What Timing Do You Want for ETFs and the Best Strategies

There are three main timing strategies for ETFs: long-term investing, tactical trading, and market timing.

Long-term investing is a buy-and-hold approach, where you hold onto your ETFs for an extended period, typically 5-10 years or more.

This strategy is suitable for those who have a long-term financial goal, such as retirement savings, and can ride out market fluctuations.

Tactical trading involves actively buying and selling ETFs based on market conditions, with the goal of making short-term profits.

You can use technical indicators, such as moving averages and relative strength index, to identify potential buy and sell signals.

Market timing, on the other hand, involves trying to predict market trends and making investment decisions based on that prediction.

However, market timing is a high-risk strategy that requires a deep understanding of market dynamics and a solid risk management plan.

Knowing when to buy an ETF can be a challenging task, but research suggests that buying near the close is smart. This is because the bid-ask spread is narrower at the end of the day, resulting in less profit when the shares are eventually sold.

Buying near the open is actually the worst time to purchase shares, with the average bid-ask spread being 0.022% of the share price for large-cap U.S. equities. This can be a significant difference, saving an investor 0.01% of the share price for each share purchased by trading at the end of the day instead of at the market open.

To maximize savings, it's best to avoid trading near the open and instead place trades later in the day. This can add up to a significant amount, especially for frequent traders.

Timing Strategies can be a challenge, but understanding the right approach can make a big difference. Knowing how to buy ETFs using technical analysis is useful, but it's just one tool among many.

Technical analysis can be a useful tool, but it's not a prediction of what's going to happen. It's more about seeing if the pattern on the chart seems to support the view you've formed of the stock based on its finances and other fundamental factors.

You'll often find that the two seem congruent, but sometimes one contradicts the other, and that's when you know you have to dig deeper. Waiting until the situation clarifies itself can be a good idea.

A random element is present in all stock price changes, even for ETFs, especially in the short term. You can't outguess a random factor, but you can offset it indirectly by using a three-part Successful Investor approach.

Buying an ETF when you're "pretty sure" rather than "certain" can be a good strategy. This means buying sooner, when you're not yet convinced it's a good buy, rather than waiting until you're sure.

By the time you're sure an ETF is a good buy, many other investors may have come to share that opinion. This can mean the stock has used up some of its immediate potential for gain.

When the market is in a bull run, it's best to buy ETFs that track the overall market, such as the S&P 500 ETF.

Historically, the S&P 500 has outperformed other asset classes during bull markets, making it a solid choice for long-term investors.

A bull run is characterized by a sustained period of price increases, often driven by economic growth and investor confidence.

In a bull market, it's essential to be cautious of over-optimism and avoid buying into hot sectors that may be due for a correction.

ETFs that track the overall market, such as the S&P 500, tend to be less volatile than sector-specific ETFs during a bull run.

During a bear market, it's best to buy ETFs that track the opposite of the overall market, such as inverse ETFs or ETFs that track the value of bonds.

Inverse ETFs can provide a hedge against a falling market, but they're not a substitute for a well-diversified portfolio.

A bear market is characterized by a sustained period of price decreases, often driven by economic downturns and investor fear.

Investing in ETFs can be a great way to diversify your portfolio, but it's essential to time your purchases correctly. Research has shown that buying ETFs during down markets can lead to higher returns in the long run.

Historically, the S&P 500 ETF has outperformed the market when bought during downturns, with a 10% increase in value on average within a year of purchase.

Investing in ETFs during periods of market volatility can be a smart move, as it allows you to buy low and potentially sell high.

ETFs offer flexibility with trades executed throughout the trading day and during extended hours trading.

Fractional share trading is available for ETFs and stocks, with a minimum investment of $1 or $5.

Here's a comparison of investment options:

ETFs do not carry sales charges, but some brokerage companies may charge commission to buy and sell.

Mutual Funds are a popular investment option that pools money from many investors to invest in a variety of assets such as stocks, bonds, and other securities.

They offer diversification, which can reduce risk and increase potential returns. This is because the fund manager can invest in a wide range of assets, spreading the risk across different types of investments.

Mutual Funds have a professional fund manager who researches and selects the investments, making it easier for individual investors to get started. No prior knowledge or experience is needed to invest in Mutual Funds.

The minimum investment required to start investing in Mutual Funds can vary, but it's often lower than other investment options, making it more accessible to a wider range of people. In some cases, it can be as low as $100.

Stocks are a popular investment option, but they can be volatile.

The value of stocks can fluctuate rapidly, sometimes losing significant value in a short period of time.

The stock market can be unpredictable, but historically, it has provided higher returns over the long-term compared to other investment options.

In the US, the S&P 500 index has returned an average of 10% per year over the past 100 years.

Investors can buy individual stocks or invest in a diversified portfolio through index funds or ETFs.

Research has shown that a well-diversified portfolio can reduce risk and increase returns over the long-term.

Conventional wisdom says to buy shares when trading volume is highest, but research suggests this is only half right. Buying near the close is smart, but avoiding the market open can save you money.

The average saving is 1 basis point, or 0.01% of the share price, for each share bought and later sold. This may seem like a small amount, but it adds up the more trades you place.

For instance, a $10 saving on 1,000 shares of an ETF at $100 a share is 1% of the per-share price. This is a significant amount that can make a big difference in your investments.

The market open is the worst time for an investor to purchase shares, with the average bid-ask spread for large-cap U.S. equities being 0.022% of the share price. This is even worse on high-volatility days and extreme down days.