Sell limit on ETF

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seamles
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Sell limit on ETF

Post by seamles »

I just bought some ETF's but I'm afraid I'm catching the high again from the 08 crash.

I wanted to see if anyone uses stop limits on ETF, where if I bought at 60 it will sell at 50. I've never used it before and don't know if it's a good idea.

I unfortunately bought a lot of index funds at the end of 07 ish and that didn't work too well.

I just saw an investmentu article that says the stop limit is a great idea.

I trust the Bogleheads forum for the best options out there.
DSInvestor
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Post by DSInvestor »

If you're nervous about losing money in your stock holdings, I'd suggest reducing your stock holdings and boosting bond holdings. Pick an asset allocation that you'd be comfortable holding through all market conditions. Rebalance to maintain asset allocation and control your risk.

See pkcrafter's Investing Essentials
http://investingroadmap.wordpress.com/

Here's a growth chart of three funds:
VTSMX - Vanguard Total Stock Market
VGTSX - Vanguard Total International Stock Market Index
VBMFX - Vanguard Total Bond Market Index
Image

There are times when bonds will outperform stocks (2002-2003 and 2008-2009). At these times, you'd need to add stocks to maintain AA. The asset allocation plan would tell you to add stocks while they're low.

There are times when stocks outperform bonds (2003-2007 and 2009-2011). At these times, you'd need to add bonds to maintain AA. Your asset allocation plan would tell you that your stocks are high, that you should add bonds instead.
FireProof
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Post by FireProof »

Of course it's a bad idea, but more than that, it makes no sense. If it has just dropped, then the valuation has just become BETTER than it was when you were happily holding it.

You should be rebalancing more INTO the ETF.
xerty24
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Post by xerty24 »

FireProof wrote:Of course it's a bad idea, but more than that, it makes no sense. If it has just dropped, then the valuation has just become BETTER than it was when you were happily holding it.

You should be rebalancing more INTO the ETF.
So as Enron dropped, it became a better value? Sometimes things fall for a reason.
jazzykat
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Post by jazzykat »

xerty24 wrote:
FireProof wrote:Of course it's a bad idea, but more than that, it makes no sense. If it has just dropped, then the valuation has just become BETTER than it was when you were happily holding it.

You should be rebalancing more INTO the ETF.
So as Enron dropped, it became a better value? Sometimes things fall for a reason.
Assuming he bought VTI, VXUS, or some other broad index and not Houdini's magically disappearing ETF, then DSInvestor's recommendation is a good one.
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seamles
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Post by seamles »

Will anything happen to the bonds with all the debt ceiling debate?
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SSSS
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Post by SSSS »

xerty24 wrote:
FireProof wrote:Of course it's a bad idea, but more than that, it makes no sense. If it has just dropped, then the valuation has just become BETTER than it was when you were happily holding it.

You should be rebalancing more INTO the ETF.
So as Enron dropped, it became a better value? Sometimes things fall for a reason.
Yes, I'd say Enron was a much better value at ~$0 than it was previously. Do you not agree?
ScottW
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Post by ScottW »

xerty24 wrote:So as Enron dropped, it became a better value? Sometimes things fall for a reason.
I see your point, but that logic doesn't hold up with diversified mutual funds. If all holdings in a fund drop for a good reason and should be sold, it wasn't an investment you should have purchased in the first place (the Nasdaq 100 comes to mind). The time to re-evaluate whether your investments make sense isn't during a freefall.
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Majormajor78
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Post by Majormajor78 »

I was under the impression that many people got hammered in the flash crash specifically because they used stop limit orders. The markets went haywire for a few minutes and everybody's stop limits got tripped and they sold at huge losses where if they had not had them, their positions had recovered by the end of the day. I had quite a few ETF's at the time but no stop limit orders placed. Later that night when I heard about this flash crash I could see the severe dips in intra day value for my funds but it didn't hurt me at all.

The greatest benefit to owning broad market based index funds is that they realistically can't go to zero like an individual stock. As long as the time horizon is long enough you can ride through almost any black swan event. If you are not comfortable with the volatility then you definately need to bump up the AAA bond position to bolster your portfolio in troubled times.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."
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ddb
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Post by ddb »

seamles wrote:Will anything happen to the bonds with all the debt ceiling debate?
Maybe.
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB
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hollowcave2
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stops

Post by hollowcave2 »

I just saw an investmentu article that says the stop limit is a great idea.
Stops can be a good idea, but mostly you can get burned by them. And there's no guarantee that it will do what you want it to do.

The most common scenario is getting "whipsawed". The price drops and hits your sell point at which you sell, and then the market quickly recovers.

Your "sell-limit" idea would not necessarily help you in a panic. For example, when the price is 60, you set your sell-limit at 50. A panic happens, and the markets open down. It's possible your price opens at 48 and continues lower. In that case, since you set a limit of 50, you would not sell and you just hold it as it goes lower.

There are some benefits of stops, but IMHO, the pitfalls outweigh the benefits, so I don't use them.

If I were nervous about the markets, I'd just alter my asset allocation.
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grabiner
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Re: Sell limit on ETF

Post by grabiner »

seamles wrote:I just bought some ETF's but I'm afraid I'm catching the high again from the 08 crash.

I wanted to see if anyone uses stop limits on ETF, where if I bought at 60 it will sell at 50. I've never used it before and don't know if it's a good idea.
You should not place any order unless you have a reason that this order matches your investment needs. For example, if you want to hold an asset at the current market price, you should place a buy market order (or, to reduce the risk of a bad fill, a buy limit order at the current asking price). If you don't believe it is a good investment, or if you need to sell it to raise some money, then you should place a sell market order, or a sell limit order at the current bid price. For ETFs, these are the orders most likely to match you rinvestment needs.

So, why would you place a stop order? This says that, if the price falls to 50, you want to sell, regardless of the reason for the price falling to 50, or what happens to any of your other investments. Do you really want to automate this decision today, rather than reconsidering your investments after the market goes down (or up)?
Wiki David Grabiner
leonard
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Post by leonard »

If you feel like you have too much risk - which you evidently do by the nature of this question - then increase your bond percentage until you are comfortable. Simple and more straight forward than using stop limits or options or other supposedly "sophisticated" strategies.

The classic argument on the board against stop losses is the flash crash. Most people would not want the stop loss in place during a flash crash. But, if you had one, it might execute, causing you a big headache in taxes, as well as the effort required to re-buy everything.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
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