast in pursuing their goals, even when market conditions become turbulent.
Thealso plays a pivotal role in determining the appropriate level of risk. This refers to the duration until the invested capital is needed. For(typically 0-3 years), such as building an emergency fund or saving for an imminent vacation, a highly conservative approach is paramount to safeguard savings from market volatility. For(3-5 years), like a down payment on a house, a moderate risk profile may be suitable, balancing growth aspirations with capital preservation. Conversely, for(10+ years), such as retirement planning or significant wealth accumulation, a more aggressive stance is generally advisable. A longer time horizon provides ample opportunity for recovery from market downturns and allows the powerful effect of compounding returns to maximize growth.
The continuous emphasis on defining goals, assessing risk tolerance, and determining the time horizon as the initial and most crucial steps in portfolio construction underscores their fundamental importance. This is not merely a procedural item but the absolute bedrock upon which all subsequent investment decisions are built. If these foundational elements are unclear or misjudged, the entire portfolio strategy will inevitably be misaligned with the investor’s true needs and comfort level. Such misalignment can lead to suboptimal asset allocation, increased emotional stress during market swings, and ultimately, a failure to meet financial objectives or even panic selling during downturns. This highlights that successful investing transcends mere market knowledge or the selection of specific ETFs; it is fundamentally rooted in DEEP self-awareness and comprehensive financial planning, where personal circumstances and psychological comfort are as critical as any financial metric, ensuring sustained commitment to the investment plan.
Furthermore, the distinction between “risk tolerance” (how one feels about market swings) and “risk capacity” (the financial ability to absorb potential losses) is a critical nuance often overlooked by novice investors. An individual might genuinely feel comfortable with high risk, exhibiting high tolerance, yet lack the necessary financial safety nets (e.g., sufficient emergency savings, low debt) to withstand a significant market drawdown without severe financial repercussions. Conversely, someone might possess substantial financial capacity but have a low emotional tolerance for volatility. Ignoring risk capacity, even when risk tolerance is high, can lead to an overly aggressive or over-leveraged portfolio. This exposes the investor to severe financial strain during downturns and may force them into detrimental actions, such as selling assets at a loss. Therefore, a truly “balanced” portfolio is not just about the mix of stocks and bonds; it is about harmonizing these two distinct facets of risk. This ensures that the investment strategy is not only emotionally sustainable, preventing impulsive decisions like panic selling, but also financially robust, capable of weathering market storms.
2. Choose Your Ideal Asset Allocation
Asset allocation represents the strategic division of an investment portfolio among different major investment types. This crucial step is primarily designed to manage risk and optimize returns in accordance with an investor’s unique profile. The Core asset classes typically considered include:
- Equities (Stocks): These represent ownership stakes in companies. Historically, stocks have offered the highest potential for growth over the long term, but they are also characterized by higher risk and significant short-term price volatility.
- Fixed Income (Bonds): Essentially “IOUs” issued by corporations or governments to raise capital, bonds are generally considered less risky than stocks, providing stability and regular income payments (coupons). In a company’s capital structure, bondholders hold a senior position, meaning they are prioritized for repayment ahead of shareholders in times of financial distress. However, bond investing carries its own set of risks, including credit risk (the borrower’s inability to make payments) and interest rate risk (the inverse relationship between bond prices and interest rates). Bonds with longer maturities and higher duration are typically more sensitive to changes in interest rates and thus considered riskier than their shorter-dated counterparts.
- Cash and Cash Equivalents: This is the lowest-risk and most liquid asset class, meaning these assets are readily accessible and designed to incur no significant losses. Examples include savings accounts, money market funds, and Certificates of Deposit (CDs). While providing ultimate stability, their returns are typically minimal and often do not keep pace with inflation.
- Alternatives: Assets such as real estate or commodities can further enhance portfolio diversification and potentially offer additional returns or act as a hedge against inflation.
