Do you sell ETFs if the market crashes?
By - tenyu9
Why would i sell with a loss
Yeah I wouldn’t. Unless I was so up for the year I’d sell, say, VTI and pick up VOO for tax loss harvesting. But I’m not at a point where cap gains are much of a concern haha.
If you're in a taxable account in the USA, you should always sell at a loss if you have one. If you hold ETFs you have even more reason to do this.
Selling at a loss creates a tax credit for you. Because there are probably a dozen ETFs you can buy back that give you the same exposure, you can maintain your exposure plus earn that tax credit.
Do not buy back the same exact security because this does not trigger a sale in the eyes of the IRS.
You need to read the rules about wash sales, long term and short term capital gain or loss treatments, etc... Because there's more details than just what I'm saying here.
Let's say you're invested in XLE energy sector. You buy in at $100 and tomorrow it goes to $90. Sell XLE and buy IYE. The next day IYE goes back to $100 in value.
So you're unch on your equity position but you have a $10 short term loss.
Now if the next day your energy position goes to $110 you can sell if you like.
Your short term gain of $20 is partly erased my the short term loss of $10. You pay no taxes on that first $10, but you do on the second ten.
Example is a bit simplified... But you should know you can carry those losses forward forever until you use them as well
Had you held on you would have only had a gain and paid taxes on it.
Edited: the math is fixed
wow the us tax system seems like the perfect setup for rich people to avoid any kind of taxes
Rich people do not have advantages in taxes that others don't. All this information is public and allowed by the IRS.
Yeah, but the majority of people simply can't afford to invest anything, living paycheck to paycheck.
Luckily if you have $100 bucks in your RH account you can benefit from this. What does it have to do with rich people?
Actually this is more about knowing how to take advantage of the tax system.
Actually it is apparently having accountants who can hide your income.
What country are you from that doesn’t have tax loss harvesting ?
So you’re saying if you sell a bunch of stocks, and you end up break even, you should have to pay taxes on all the stocks that gained and ignore the fact that you didn’t actually make any money?
Tax loss harvesting is a perfectly fair and reasonable system and in no way does it connect to the “system is rigged for the rich” ideology that is so popular. Of course people try to abuse it to their benefit as is the case with any tax rule, but what is the alternative? The system may be rigged for the rich in other aspects but this is certainly not one of them.
But why would i sell a bunch of stocks? Honestly investing is still in babysteps here, so i can't even find any legit info online. But i'm not really bothered because we only got 15% tax on anything investing related anyway.
For income taxes we don't have to do anything because it's done by the employer, so i got zero clue about these things haha
That is why Trump was able to pay zero taxes. If you buy after doing homework you do not need to sell.
Rich people literally pay all the taxes. Most normal people love tax time because they're anxiously awaiting a refund. This has to be the most common misconception in our society.
Should I laugh or cry rich people own the govt who makes the law to help 1% as they fund their expensive elections.
Wouldn't the short term gains be $20? $90 to $110?
Yeah sorry. Fixed that now.
Also if you think it’s gonna continue crashing why lose further
because you can't predict it will continue to crash. Most people who lose money is because they think they can do what you said
Exactly. It’s funny that people think that they can predict market activity.
Time in the market…
Because no one can time the market. Not even the best financial experts. For every time Michael Burry has been right about a crash, he’s been wrong another 10 times. If you’re buying stocks and ETFs you believe in, you should look at it as a long term discount to get more shares for cheaper.
I buy into positions I like every other week (every paycheck) little by little regardless if the stock/ETF is up or down.
VOO is basically my high yield savings account. I usually buy more shares whenever the market dips
High yield savings account? The S&P500 has had years where it dropped 30+ percent.
You cannot know when the crash will end. Your strategy seems like timing the market. As a long term investor I would just continue to DCA as planned indipendently from the price.
I see what you did there
Buy the dip and relax! I hope you have a long term time horizon otherwise go to /daytrading
20 years 🙂
That’s the way so don’t worry about crashes 😂
Just keep buying.
If the market crashes. the value of the etf you bought goes down. Which means, if you sell the etf, you get less for it than you bought it for, in other words you make a loss. So you should hold on to the etf and only sell it when it is worth more than you bought it for, then you make a gain.
If the market crashes, you can buy etfs for cheaper ! Then when the market rises again, they will be more valuable , and you can sell them for a gain.
