Perhaps a stupid questions but anyway…
I made a mistake a while ago and bought 2 US ETFs , a) s&p 500 and b) US small companies one
Now i realise that it would have been easier and cheaper to just have bought one fund like VTI.
By selling these 2 and buying VTI, i would be crystalising some losses. But if I buy the VTI do i end up in the same current position (because i buy at the current lower price?)
I know the 2 ETFs are not exactly matched by the portolio in VTI, but my worry is the losses. I dont want to sell, but is this trade more like a swap?
Sorry if its a nonsense question.
In short, yes like a swap. it would also depend how much money you have in each ETF. Because in VTI small cap is maybe 10%. Depeding on the index the small cap limit is different
Sounds like sunken cost fallacy, the current value shouldn’t impact what you invest in.
Thanks guys for the feedback and help.
That is not the sunk cost fallacy in my opinion. The current price should by all means impact what you buy. We here are only supposed to not care about the price because the investment is longterm and normally people are bad at market timing.
But if you change up your portfolio every some months, because you found something yet better for longterm investment, then this doesn’t apply, since we are not doing anything longterm here.
For example, if you buy a lot of small caps at the top, then they fall faster then the rest, then you start thinking about yet better ways to invest, and finally you sell them low to buy more big caps high(er), this will lose you money.
For this proposed reallocation, one could look at the portfolio performace graph and compare it to VTI (both times adding back the TER). This should give one a rough guess if the two different compositions have any real impact. If not, then it is probably just swapping one solution for a cheaper one. As it is not instantaneous, it can result in a gain or loss. Though the expectation value should be about zero minus friction from selling and buying. But if the graphs do look different, then market timing is back in business.
No, the current price of what you currently have should not matter for what you decide to hold. (If there was capital gain, reasoning might be different but we’re in Switzerland).
If we’re at time T and your goal is to have X CHF invested. If the X CHF is currently held as EUR, or some ETF, or a single stock, shouldn’t change the final investment decision.
Something similar happens regularly for people who get RSU, they receive let’s say 10 shares from their employer. For many people it’s common to somehow treat them specially and not make the same decision as if they had received cash instead of shares (given 1k CHF given by your employer, would you go to the stock market and buy shares?).
But anyway here the original poster clearly said the issue was because he was afraid of realizing the losses:
Which clearly seems like sunken cost issue.
Thanks guys. My main worry as that I am doing anything bad investment wise.
Im definitely not going to sell in general. Happy to ride this out. But would like to save some costs, so selling 2 and buying one seems to make sense.