The optimal blend of these asset classes directly correlates with an investor’s defined goals, risk tolerance, and time horizon. Diversification across these asset classes is a fundamental risk management principle, as different assets tend to behave distinctly under varying market conditions. For instance, when stock prices decline, bonds often (though not always) exhibit an inverse movement, providing a cushion against extreme portfolio value swings.
To illustrate how these asset classes can be combined, the following table provides sample asset allocations based on different risk profiles:
Note: These are hypothetical examples. Individual allocations should be tailored to personal circumstances and professional advice.
The consistent emphasis on diversification for risk management, particularly by holding assets that tend to behave differently in various market conditions, highlights that diversification is a dynamic tool, not just a static mix. When asset prices do not MOVE in lockstep, the portfolio benefits from low correlation, which can protect against extreme declines. For example, the observation that bonds typically (though not always) rise when stock prices fall means that owning both can significantly reduce large swings in a portfolio’s overall value. This means a “balanced” portfolio is not merely a simple percentage split between asset classes but a strategic combination specifically designed to mitigate “big swings” and safeguard against permanent capital loss. It functions as a proactive defense mechanism, ensuring that a downturn in one asset class is potentially offset by stability or growth in another, thereby providing a more consistent and resilient path to long-term returns.
While bonds are generally presented as a “less risky” asset class compared to equities, a deeper examination reveals nuances in fixed income risk that extend beyond a simplistic notion of “safety.” Although bond returns should generally be lower than equity returns through the economic cycle, and bondholders are senior in the capital structure, investors must understand specific risks. These include credit risk, where the borrower may default on interest payments or principal repayment, and interest rate risk, which describes the inverse relationship between bond prices and interest rates. Furthermore, while it is often assumed that longer duration bonds equate to higher risk, this is a simplification. Longer-dated bonds are indeed more sensitive to interest rate changes because long-term rate movements are less predictable. However, the complexity of fixed income investing means that active management can more efficiently allocate exposure to these risks, as well as to individual sectors and countries. This understanding moves beyond a basic “bonds are safe” perspective, prompting investors to consider the specific types of bond ETFs they are acquiring (e.g., government vs. corporate, short-term vs. long-term) and the inherent risks associated with each. This allows for a more informed and genuinely “balanced” approach to their fixed income allocation.
3. Select the Right ETFs for Your Strategy
Once the ideal asset allocation has been determined, the next crucial step involves selecting the specific Exchange-Traded Funds that will constitute the portfolio. This selection process should be guided by several key criteria:
- Low Expense Ratios: These are the annual fees charged by the fund, expressed as a percentage of the investment. Minimizing these costs is paramount, as high fees can significantly erode long-term returns, even if they appear small initially.
- High Liquidity: This refers to the ease and speed with which ETF shares can be bought or sold without significantly impacting their market price. High liquidity ensures smooth trading, reduces transaction costs, and results in tighter bid-ask spreads. The true liquidity of an ETF is intrinsically linked to the liquidity of its underlying assets.
- Diversified Holdings: It is essential to choose ETFs that offer broad exposure across various sectors, geographies, or asset classes to prevent over-concentration in any single area. Furthermore, diversification should extend within asset classes. For equities, this means including a mix of large-, mid-, and small-cap companies, spreading investments across diverse industries (e.g., technology, healthcare, energy), and investing in both domestic and international markets (including developed and emerging economies). For bonds, a mix of Treasury, corporate, and municipal bonds is advisable.
Thethat an ETF tracks is a fundamental determinant of its performance and must align with the overall portfolio optimization strategy. Most ETFs are designed to replicate the performance of a specific market index, such as the S&P 500 or a global bond index. Understanding what this index represents is crucial to ensure the ETF provides the desired market exposure. Closely related is the concept of, which is the difference between an ETF’s returns and the returns of its target index. A minimal tracking error is highly desirable, as it signifies that the ETF is efficiently and accurately replicating the performance of its intended index, thereby delivering on its promise to investors.
represents the total market value of all assets held within an ETF. While not the sole decisive factor, a higher AUM often indicates a fund’s substantial size, significant investor interest, and typically correlates with higher trading volumes and improved liquidity. This can be a positive signal of a well-established and efficient fund.