This. i'd only sell if the etf doesnt fit my needs anymore.
Every crash has a turnaround.
If it’s crashing further makes sense to sell and buy back. when the price is lower.
Also you can show a loss on your taxes
No. Because you don't know that it will keep dropping. I sold VOO after it had two very red days after everyone claiming a crash is inevitable. Then it gained it all back the next week, but I was so sure it was going to drop, I wasn't going to buy back in at these prices, I would buy the dip.
It never dipped. I ended up DCA'ing back in and lost money. I'm now up 5% when it would have been more like 9%.
**You can't time the market.** Dollar cost average is the way to go.
You have to be very careful of the Wash Rule. If you buy back that asset within 30 days you DO NOT get to count it as a loss on your taxes and that loss gets added to your cost basis. It's just not worth it unless you're ok with waiting a while to buy back in but at that point you may have missed your chance if the ETF recovers quickly
So...if it keeps dropping you will just sell and buy until you run out of money. Sounds like a plan! 😬
How can you run out of money if you sell and buy it for less.....
If I sell for 1000, and now it costs 800. I have 200 left over for the same stock...
Damn... you struggle to see how you will lose your money if you keep buying and selling at a loss? This conversation ends here.
Yet people in this thread are saying to hold a losing stock? What’s the difference between holding a falling stock and selling then immediately buying a failing stock?
You can show the loss on your taxes.
I’m surprised you can’t understand thst
Is it really losing if everything else is dropping?
Keep, buy the discount, continue to collect dividends and reinvest.
If you’re buying a broad index ETF, it’s very likely going to recover, so have some cash handy. Even if you don’t buy the bottom (even some technical analysis folks can’t always identify it), it’s a discount even if prices are on the way down still.
If they don’t recover, there are worse things to worry about in the global economy and/or we get a repeat of the Dot Com bubble or something similar.
A couple things to unpack here
First off selling in a crash is typically a bad idea. We expect bad years to be followed by historically good years. This isn't always the case but is often enough. It might take a couple years for this trend to realize and in really bad cases a decade+ but that's just part of the game.
\[edit I like to think of my investing as buying returns 20-30 years in the future, I don't really care what path my money takes in between. If I'm not spending it, what's the big deal?\]
Now as an investor how do we really accomplish this?
When we think about investing, there are two equally challenging aspects to consider. 1 - emotions 2- technicals/fundamentals (investment analysis)
Issue 1 is by far the much more difficult part of investing for most investors.
So how do we control our emotions?
We make an investment plan. We get paid, and then x$ goes into our investments. Every paycheck (assuming you have access to low or no cost trades... otherwise things are more complicated). You follow this plan if the market is up or down. In this way you're front loading your decision. It's not an emotional decision to buy or sell when the market is down because you're buying on schedule.
From the technical side
We don't have to come up the way we went down. Selling at a loss is fine, if you're doing it for the right reasons. Ignoring taxes for a moment (if you don't have lots of money you should be investing within a tax protected retirement account), we always want to ask ourselves where's the best place I can put my money? Now if you have a rather bland bond + index fund strategy (which I recommend) the answer is easy. The market undergoes a large movement and you rebalance to make your bond + index fund allocation match your ideal. This typically requires selling bonds when the market is down and buying bonds when the market is up (you do the opposite with stocks).
As you get closer to retirement hold more bonds to minimize the impact of these events. A bad year in stocks in significantly worse than a bad year in bonds.
The market briefly "crashed" at the beginning of the pandemic, I just doubled how much I would usually invest in equities vs keep in cash/cash equivalents. My ROI for 2020 was higher than any previous time period. Be greedy when others are fearful. Tons of people lost their shirts on the dip because they sold at a loss to hoard cash, we had significant inflationary events during 2020 while the market mostly recovered. I even took a riskier (for /r/ETFs) bet and also bought airline stocks during that time.
My advice is always buy the dip. Never sell unless you have a use for the principal (e.g. retirement, major life change like home purchase). The entire point of a highly diversified ETF is that it goes down when the market goes down and goes up when the market goes up, on average, but without exposing you to company-specific impacts. Due to inflation and other factors, until the economy implodes entirely, the market will always go up over a long enough time horizon compared to where it is today, so you should always just buy the dip.
