# ETFs - when to 'cut your losses' and reinvest?



## LavishPrince (2 June 2021)

Ok, so this is not really specific to ETFs, nor is it necessarily about 'losses'.

My example, and my question, is really about how we make decisions on whether its likely more profitable to hold onto a stock that might be trading at less than its value or according to its long-term trajectory, so as to buy into something that is performing better.

For me, I have around $20k in the Vanguard Diversified Growth ETF (VDGR) and, ideally, I'd like to sell these and divert into something with less exposure to bond markets and lower management fees.

The issues is that the ETF hasn't fully recovered from the crash in 2020, and seems to be recovering pretty strongly. As such, I'm reluctant to sell now, if I can expect a certain % growth from that ETF within the next year (for example), that will likely outstrip the growth in whatever I invest in elsewhere. 

The mitigating factor I guess is that it is really an index fund, so if any other ETF tracking similar markets should grow proportionately.

Considering this, are there any other factors you guys are aware of that should be influencing my decision to 'hold em or fold em'? Tax, brokerage, div payouts ? What in general are the techniques you use to decide when to cash out of something that is no longer meeting your expectations ?


----------



## qldfrog (2 June 2021)

obviously, tax is a big one, if you make a loss and can offset it now against CG, that is good.
If on the other end, it will just be a tax offset credit for the future, that becomes less interesting


----------



## Dona Ferentes (2 June 2021)

What are you trying to achieve? What is your tolerance to risk? And biggest Q; are bonds a suitable place to be invested in, in 2021. Equities, too, for that matter.

That sort of ETF is really just a managed fund, but managed by an algorithm where the mandate was for diversification based on historical returns. Does past performance mean future returns are similar? (Answer is no).

If it isn't meeting your expectations, then the line in the sand is today's price. That's what markets are about.


----------



## LavishPrince (2 June 2021)

Thanks both. That's really helpful.

Dona, to your questions - quite a high tolerance. The outlook is really the next 20-30 years, so I just want something that's going to provide steady growth/returns over that period. I'm interested in moving away from the diversified ETFs as I don't really see the benefit of exposure to bond markets (even in a potential future environment of higher inflation/interest rates), or the hedging and other elements of those diversified funds. 

I guess my thinking is to achieve around 8% annual return on my investment over a long window, with relatively minimal effort, until I've got the experience/knowledge to play a more active role in my investments. I'd like to ideally do that through putting together a portfolio of ETFs that has some exposure to different markets, and is diversified that way, rather than paying the high management costs and inefficient diversification/hedging mechanisms involved in those Vanguard diversifieds.

Thanks again.


----------



## over9k (2 June 2021)

Ok lavishprince, you sound like more of a finance guy than an economics guy, what's your background? 

There's a lot of reasons why, but long term, you just dump the money into an s&p 500 tracking etf and walk away. Don't even look at it for 30 years.


----------



## Dona Ferentes (2 June 2021)

or old school LICs (my preference)


----------



## aus_trader (2 June 2021)

Bonds have had a good run with record low interest rates. See below:




However, bond prices may head lower if there is an environment of rising interest rates. With bonds there is a negative correlation to yields. Don't know when it'll happen but that's more likely to happen than interest rates continuing in the current trend pushing into -ve interest rates. Inflation could be a trigger perhaps...


----------



## LavishPrince (2 June 2021)

Actually that negative yield makes a lot of sense...I was under the impression bonds had been performing poorly over last ten years or so, and was correlating that to low interest rates.

Dona - I'm also interested in LICs, particularly given my understanding is they pay pretty good dividends, which I can use as part of a DRP over a long period which, unlike ETFs, doesnt accrue CGT?

I guess I just don't know where to start with the LICS, how to assess their relative prospects, whereas with ETFs its a bit more cut and dry. Any advice welcome!

Also, I'm not even close to a finance nor an economics guy, and only have a cursory understanding of each. I understand the concepts, just have little experiernce putting into practice. Cheers.


----------



## over9k (2 June 2021)

Alright well prince I've been trading since the GFC and am actually in the middle of doing my financial advisor's qualification right now. 

You're talking long term yes? 

Long term, all you need to do is bet on America, and the way to do that is to buy IHVV or if you want to increase your risk to about 2x the movement, GGUS. That's seriously it. You just buy that, and walk away. The only time you revisit it is when you have some more cash to buy more of it.


----------



## Joe Blow (2 June 2021)

Just wanted to jump in here quickly to remind everyone not to give others specific financial product advice. If you would take certain steps, or invest a certain way, then frame your response as "I would...". Please don't advise others how to invest their capital as none of us are licensed financial advisers and nobody should be asking for or offering financial advice to others that is specific to their particular circumstances.

When in doubt, always consult a licensed financial financial adviser.

Thanks.


----------