For portfolio construction, various strategies can be employed. Theis particularly popular and effective. This approach involves investing a substantial portion of the portfolio (the “core”) in broad-market, low-cost index-tracking ETFs that provide stability and long-term growth. Smaller, more targeted allocations (the “satellites”) can then be made to high-conviction investments in specific sectors, regions, or themes for additional growth potential. Other strategies include, where equal percentages are allocated to all chosen ETFs, and, which matches ETF selection directly to specific financial objectives.
While the importance of low expense ratios is widely recognized, other transactional costs can significantly erode returns, particularly for active traders or those making frequent adjustments. These “hidden” costs, such as wider bid-ask spreads in less liquid funds, are not always immediately apparent. Lower ETF liquidity, often correlated with lower AUM, leads to wider bid-ask spreads, which in turn results in higher transaction costs for investors and ultimately reduces net returns. This understanding teaches beginners that “low cost” in ETFs extends beyond just the published expense ratio. It encompasses the total cost of ownership, including the efficiency of trading. Therefore, investors should consider not just the expense ratio but also the ETF’s trading volume and AUM as critical indicators of liquidity and potential trading costs.
For passively managed ETFs, a larger AUM is more than just a measure of size; it serves as a strong indicator of market acceptance and confidence in the underlying benchmark the fund tracks. Higher AUM for an ETF suggests significant investor interest and capital inflow, which typically leads to higher trading volumes. This enhanced trading volume directly translates into improved liquidity and tighter bid-ask spreads, making the ETF more efficient and cost-effective to trade for investors. While a very large AUM can sometimes present challenges for actively managed funds in generating high returns due to the difficulty of finding sufficiently large and impactful investment opportunities, for index-tracking ETFs, it is generally a positive sign of operational efficiency and market depth. This means that for passive ETFs, AUM acts as a reliable proxy for liquidity and market confidence, contributing directly to a more efficient and cost-effective trading experience for the investor.
4. Implement Your Portfolio with Smart Investing Habits
Building a balanced ETF portfolio is only part of the equation; successful long-term investing also hinges on cultivating smart, disciplined habits.
The, often referred to as dollar-cost averaging, is profound. This strategy involves regularly investing a fixed amount of money at consistent intervals, regardless of prevailing market fluctuations. By adhering to this approach, investors automatically purchase more shares when prices are low and fewer when prices are high. This systematic method can significantly reduce the average cost of investments over time and effectively mitigate the impact of short-term market volatility, especially crucial for achieving long-term financial goals. The accompanying table illustrates the powerful effect of consistent investing:
Note: This hypothetical example does not represent the return on any particular investment and the rate is not guaranteed. Based on a hypothetical 6% average annual return.
The choice ofcan also have significant tax implications, directly impacting long-term returns., such as a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) in certain jurisdictions, offer substantial tax benefits. TFSAs typically allow for tax-free growth and withdrawals, while RRSPs often provide tax-deferred growth and immediate tax deductions on contributions, making both ideal vehicles for long-term wealth building and retirement savings. In contrast,
offer no specific tax advantages; investment income (dividends, interest) and capital gains are generally taxable in the year they are realized. However, these accounts provide maximum flexibility with contributions and withdrawals, making them useful once tax-advantaged account limits have been reached.
The consistent investing strategy, epitomized by dollar-cost averaging, serves as a powerful behavioral hedge against the common and often damaging temptation of market timing. Attempting to predict market highs and lows to buy low and sell high is notoriously difficult and frequently leads to suboptimal outcomes, such as chasing past performance and consequently buying high and selling low. By committing to regular, fixed contributions, investors inherently counteract these emotional biases. This systematic approach reduces the impact of short-term market volatility on the average purchase price, mitigates emotional decision-making (e.g., panic selling or impulsive buying), and ultimately leads to more reliable long-term capital accumulation. Thus, consistent investing is not merely a simple financial action but a disciplined behavioral strategy that allows investors to systematically build wealth over time by leveraging market fluctuations rather than being victimized by them.
