Do you set a stop-loss for your core ETF portfolio?

If you hold a portfolio of ETFs (e.g. ours has a weighting of 40% VAS, 40% VGS, 5% ACDC, 5% NDQ - this is not our entire investment portfolio, just the ETFs), do you set a stop-loss? (e.g. 5% below 12 month highs)

If yes, why? (e.g. to capture gains and buy back in at lower level, to distribute to other ETFs, etc)

If not, why not? (e.g. chosen "set and forget" strategy, etc.)

 

Whoooo! Really? You wish to be forced out at possibly the worst time, lock in losses and maybe eaten alive by professional traders?

Go for it.

SK shakes his head in wonder. People are clever. We always find ways of doing something really stupid.

 

NO ( although i probably should have on BBUS )

if the ETF is dips heavily it is possible i will use that dip to add some

VAS and VHY are both fully DRPed and in the future the only change currently considered is exiting from the DRPs , so you would probably call that 'set and forget '

a different ETF SYI i have done some opportunistic trading on ( not just straight accumulation in the dips ) and ASIA i took the investment $$$ out of it after it more than doubled for me ( but doesn't pay divs very often )

i don't use a 'one strategy fits all ' even on my ETF holdings

however thinking about what suits YOU best , is a good thing ,in my opinion

good luck

should you stick with your research on stop losses , consider researching 'trailing stop losses'

the stop loss follows ( say ) 5% behind the current share price as it climbs ... say wait until a new 12 month high and then use the trailing stop loss .

i do not use these but have considered them at times to lock in gains

 

yes i agree with that thinking but then the OP might be trying to limit crippling losses

 

Great way to realise capital gain and reduce your asset base via tax and then create a re-entry dilemma.

 

So I guess that's a no.

Thanks everyone

For those who think shaking their head is helping people understand things better, we weren't all born already knowing everything and not having to build our knowledge. If you, in developing your perfect wisdom, never asked questions before you acted, hope your ascendency into nirvana will be pleasant. Us humans have to reach out to learn more. Thought forums were where we went for that. Guess they're just the same space for trolls as everywhere else. Shame.

 

if you are REALLY worried about big losses , rolling stop losses on ACDC and NDQ would have some logic , but i , myself wouldn't do it , the passive ones VAS and VGS are designed with 'time in the market' in mind , so with VAS ( VGS doesn't interest me ) i would try to bring down my average buying price down over time ( buy when cheaper , it is just it has gotten below my price since 2012 if that is worth the effort for you that is your decision you might find it better to just buy some extra every year ( or some other strategy )

i do NOT know everything , i am still working on the better angles for me ( others probably have much more experience ), i am still learning and strongly encourage others to learn and THINK ( you might easily find a better way before i do )

good luck

VAS and VGS are unlikely to spike high enough to sell and hope to buy cheaper later ( unless you are talking BIG bucks ) now ACDC and NDQ MIGHT be that volatile in the future .

 

it will be a pain in the butt , but try to understand the psyche of short-sellers ( sell high FIRST buy back later , hopefully cheaper )

and see what The Falcon and others are getting at

a short-seller is TRYING to crash the price to cause panic selling and automatic selling ( stop-loss events ) and if REALLY successful margin calls ( forced selling ) as long as they don't trigger a 'stop trading ( cease trading the share for the day ) the short-seller is gaining all the way down , in theory he has the money already going into the bank account , IF he call replace the sold shares , in time )

to The Falcon and other experienced guys , these are just hazards/annoyances , but to the smaller investor these can be real confidence shakers ( and do real damage if you use a margin loan )

cheers

 

I wouldn't take it personally and it may be that the sarcastic humour has come across the wrong way. I know that I have personally learned a lot from this forum, and particularly from the respondents here.

I always remember the saying that a person who asks a question is ignorant for a day, whereas a person who doesn't ask the question is ignorant for a lifetime. I hope you don't feel too discouraged from asking further questions.

 

A valid criticism. My attempt at humour was out of place and I apologise for any offence.

I believe there are a number of articles concerning stop-losses for ETFs but if my memory serves me correctly they are aimed at traders and not specifically for the purpose you asked about.

 

There is some somewhat pretty persuasive evidence for using a moving average based mechanical method. Put simply an example is that on the first day of the month if the index is below its 200 day moving average you sell, when it breaks back above it you buy. Back testing shows it to massively outperform buy and hold for US stocks for long periods. Some well respected investors include it in their portfolios, paul merriman does half his portfolio in it.

BUT - it tends to underperform during bull markets, so you have to hope that it really does help you miss the large crashes otherwise you get the big drops without collecting all of the preceding big gains. It's dangerous during flash crashes like last year, you can sell in the drop but miss the bounce entirely.

Play around on portfoliovisualizer.com and get a feel for how it works. Using this strategy skipped over the tech wreck and GFC, but didn't do well during last years downturn.

It seems like a pooled super fund only method to me where taxes and fees are negligible on the buying and selling. For sleep at night factor I'll consider it in more depth when I am closer to retirement. It would never make up more than 50% of my share strategy though.

 

A stop loss is for trading.

