Author Topic: Swapping from one ETF to another  (Read 358 times)

intotherealworld

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Swapping from one ETF to another
« on: March 24, 2020, 07:35:30 AM »
I currently hold a small cap ETF of the S&P 600 (IJR)

For some time I've been wanting to switch to a world small cap ETF (VISM). I like the philosophy of holding world rather than a single country.

My thinking was that if I were to sell one and buy another now, I wouldn't be subject to capital gains because technically I would be selling at a loss.

Are there strong reasons against selling one ETF to purchase another almost equal ETF in a downturn like this?

(Based in Australia)


terran

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Re: Swapping from one ETF to another
« Reply #1 on: March 24, 2020, 08:00:48 AM »
You might want to add Australia to the the to the title as the tax implications there will be different. In the use what you're talking about would be consider tax loss harvesting and as long as the replacement ETF is not substantially identical (which it wouldn't be) you could claim the losses against gains or ordinary income (to the extent losses exceed gains up to $3000/year). You'll need to hear from an Australian for how it will work for you.

Other than tax implications, the only downside to switching from one ETF to another that you'd rather hold is that you can't make an instantaneous trade, so you'll have to sell the first ETF an buy the second. Since it's a two step process you might want to take a look at the bid/ask spread for both ETFs, make sure you have enough time left in the trading day to do both, and try to avoid especially volatile days in the market.

MustacheAndaHalf

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Re: Swapping from one ETF to another
« Reply #2 on: March 24, 2020, 10:09:07 AM »
It's more of a problem to switch temporarily to something you don't like during a downturn, since if it makes huge gains you have to either stick with it, or trigger gains that wipe out the tax loss.  Switching to something you like better, with at worst no tax impact, is reasonable.