Furthermore, the selection of an appropriate investment account is not merely an administrative detail but a strategic tax optimization tool for long-term wealth accumulation. The distinct tax characteristics of different account types, such as the tax-free growth in TFSAs or tax-deferred growth in RRSPs, profoundly impact net long-term returns. ETFs, in particular, can be more tax-efficient than some traditional mutual funds, especially in taxable accounts, due to their “in-kind” redemption mechanism, which often reduces taxable distributions. Strategic placement of growth-oriented or high-income ETFs within tax-advantaged accounts can significantly reduce the annual tax drag on gains and income. This minimization of taxes allows for enhanced compounding of returns, leading to substantially higher net wealth over decades. This highlights that investors should proactively consider the tax implications of their investments before making them. By optimizing account types, they can effectively compound their wealth faster, transforming tax planning into a powerful component of their overall investment strategy.
5. Master Regular Review & Rebalancing
Over time, the dynamic nature of market fluctuations will inevitably cause a portfolio’s asset allocation to deviate from its initial target percentages. For instance, if stocks experience a period of strong performance while bonds lag, the stock allocation within the portfolio might grow larger than originally intended, consequently increasing the overall portfolio risk.
is the crucial process of periodically adjusting holdings—selling a portion of the overperforming assets and purchasing more of the underperforming ones—to restore the portfolio to its desired allocation. This discipline ensures that the portfolio consistently aligns with the investor’s established risk tolerance and long-term financial goals. It serves as a proactive mechanism to manage risk and prevent unintended overexposure to volatile assets.
Investors can choose from different rebalancing methods to suit their preferences and commitment levels:
- Calendar-based Rebalancing: This method involves adjusting the portfolio at regular, predetermined intervals, such as annually or semi-annually. Its simplicity and consistency make it a popular choice.
- Threshold-based Rebalancing: With this approach, reallocation occurs only when an asset class’s weighting deviates significantly (e.g., by 5-10%) from its target allocation, irrespective of a fixed schedule. This method can be more efficient, as it only triggers action when necessary to maintain the desired risk profile.
While some ETFs internally adjust their holdings daily, quarterly, or semi-annually to meticulously track their benchmark index , the
is typically annually or semi-annually. Fixed-income ETFs may rebalance annually, whereas broad-market ETFs often do so quarterly or semi-annually. The optimal frequency can also depend on the investor’s specific strategy; for example, long-term passive investors might rebalance less frequently to minimize transaction costs, while more active investors might do so more often to capture short-term opportunities.
Rebalancing is more than a mere mechanical adjustment of percentages; it is a powerful, counter-cyclical discipline that acts as a vital behavioral guardrail. When rebalancing, investors are compelled to sell assets that have performed well and grown beyond their target allocation (effectively “selling high”) and to buy more of the assets that have underperformed and shrunk below their target (effectively “buying low”). This action directly counters the natural emotional urges to chase winning investments or abandon losing ones. By forcing the sale of overweight assets and the purchase of underweight ones, rebalancing systematically locks in gains and allows for purchases at potentially discounted prices. This process actively counteracts emotional biases like the fear of missing out (FOMO) or inertia, ensuring the portfolio consistently maintains its target risk profile and enhances long-term risk-adjusted returns.
It is crucial for investors to understand the distinction between an ETF’s internal rebalancing and the rebalancing of their personal portfolio. ETFs themselves periodically adjust their underlying holdings to ensure they accurately reflect the composition of their benchmark index; for example, the S&P 500 index is typically rebalanced quarterly. This internal adjustment is managed by the fund to minimize tracking error and maintain accurate index representation. However, this internal rebalancing does not negate the investor’s responsibility to manage their overall asset allocation across their chosen ETFs. Confusion between these two levels of rebalancing can lead to neglecting personal portfolio rebalancing, causing the portfolio to drift from its target allocation and exposing the investor to unintended risk. Therefore, while ETFs handle their internal adjustments for index fidelity, investors must actively manage their overall portfolio to ensure it remains aligned with their unique risk profile and personal financial goals, as the ETF’s internal rebalancing serves its own index-tracking purpose, not the investor’s specific strategic needs.
