How to trade ETFs in volatile markets.

Now I’m certainly not suggesting that you should turn into a ‘trader’. Those are the folks who are making the markets convulse like they’re in an electric chair. Apologies for the gruesome analogy. But it is ugly. Because you are investing on a regular schedule, you need to place your trades. You don’t want to get caught in the whipsaw battle between these traders and short term speculators. Here’s how you trade ETFs in volatile markets.

And as I stated yesterday if you have a sensible investment plan you should be placing trades in these volatile times. I penned that the current market conditions might present incredible opportunity.

Is this an incredible investment opportunity, or what?

I’m going with Yes. That’s what market history says.

So, if you have a sensible plan in the accumulation stage you will be adding monies on a regular schedule. You are investing within your risk tolerance level, and you have the necessary time horizon.

You might also be rebalancing your portfolio. Over the last few months and year, stocks have been crushed, bonds are holding up. Even by way of regular rebalancing you can go buy those stocks as they go ‘on sale’.

Here’s the recent 3 month performance. That’s the core Canadian bond universe in black and the TSX Composite in blue. Bonds are up slightly, Canadian stocks fell by some 25%. The US Treasuries that I hold are up ‘way more’.

In order to rebalance you would need to sell, and you would need to buy. Of course, it’s also possible that you can take care of some of the rebalancing needs by way of adding new monies. As always ensure that you understand any tax consequences of rebalancing in taxable accounts.

Wash your hands and use limit orders.

Someone had posted this witty bit on Twitter. I can’t remember who that was, so I’ll just take credit for it. Yes in these uncertain times, make sure you protect yourself by washing your hands and placing limit orders. What a limit order means is that you will set the price at which you will buy and sell. You will know what you’re getting, if your trade is executed.

BMO recently circulated a PDF with some useful tips.

I had gone over some of those tips in this post, how to place buy and sell orders for your ETFs. In that post I show some screens so that you can view ‘what it looks like’. It’s not a difficult process but I know it can be scary for investors who have not placed orders, or are relatively new at the self-directed game. If you have any questions or concerns feel free to use that contact form.

I’ve recently added some new monies to my wife’s accounts. I’ve also executed some rebalancing in my personal RRSP account. I simply placed limit orders at the ask. All trades were filled within milliseconds. That said prices can move quickly, the whole range of bid and ask can move quickly. If you stare too long it might slip away from you.

ETF liquidity and the making of ETFs.

ETFs trade like stocks, but they are not priced like stocks.

Thanks to our friends at BMO ETFs.

What’s up and down with bonds?

Many readers had questions about the recent bond ‘mispricing’. I’ll be back soon with a dedicated post on that. There can be concerns that the bond market is not liquid enough to handle all of the ETF trades in volatile times. There were issues this week. It appears to be more of a problem of the bond market freezing up. Price discovery was made more than difficult. Bond ETFs continued to trade.

Again, I’ll be back with a deeper dive.

If you have any questions on how to trade ETFs in volatile markets please use that contact form.

Weekend Reads and Podcasts.

On findependencehub Tyler Mordy of Forstrong Global Asset Management asks is this 2008 all over again? Tyler reminds us that this is no time to panic.

Chrissy at eatsleepbreathefi suggests that ‘the coronavirus is a bigger deal than I thought. There are some very useful and relevant links in that post.

In Mark Seed’s dividend update he reminds us that the growing income stream helps him stay invested. You should follow Mark’s journey to early retirement and how he navigates these troubled waters.

On that dividend front Bob at Tawcan offers his dividend update. Markets go one way, divs go the other way.

Here’s 10 weekend reads courtesy of Barry Ritholtz at The Big Picture.

Let’s head across the pond for weekend reads at The Evidence Based Investor.

Fritz at Retirement Manifesto writes on the benefits of a Bear Market. I like that Fritz has an equity glide strategy to move monies into stocks as the markets fall.

Don’t fall into The Behaviour Gap.

As per Carl Richards of The Behaviour Gap, we don’t want to do this.

Stick to your plan, or if you can, be greedy when others are fearful as per a certain and very famous investor.

And this has to be said. Never mind how to trade ETFs in a volatile markets, share this post due to this. There is no toilet paper shortage. There is a toilet paper hoarding problem. Holy crap folks. Cut it out, save me some.

Be prepared. A recession is likely. And this might take a while.

The Joe Rogan Experience podcast reminds us that COVID-19 is perhaps just getting warmed up.

I’ve been using worldometer to keep track of COVID-19, and I’ll read the work of epidemiologists over politicians and journalists.

Be safe. Be aware and prepared. On the investment front, execute your simple plan.

Have a great weekend. Don’t forget to follow this blog and share this post.

Canada’s top-ranked discount brokerage.

Cut The Crap Investing readers can sign up with Questrade (Canada’s top-ranked discount brokerage) through this partnership link. You can buy ETFs for free, including the wonderful one ticket options.  

Check out the Canadian Robo Advisors and the ETF Model Portfolios.

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Dale