Exchange-traded funds (ETFs) continue to attract investors at a record pace. Global ETF assets surpassed $10 trillion in November and have since climbed to $13.74 trillion as of June, according to data from Cerulli Associates and Hightower Advisors.
With that surge in popularity, experts emphasize the importance of building a clear investment strategy for ETFs — particularly when markets become unpredictable.
Why ETFs Appeal to Investors
Like mutual funds, ETFs offer diversified exposure to a basket of securities, often tracking major indexes. But they come with added advantages: lower costs, tax efficiency, and greater trading flexibility.
“The best thing about the ETF is that it’s not like old school mutual funds,” said Gloria Garcia Cisneros, CFP at LourdMurray. Unlike mutual funds, which trade only once daily after markets close, ETFs can be bought and sold throughout the day, including during extended trading hours.
This flexibility makes ETFs a powerful tool, but without a disciplined approach, investors risk making emotional decisions. “Having a plan gives you something to stick to when things inevitably get a little crazy,” said Lee Baker, CFP and president of Claris Financial Advisors.
Two Key Principles for ETF Investors
1. Trade During Calm Hours
Market volatility tends to spike near the opening (9:30 a.m. ET) and closing (4 p.m. ET) bells. “The middle of the day, between 10 a.m. and 2 p.m., is less frothy,” Baker explained.
Still, experts caution against trying to time the market. A Charles Schwab study comparing different strategies found that even a “perfect market timer” performed only slightly better than an investor who consistently invested at the start of each year. For most investors, dollar-cost averaging — regularly investing a fixed amount over time — remains a more reliable approach.
2. Use Limit Orders for Control — But Don’t Wait Forever
Another strategy is using limit orders, which allow investors to set a specific price for buying or selling an ETF. “It’s like saying, ‘I only want to buy this ETF if it drops to $50,’” Garcia Cisneros explained. This can help manage risk during volatile periods.
However, waiting for the perfect price can backfire if markets never reach the desired level. “It’s like waiting for a bag to go on sale,” Garcia Cisneros said. “You might be waiting forever — and in the meantime, your money isn’t working for you.”
Bottom Line
ETFs are powerful tools for building diversified, cost-effective portfolios. But like any investment, they work best with a strategy in place. Avoid market timing, use trading tools wisely, and stick to a plan — especially when volatility hits.