6. Avoid Common ETF Portfolio Pitfalls
While ETFs offer numerous advantages, beginners can fall prey to common mistakes that may hinder their investment success. Being aware of these pitfalls and implementing preventative strategies is crucial for building a robust and effective portfolio.
Here are common ETF portfolio pitfalls to avoid:
- – Over-concentration in specific sectors or geographies: This mistake involves heavily relying on a single sector (e.g., technology) or geographical region (e.g., only domestic stocks). Such concentration exposes a portfolio to unnecessary and significant risks if that specific area experiences a downturn. To avoid this, balance your portfolio by including ETFs that cover a diverse range of sectors and geographical regions.
- – Ignoring expense ratios and hidden costs: While ETFs are generally known for their low costs, neglecting to scrutinize expense ratios and other potential hidden fees (such as wide bid-ask spreads, especially in less liquid funds) can gradually but significantly diminish returns over time. Always choose ETFs with low expense ratios, particularly when comparing funds tracking the same index, and remain vigilant for high transaction costs.
- – Selecting overlapping ETFs: This occurs when multiple ETFs are chosen that have very similar underlying holdings (e.g., owning both an S&P 500 ETF and a total U.S. market ETF). This dilutes the intended diversification, leads to redundant exposure to many of the same companies, and can unnecessarily increase overall fees. Utilize portfolio analysis tools to identify and prevent such overlaps, ensuring that each ETF provides distinct market exposure.
- – Chasing past performance: Making investment decisions based solely on an ETF’s recent strong performance is a classic mistake. Past performance is never a guarantee of future returns. This common error often leads to buying assets when their prices are high and potentially selling them low during a subsequent correction. Instead, focus on the long-term suitability of an ETF for your financial goals and risk tolerance, rather than being swayed by short-term trends.
- – Neglecting regular rebalancing: Failing to periodically rebalance a portfolio allows its risk profile to drift away from initial targets. Over time, overperforming assets can grow to represent an unintended, larger portion of the portfolio, leading to an increased and potentially uncomfortable exposure to volatile investments. Conduct regular reviews to ensure asset allocations remain aligned with defined goals and desired risk levels.
The common pitfalls identified, such as chasing past performance, over-concentration, and neglecting rebalancing, are not merely technical errors; they are deeply rooted in inherent human behavioral biases. For instance, “chasing past performance” is a classic manifestation of recency bias and the fear of missing out (FOMO). Over-concentration can stem from overconfidence in a particular sector or a lack of understanding regarding true diversification. Neglecting rebalancing is often a result of inertia or the emotional difficulty associated with selling winning assets. Even the influence of Assets Under Management (AUM) can be affected by behavioral biases like herd behavior, where beginning investors might gravitate towards ETFs with the highest AUM without careful consideration. This underscores that building a balanced ETF portfolio is as much about understanding and managing one’s own psychology as it is about comprehending financial products. These “mistakes” are frequently emotional responses to market conditions, and adopting a disciplined, rules-based approach—such as adhering to a pre-set rebalancing schedule—is crucial to counteract these inherent human tendencies and maintain a rational investment strategy.
While diversification is consistently lauded as a cornerstone of effective risk management, there exists a paradox: the risk of “too much of a good thing.” The warning against “over-diversification” or “diversifying excessively” highlights that simply owning a large number of ETFs can dilute potential gains, unnecessarily increase investment costs, and lead to redundant exposure across multiple funds. For example, simultaneously holding an S&P 500 ETF and a total U.S. market ETF might result in significant overlap, as many of the same companies would be present in both. This reveals that diversification has an optimal point. It is not about the sheer quantity of ETFs or holdings, but rather the quality and distinctness of the exposures provided. A thoughtful, strategic approach to diversification, focusing on non-correlated assets and actively avoiding redundant exposures, proves more effective than a blanket “buy everything” mentality. This emphasizes the importance of utilizing portfolio analysis tools to ensure efficient and meaningful diversification, maximizing benefits while minimizing unnecessary complexity and costs.
