Investing in ETF’s with a mixed short term and long term strategy
You will find both short term and long term transactions on this website. This makes it possible to mix a short term and long term strategy. The big advantage of this mixed strategy is that you will not have to make this decision whether to pursue a long term or short term investment at the moment of buying an ETF.
The reason for that is that I buy simultaneously for the short and long run. At the moment I decide to make a short term sale an investor that follows me may decide whether to follow my trade and take the short term profit or to stay in this trade for a longer term.
This gives investors a myriad of combinations with short term and long term investments. Here I will give some examples. For a number of examples it is necessary not to give a limit selling order for a short term strategy but to make the sale through a market order just after I have sold the short term ETF’s.
A mix of short and long term investing
This is a way of investing that is very popular. A part of the budget goes to long term investments and another part is aimed at making a relatively high return on the short term.
For the long term one can choose for instance some well-known index ETF’s from group A. Country and market sector ETF’s are both suited as short term and long term investments as the returns are on average higher than index ETF’s.
More speculative are basic materials and the basic materials market sectors. Groups J and K therefore may be used to obtain a relatively high return on the short term. In this way a mix of nice returns on the long term and more risky high returns on the short term is created.
You can also balance your trades with precious metals and gold or silver mines from group J and K whenever markets are in for a correction as these ETF’s will go up if that occurs.
Reaching your short term goals fast
It will often happen that you will reach a return of 6% to 7% within 2 weeks. The question then comes up whether to sell and take that profit or stay in the trade for a longer term. The answer to that question is more an arithmetical problem than a thing of gut feeling.
Suppose the expected annual return is fixed on 55%. A 6% return in 2 weeks is a return of 3% a week. So it will take another 50 weeks to harvest the remaining 49% which is less than 1% a week. The real question is whether there are more ways to make a return of 1% a week.
That is why I am following so many ETF’s at the same time. Because I can make a new investment in a matter of days. Suppose again I will sell the first investment with a 6% return.
If I will buy another ETF with a 6% return chance on the short term and a long term return of 55% the final return will be higher (more than 1% a day + the 6% return of the first investment).
Short and long term investing within the same ETF
This is a strategy which is used by many professional players. Suppose you want to invest a large sum in an index ETF. If you will spend your whole budget in 1 day it will be a real disappointment if another downturn follows upon your investment.
It will be smarter to get in gradually, just after a drop in prices of course. But you can also make an extra return when you exit your trades partly for a short term return. You will not exit your whole investment but just a part of it.
You can get in with that budget whenever a price dip occurs. By doing this you can optimize your investment strategy by using temporary tops and bottoms.
Are there new opportunities?
The decision whether to go for a short term return or remain in a particular ETF also depends on the reality of that moment, are there better alternatives available for reinvesting your money? That truly depends on market conditions.
If there are not many good alternatives than remaining will be an option. On the other hand if you can choose among many fine alternatives than an early exit would be a wise decision.
Not selling the counter balance
Suppose you have an index ETF for the long term and a goldmine ETF for the short term. Let’s say the market index is going through a strong correction. The price of gold will skyrocket as a consequence.
The gold mine ETF will reach its short term goal right away. Will you sell the goldmine ETF? No, not in this particular case. Because this goldmine ETF is compensating for the loss on the index.
In such a situation it is better to wait and see when the index is bottoming out. At that bottom you can sell the goldmine ETF with a huge profit. You can also choose to keep holding on to the goldmine ETF. As long as the index will not go up strongly the goldmine ETF will hold its high price.
Wait and see
Suppose you have a nice combination of long term and short term index ETF’s. You see that I am selling some of them for a short term return. Then you won’t have to follow me of course. You can wait with selling if you believe prices can go higher.
Of course that does not mean that you will have to remain in the trade for a really long term. As I have indicated a long term return goal you may decide to sell when for instance half of the long term return is safe. Then you will have 3 graduations in your portfolio, for 1 month, 6 months and 1 year.
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