Recently a friend pointed out to me that I could have ETF version of VTSAX (VTI) and not be tied into the end of the day price as I would with VTSAX.
His point was: if my goal is to buy and hold that I could put stop losses on VTI to ensure that I don't need to sit a whole day and watch everybody else cash out while my price goes down. Then regardless of where the market ended buy in the next day. It's market timing but on a small scale.
A simple way to phrase his point is: If the market drops 10% by noon, are there really any times you want to be locked in until market close to sell?
For most investors I think mutual fund pricing at the end of the day instead of all the time is actually a feature, not a bug. Knowing that the price is locked in at end of day NAV likely reduces panic selling during earlier parts of the trading day. It forces people to just sit still and see how the rest of the day unfolds, likely reducing trading and attempts to time the market, which has been proven to be a better strategy for the vast majority of investors.
The stop loss strategy doesn’t really make sense to me for long term investments.
First, it assumes that the market will keep dropping to allow you to repurchase at a lower cost. But it could just as easily reverse and climb above the price where you were stopped out. It only works if you can successfully predict when the market is going to keep dropping. I know I can’t do that.
Second, in a taxable account you may trigger considerable capital gains taxes when you sell, and a strategy where you look to quickly repurchase after being stopped out would be subject to wash sale rules so you can’t take a deduction on losses. Either you forfeit the tax deduction or you stay on the sidelines for 30 days.
Stop loss orders are good for enforcing discipline on traders. If your stop is triggered then your trade thesis was likely wrong. Better to automate getting out than let ego and the need to be proven right keep you in a bad trade. But a stop loss for investments that you plan to hold