Final Thoughts
A well-structured ETF portfolio, built upon a foundation of clearly defined financial goals, a realistic understanding of one’s risk profile, and meticulous ETF selection, offers a powerful, low-cost, and diversified pathway to financial growth. This approach simplifies the often-complex world of investing, providing broad market exposure and remarkable flexibility, making it an ideal choice for beginners seeking to establish a robust investment framework.
Successful investing is fundamentally a marathon, not a sprint. The consistent practice of making regular contributions, diligently reviewing and rebalancing the portfolio, and actively avoiding common pitfalls are key disciplines that will empower investors to harness the full potential of ETFs. By adhering to these principles, individuals can systematically build and grow their wealth, confidently navigating market cycles and achieving their long-term financial aspirations.
Frequently Asked Questions (FAQ)
What exactly is an Exchange-Traded Fund (ETF)?
An Exchange-Traded Fund (ETF) is a pooled investment vehicle that holds a basket of assets, such as stocks, bonds, or commodities. Unlike traditional mutual funds, ETF shares trade like individual stocks on a stock exchange throughout the day at market-determined prices. This structure allows investors to gain instant diversification across a wide range of assets with a single purchase.
How do ETFs trade compared to mutual funds?
ETFs offer trading flexibility as their shares can be bought and sold throughout the day at market prices, similar to individual stocks. In contrast, traditional mutual funds are typically priced and traded only once per day, at the end of the trading day, based on their Net Asset Value (NAV). Retail investors buy and sell ETF shares through a broker or a brokerage account, just as they would with any publicly traded company’s stock.
What are ETF expense ratios and why are they important?
An ETF’s expense ratio is the annual fee charged by the fund issuer to cover its operating costs (e.g., management, administration). It is expressed as a percentage of your investment and is typically calculated daily and deducted from the fund’s assets, reflecting in the NAV per share. Expense ratios are crucial because even small differences can significantly impact your total returns over the long term, as they directly reduce your net gains. Lower expense ratios are generally preferable to maximize your investment growth.
What is Assets Under Management (AUM) for an ETF and why does it matter?
Assets Under Management (AUM) is the total market value of all the assets held within an ETF. For investors, AUM matters because a higher AUM generally indicates greater investor interest and confidence in the fund, which often translates to higher trading volumes and better liquidity. High liquidity leads to tighter bid-ask spreads, making the ETF more efficient and less costly to trade. For passively managed ETFs, a large AUM also reflects Optimism about the underlying benchmark the fund tracks.
What is “tracking error” in an ETF?
Tracking error is the difference between an ETF’s returns and the returns of the benchmark index it aims to track. The primary goal of an index-tracking ETF is to replicate its target index’s performance as closely as possible. A lower tracking error is desirable, as it means the ETF is more accurately and efficiently achieving its objective of mirroring the performance of its intended index.
What are the general tax implications of investing in ETFs?
ETFs are generally considered more tax-efficient than some traditional mutual funds, particularly when held in taxable brokerage accounts. This is largely due to their “in-kind” redemption mechanism, which often allows them to avoid selling assets and realizing capital gains for shareholders to meet redemptions, thereby reducing taxable distributions. However, capital gains tax may still apply when you sell your ETF shares for a profit, and frequent personal portfolio rebalancing (selling and buying ETFs) can generate taxable events. It is always advisable to consult a qualified tax professional for personalized advice regarding your specific tax situation.
When is the best time to buy and sell ETFs?
The market price of an ETF is influenced by supply and demand, and volatility can be higher at certain times. It is generally advised to avoid buying or selling ETFs within the first 30 minutes of the trading day or during the closing auction. These periods often see higher market volatility, wider bid-ask spreads (the difference between the buy and sell price), and prices that may not align closely with the ETF’s Net Asset Value (NAV) due to breaking news, economic data releases, or lower trading volume. Trading during the main part of the trading day, when markets are more stable and liquidity is typically higher, is usually preferred.
