Social media has been all a buzz about some popular Exchange Traded Funds (ETFs) which are falling.
This is especially true of the tech ETFs but others, such as China, have also been having a torrid time of it lately.
I see lots of people commenting that they hate the ETF and will be selling it as soon as it gets them back to break even. Some are even selling right now and moving on.
Now there’s nothing wrong with selling, but this response ignores a few very important points.
Firstly; markets go up and they also go down.
Sometimes that down is short, as we saw in the pandemic collapse of early 2020, and the recovery is swift. But that is not always the case, especially with niche ETFs. Give them time. If you have a long-term view there’s nothing to worry about, unless you bought in the wild hope of getting rich quickly.
This brings me to the second point. Why did you buy the ETF?
If you only bought it because it was running higher, and fast. Well then yes, the run is over and selling is the correct response. But buying something because it is moving higher is not an excellent selection methodology unless you are a short-term trader.
Long-term investors need to have a very solid understanding of what they are buying and why.
For example tech stocks. Is it over for this sector? No chance. Sure it may be a while before they recover to the 2021 highs and start flying again. Maybe we’ll never see the sort of growth in these ETFs that we’ve seen over the last couple of years.
But knowing why you bought it and why you like it is important. Revisit your logic, is it still intact? If yes, periods of weakness are to be expected and if anything use this weakness to buy some more at a discount.
Simon
ETF blog
At Just One Lap, we are big fans of passive investment using ETFs. In this weekly blog, we discuss ETFs on the local market and the factors you need to consider when choosing an ETF. If you have wondered how one ETF differs from another, this is where you can find out. We explain which index each ETF tracks, what type of portfolio could benefit from holding each ETF, and how the costs will affect your bottom line.