I tried using one as a buy and hold investor and you end up selling when you should be buying, paying a lot more brokerage and creating more paperwork at tax time.

 

No, You are probably better off having buy orders instead of stop losses If you want to sacrifice some small gains and possibly reduce losses you might want to consider Umax and Ymax.

 

Flash crashes and fat fingers, as well as other events, can trigger these, for the long term investor it's probably worth ignoring hourly, weekly and monthly price moves

March last year (and per SK IAAM) saw rebalancing time for me

 

WOW !! that would feel so unnatural to me , i don't normally watch 200 day moving average very closely , but do glance at them on occasion

i NORMALLY use my lowest previous buying price as a signal to start considering IF to buy extra , my normal reason to sell a holding completely relates to asset performance rather than price HOWEVER if the price is ( what i consider very high , aka over-valued ) i am tempted to reduce the holding .not sell it completely unless there are extra reasons to do so .

on the other hand i don't hang every breath on my portfolio value , rather the dividend/interest it returns per year

but yes if one was terrified of a large market ( or portfolio ) drop it would save some uncertainty , equally unnatural would be me WAITING for the index to climb above the 200 day moving average , i mean , imagine it , i would have a pile of cash looking all over the place for bargains ( worse than a kid in the candy store with $50 to spend )

OR if using the index as a straight guide ( not a suitable index fund ) i find the recent high (somewhere around 7150 for the XJO , i believe , just before the March 2020 dip ) and then break out the calculator ,
the peak minus 25% is about one should expect at least once every three years ( i consider it 'a healthy correction' )

the peak minus 30% interesting but not exciting ( to me )

the peak minus 40% now i am getting excited , but starting to watch out for failing companies and opportunistic take-over moves ( or worse solid management being thrown to the wolves )

the peak minus 50% , and i am really starting to get excited , but have to redouble the research efforts to pick the best options ( even in ETFs and LICs )

could it go any lower ... well we are in 'uncharted territory' according to some , so who knows , if investor confidence evaporates and the over-leveraged need to unwind the debt , you might get a 1920's style crash , hardly a buyer to be found , should Warren Buffet still be active ( in the investing world ) he will probably think it is Christmas , maybe the best Christmas he can remember .

the NEXT question is after the market has found the current bottom .. what next ?? another dose of sticky tape and can-kicking , or genuine growth strategies ( removing bloat and bottle-necks in productivity , etc , maybe even big ticket infrastructure projects )

now one factor in passive index funds ( ETFs in particular ) is how the associated 'market-makers will cope with a 50% drop .. do they reduce what they buy ( and probably sell ) or do they widen the spread further from the NTA to cope with the probable volatility because there MIGHT be a rush for the exits an the equivalent wholesale fund forcing the provider to sell down units there

HOWEVER such a test would be positive long term for investors ( of the survivors ) , they would have a good idea on how all the safeguards actually work

this is one reason i am cautious on ETFs of ETFs ( basically still a fund of funds ) those extra moving parts under stress ( even it they are still chunks of products from the same provider )

 

I’m glad I know what I don’t know, am lazy and dumb. Who would of thought this is the skill set needed to be a successful investor. I just buy, hold, receive and reinvest dividends and repeat. No stop loss, just loan top ups ready to buy when markets turn.

 

the difficult part is deciding what to buy , however someone thinking of stop losses is probably very cautious , and if so investigating if stop losses are good for them , is probably wise and educational

 

Buy the market?
A wise man once stated something along the lines of, instead of trying to find the needle buy the haystack.
As someone who has circa 60 holdings I know I’m calling kettle black however 80% of them are index/lics.
Funny thing most of the returns are from the remaining 20% however .

 

not the WHOLE market for me , i have an ' AVOID' list of six 'blue chips' ( so far ) and a few more top 200 stocks ( like AMP and ORG to name two ) i would rather be 'underweight '

also i have the time , to look for the gem in the truckload of sand

and yes i had noticed SOME ETFs ( like ASIA )are a bit sparse with the divs , so i reduced at around 150% profit , or moved on when just above breaking even ( like IEM )

BUT a lot of the investing market is fascinated by capital gains , which i find counter-intuitive , possibly the influence of Warren Buffet for thinks dividends are money that could be deployed better elsewhere ,

certainly an interesting time to be investing

 

Thank you everyone for your contributions.

As someone who is approaching their first year ever as a share investor (have been in property for over 25 years), I have found the contributions of the experienced here invaluable to avoid trial and error. Thanks again for helping me avoid it. I also would NEVER have even heard of, let alone invested in, ETFs if it were not for the people in this forum.

The original post was based on the fact that as the majority of our ETF investment hits the 1 year 50% CGT benefit soon, thought I'd check the ideal strategy.

Again, thanks to everyone, especially @twisted strategies @Ross36 for your detailed responses, @Redwing for being one of the people who a year ago helped me understand ETFs, and also @SatayKing for your contrition - I have 2 sons - 24 and 19 years old - I have always tried to teach them to own their actions and, just like making errors, it is a true sign of being a human - thank you especially for being an example of that.

I'll be leaving the ETFs to DRP or manually reinvesting if they don't DRP and buying the dips when they do drop.

Thanks again everyone.