ETFs are mostly used to build long-term assets. An exit should therefore be carefully considered. But there are some reasons why selling shares can make sense.
• ETFs are usually used to build long-term assets or achieve savings goals
• Nevertheless, there are several valid reasons for selling ETF shares
• But: Emotional sales should be avoided
Exchange traded funds, or ETFs for short, have developed into a central component in many investor portfolios over the past two decades. They promise broad diversification, low costs and a transparent representation of entire markets or sectors. Many investors pursue a long-term strategy and regularly invest in the selected index funds via savings plans. Sooner or later, however, the question arises: When and for what reasons should you actually sell ETF shares? The context is crucial in answering this question. While in some situations a sale makes strategic sense, in other situations emotional knee-jerk reactions can cost investors a lot of money.
Selling for Rebalancing: When the portfolio becomes out of balance
One of the classic reasons why selling ETF shares makes sense is to carry out a rebalancing in the portfolio. As part of risk management, the weighting of various asset classes in a portfolio is returned to the originally intended proportion, as this had shifted due to different price developments.
For example, if the investment was initially divided into 70 percent stock ETFs and 30 percent bond ETFs, the percentages can shift significantly over time due to different performances of the asset classes – with possibly undesirable effects on the risk-reward ratio reflected in the portfolio. For example, if stock markets are rising for a long time, an ETF based on the MSCI World Index could take up a much larger share of the portfolio than originally planned. In such a case, it makes sense to sell some of the stock ETFs and invest the freed capital in the other asset classes held. The goal is not a short-term profit, but rather a return to the desired risk-return profile, because regular rebalancing helps to keep the risk structure of a portfolio stable.
ETF sales when strategy changes
A change in personal investment strategy can also justify selling an ETF. It can happen that very specialized or thematic ETFs become less attractive after a period of boom because the expected success of the industry or topic does not materialize. If a trend is actually flattening out, does not meet the expectations placed on it when investing and there is no sustainable improvement in sight, it might make sense for investors to get rid of niche ETFs and instead invest the capital in other index funds, for example with a broader diversification.
ETF sales for tax optimization
In some cases, the tax situation may also suggest selling ETF shares. Investors consciously realize profits or losses in order to optimize their tax burden.
If investors still have some of their tax allowance available before the end of the year, they can sell well-performing ETFs to the appropriate extent and buy them back immediately afterwards at approximately the same price. The capital gains realized through the sale remain tax-free as long as they are within the tax-free amount still available. In addition, the direct repurchase of the shares results in a higher entry price, which means that the profit calculation starts again and ultimately leads to a lower tax burden.
Realizing losses from an ETF investment can also have advantageous tax effects. If losses from ETFs are realized, they can be offset against capital gains from other funds or ETF investments – but not against gains from individual stocks – in order to reduce the tax burden. This strategy is also known as “tax-loss harvesting”.
Liquidity and achieved goals: When the invested money is needed
The most obvious reason for selling an ETF is simply the need for liquidity. Investments are not an end in themselves. They are used to finance real expenses later on – such as buying a property, children’s education or retirement. Sometimes the investment focuses on a more short-term goal – such as a vacation or a new car – with a specific amount required for this. The general rule here is: Once the goal of the investment has been achieved, the ETF shares are sold and the money is used for the intended purpose. However, with a view to taxes, fees and living circumstances, it should be checked whether a gradual or complete sale of the shares makes more sense.
ETF shares are often sold gradually during the withdrawal phase of an asset, for example after retirement, as part of a systematic withdrawal strategy in order to generate regular income. Many depository providers offer withdrawal plans that are like a reverse Savings plan work and convert saved assets into regular payouts. Such structured sales not only ensure a regular inflow of capital, but also reduce the risk of liquidating large sums at once during unfavorable market phases.
The most common mistakes when selling ETFs: fear, short-term fluctuations and market timing
While strategic sales of ETF shares make sense for the reasons mentioned above, the opposite applies to emotionally motivated decisions. Particularly in the context of market crises, it becomes clear again and again that panic selling is not a good idea, even with ETFs. Examples from the past show several times that a crash on the stock market was followed by a recovery, some of which brought new records, for example in the context of the Corona crisis. Anyone who sold ETF shares here out of fear of further losses not only made a loss but most likely also missed the subsequent rally – and thus suffered significant losses in returns in the long term.
Another reason for unnecessary sales is normal market fluctuations. Even broad stock indices can experience significant price movements up or down within a year. However, short-term volatility is part of all stock market investments. Historical data shows that long-term investors were usually able to ride out such phases. Anyone who buys ETFs should take such fluctuations into account – especially if the investment horizon is several decades.
Trying to “time” the market when selling ETFs is also particularly problematic. Investors try to sell their ETF shares at the supposed high and then get back in later at lower prices. However, studies show that only a few investors succeed in this. Most people either miss the optimal exit time or return to the market too late. Incidentally, this also applies in the opposite sense to ETF purchases.
Conclusion: ETF sales always as part of a strategy – not as a reaction
In summary, selling ETF shares is neither inherently wrong nor automatically right. Instead, what matters is whether it is part of a long-term strategy. Rebalancing, changes in investment strategy, liquidity needs or tax optimization can be legitimate reasons for selling an ETF.
However, it becomes dangerous when decisions are made out of fear, short-term market fluctuations or the attempt to hit the perfect time. In such cases, selling often undermines the very long-term benefit that ETFs are supposed to provide: quiet, low-cost investing over many years.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
