facebookIs trading volume important in buy and hold ETF strategy ? - Seedly

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Is trading volume important in buy and hold ETF strategy ?

I'm considering between IWDA and SWRA (not SWRD as I want an accumulating dividend)

The trading volume is much larger for IWDA (70k vs 6k) and the bid ask is marginally tighter too (0.02 difference)

Is this a big concern in the long term if I were to invest for 30 years or more ? I would think no as there is no way to predict if the trading volume will change in the future

Discussion (3)

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Aidan Neo

01 Sep 2020

Financial Services Consultant at Manulife Financial Advisers

The bid-ask is marginal now is because the stock market is not as volatile as compared during a crisis.

Volatility increases during periods of rapid market decline, usually from a financial crisis. At these times, the bid-ask spread is much wider because market makers want to take advantage of and profit from it. When volatility is low, and uncertainty and risk are at a minimum, the bid-ask spread is narrow.

Trading volume is important upon selling only, especially on a critical period. If you are selling in the mid of crisis and there are no buyers to match your selling price, you might not get out of it in time as well. Even so, the spread might be huge with poor supply and demand if you choose to sell with market price as mentioned earlier on.

Therefore, chances are be prepared to hold forever and have the tolerance to tide through any crisis at any life stages for the best. But no doubt, we can't predict what will happen the next 30 years or more, but just a certain scenario for you to consider.

I personally find AUM being a more important indicator.

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