Buy inverse to hedge with. They’re on a discount right now
Which would you recommend
SDOW, sqqq, Sds, HIBS, SRTY. Just research before you buy some are leveraged some are not. They’re really used for day trading BUT right now I feel like they’re worth holding despite decay
Could you explain a little what this is and how to do it with ETFs? I'm new to this and never heard of hedging with inverse...
You have tqqq and sqqq, sqqq is a 3x leveraged etf that is inverse of tqqq. Say tqqq drops 1% well sqqq will jump 3% since it is a 3x leveraged etf. Also on the leveraged etf you have to know when the splits are and be weary of time decay.
A lot of this information is listed on proshares website
Say you bought a house for 500k. Next week someone knocks on your door and says “I’ll give you 100k for this house”. Would you go “Oh damn, what if tomorrow someone offers only 80k. I should sell for sure!”. No. You should not sell your ETFs in a market crash. In an event of a market crash you buy as many as you have spare cash for. [this is not a financial advice. I’m also member of WSB. That’s basically an economic retard card right there]
On one hand, during the 2008 housing crash, the late 2018 correction, and march 2020 covid crash everything was back to normal in a matter of months to a few years.
On the other hand, nobody knows how the markets will perform during unprecedented events. How will the markets respond as global warming gets worse? What if covid mutates and gets harsher?
For me, what I do depends on where we are, and where I think we are going. Most of the time its a good bet to say we will overcome problems quickly, its what happened in the recent past after all. That said I pulled out during COVID and missed out on a bunch of gains, so WTF do I know.
All those people who sold in March 2020 quickly regretted their ill-fated decisions.
There shouldn't be a simple answer to your question. There are many variables to consider. To begin answering your question, you should probably ask yourself what would selling accomplish? Would it reduce your portfolio's volatility or augment it? Would it put your allocations back in balance or offset them? Are you looking to reduce or augment some correlations and overweight/underweight to a sector, commodity or macro catalyst? Would it be tax optimal? Would it be aligning with your investment/trading strategy, time horizon and risk appetite?
Yes. It’s called dollar cost averaging.
You misread the question.
Answers OP's final question (is it correct to keep buying during crash and sell only when retiring?).
If I want to lose money, yes. /s
Do you expect the ETF to recover in a reasonable amount of time along with the rest of the market? If so you hold it instead of selling it low.
If you don't expect it to recover for some reason then yeah--you'd probably want to sell and replace it with something else.
If it's a general market crash then you'd likely just want to keep holding and wait for it to recover. Keep buying more if that was part of your original plan since it will now be relatively cheap to buy.
Dollar-cost averaging. Google it.
The vast majority of the time, no. Particularly if your holding a small portfolio that is mostly tied to the 3 major indexes. But if you have a larger portfolio, such as myself, with exposure to sectors, then you must decide what are your core holdings. Stick to the core. Everything else is expendable.
Buy right and hold tight.
No- dips are when stocks are on sale. Buy more, sell after 25 years.
The exact opposite.
Market crashes? Looks like the market's on sale lads!
Market crash? What ever could you be talking about?
No - I buy. I buy and hold.
No. I will buy more if I have cash. Holding Vanguard Global All Cap Choice ETF.
Buy more when market crashes
Yea I already sold everything. There’s goi g to be a big crash. Gonna be huuuuge. Much pain
You’re asking if people sell at a loss?
It depends on circumstances. Typically, if it’s a long term horizon account with no short term liquidity needs , then no.
If you are long term always buy the dips.
But market only goes up, right ?
Not a chance, buy the dip
That’s the opposite of “buy low sell high”
Hold and buy the dip!!
You should buy more when the market dips
Why would you do that. Over a long term period that's going to look like just another dip.
And dips are when you buy not sell.
Remember stocks only go up
For the average investor, I wouldn't recommend trying to time the market.
That being said, some people are able to sense when a crash is incoming (such as during last year's Covid crash), and they sold and bought back in at a lower price.
I prefer buying more and get later out with a smaller gain than expected, compared to having a loss that I need to cover with other investments then.
Yep, keep buying when the market crashes. We had a lost decade from 2000-2012 and there was the 2008 financial crisis. I actually was buying at the peak of the dot com boom but then it tanked, came back, tanked more, and so on until 2012 and since then it has been on a tear on average. It will not last. But the peak I think will be preserved so even though I have 20 years of investments that have grown considerably, I keep investing aggressively for future funds if possible and the money I've already made is less aggressively invested.