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ETFs in Turbulent Markets: What They Do and Don't Do

An ETF spreads your money across many shares or bonds, but it does not shield you from falling markets. Learn what an ETF does and what to watch for.

Daytraders.nl redactie · February 3, 2026 · bijgewerkt October 10, 2026 · 5 min leestijd

In short

  • An ETF is a fund that trades on an exchange and usually tracks an index.
  • An ETF spreads your money across many companies, so your result depends less on any single share.
  • An ETF follows its market. If the whole market falls, your ETF falls too.
  • Equity, bond and gold ETFs behave differently. No type is free of risk.
  • Costs, the spread and tracking difference (how far the ETF drifts from its index) all affect what you keep.

What is an ETF?

ETF stands for Exchange Traded Fund: an investment fund you buy on an exchange, just like a share. Most ETFs track an index, such as the AEX or the S&P 500. The ETF then holds (almost) all the companies in that index. One purchase gives you a stake in dozens or hundreds of companies. You can read more on the ETFs page and in the glossary entry.

What does diversification do?

Diversification means spreading your money across several investments. If one company does badly, it affects only a small part of your ETF. That lowers the risk of a single bad pick. Read more in the tutorial on portfolio basics and diversification.

What does diversification not do?

Spreading money within one index does not remove market risk. Market risk is the risk that the whole market falls. Say you hold an ETF on a broad equity index and all stock markets fall at the same time. Your ETF falls with them, because nearly every company in the index loses value. In turbulent times, shares also tend to move in the same direction, so diversification works less well than you might hope.

This example is hypothetical: an index falls 30% over six months. An ETF that tracks that index falls by roughly the same amount. An ETF is not a safety net. It is a way to carry market risk broadly.

Different types of ETF, different behaviour

Not every ETF reacts the same way to turbulence:

  • Equity ETFs move with the stock market. An ETF focused on one sector, such as technology, often swings more than a global ETF.
  • Bond ETFs invest in loans to governments or companies. They often move less than shares, but they can still fall, for example when interest rates rise or a borrower fails to repay.
  • Gold ETFs follow the gold price. Gold is sometimes seen as stable, but its price can also fall sharply, and gold pays no interest or dividend.
  • Dividend ETFs invest in companies that pay dividends. Dividends are not certain: companies can cut or cancel them. The ETF’s price can fall too.

So always check what an ETF actually holds. The name alone does not always tell you enough.

What happens during sharp turbulence?

Three practical points:

  1. Liquidity. Liquidity is how easily you can buy or sell without moving the price much (see liquidity). Large ETFs on well-known indices usually trade easily. Small ETFs, or ETFs on thinly traded markets, may be harder to trade.
  2. Spread. The spread is the gap between the buying and selling price. In turbulent times it often widens, so getting in or out costs more. See the tutorial on bid-ask spreads.
  3. Price versus underlying value. An ETF has an underlying value: the worth of everything it holds. The exchange price can temporarily differ from it, especially when the underlying market is closed or moving fast.

Volatility, the degree to which prices swing, is also higher in turbulent times. That applies to ETFs too.

Costs and tracking

An ETF costs money even if you do nothing:

  • Ongoing charges (TER). This is a yearly percentage the fund deducts from its assets. You will not see it on your account: it is reflected in the price.
  • Transaction costs and spread. Your broker may charge for buying and selling. Compare options on the broker comparison.
  • Tracking. Tracking is how closely the ETF follows its index. There is usually a small gap, partly because of costs. You can find it in the ETF’s documents.

Before you buy, read the ETF’s key information document (KID). It shows the costs, the risk indicator and the target market.

How can you handle turbulence?

No method rules out losses. A few habits can help you invest more deliberately:

  • Decide in advance how much loss you can bear. Consider your time horizon: how long can you do without this money?
  • Match your risk profile. See risk management.
  • Invest a fixed amount at regular intervals. This is called phased investing. It does not prevent losses, but you do not have to guess the right moment.
  • Check now and then whether your mix still fits. This is called rebalancing. It can bring costs.

Supervision says nothing about returns

ETFs sold to retail investors in the EU must meet rules and come with a KID. Supervision aims to give clear information. It does not protect you from losses.

Conclusion

An ETF is a practical, broad and often low-cost tool for investing. But it remains an investment with risk. It falls when its market falls, it has costs, and it can be more expensive to trade in turbulent times.

Investing involves risk and you can lose all or part of your money. This article is general education, not investment advice.