Key Data and Analysis
ETF fee in dollars during crash cycle: 0.75% vs 0.03% ER
| Market Scenario | Portfolio Value | 0.75% Annual Fee | 0.03% Annual Fee |
|---|---|---|---|
| Before crash | $500,000 | $3,750 | $150 |
| During crash (-30%) | $350,000 | $2,625 | $105 |
| Recovery (+20%) | $420,000 | $3,150 | $126 |
| Full recovery | $500,000 | $3,750 | $150 |
⚠️Do Not Sell Into Wide Spreads
During market crashes, bid-ask spreads on all but the most liquid ETFs widen significantly. Selling a bond ETF at 3% discount to NAV costs as much as 3+ years of its expense ratio in a single transaction. If you must rebalance during a crash, buy the underweighted asset rather than selling.
Scenarios and Comparison
Spread widening by crash type and impact on sellers
| Crash | Depth | Bond ETF Spread Widening | Cost to Sellers |
|---|---|---|---|
| 2008-09 Financial Crisis | -57% | Moderate widening | $200-$2,000 per trade |
| March 2020 COVID | -34% | Extreme (1-3%+ for bond ETFs) | Bond ETF sellers paid 1-3% discount to NAV |
| 2022 Bear Market | -25% | Moderate | Negligible for index ETF investors |
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