Every time the share market falls, you hear the same headline: “Billions wiped off the ASX.” Your shares are down, your ETFs are down and your super might be down too. So where did that money actually go? Did someone else get it?
The short answer is no. Here’s what really happens, why “you haven’t lost anything until you sell” can be a dangerous way to think, and how I use a core and satellite structure to decide what to do with ETFs when markets fall. Each button jumps the video to that part.
When the market falls, the money mostly isn’t transferred to anyone. Share prices are re-set by the latest trades, and that new price is applied to every share, so the market’s total value drops. The loss in value is real, even if you don’t sell, but it isn’t billions of dollars of cash landing in someone else’s account. ETFs work the same way: their unit price simply follows the shares they hold.
1. Start with property
Imagine a street of 10 houses worth $1 million each: $10 million in total. The market weakens and they’re revalued at $800,000 each. The street is now worth $8 million. Where did the $2 million go?
Nowhere. The houses are still there and nobody collected $2 million from the owners. What changed was what buyers are willing to pay. The $10 million was a valuation, not money in a bank account. The share market works the same way; prices just change every few seconds.
2. How billions get wiped off the ASX
Say a company has 1 million shares trading at $10. Its market capitalisation is $10 million. Investors get less optimistic and the price falls to $7. Now it’s worth $7 million: $3 million “wiped off”.
New prices are set when buyers’ bids meet sellers’ offers. In a sell-off, buyers lower their bids and sellers accept less. Every trade still has a buyer and a seller; they’re just agreeing on a lower price.
What this means for your ETF
An ETF works the same way, one layer up. Its unit price tracks the value of all the shares it holds (its net asset value). If the ASX 200 falls 10%, an ASX 200 ETF like or falls about 10% too. Nobody took money out of the fund; the shares inside it were re-priced. When you sell ETF units, you usually sell to another investor or a market maker, not back to the fund manager.
3. What happened to the money you paid?
If you bought 1,000 shares at $10, your $10,000 went to the investor who sold them to you. It isn’t stored inside the shares waiting for you. (Only in a capital raising, when new shares are issued, does the money go to the company.) If the price falls to $7, your shares are worth $7,000. The missing $3,000 didn’t go to the seller or anyone else; your shares were simply revalued.
4. Have you lost anything if you don’t sell?
“You haven’t lost anything until you sell” isn’t quite true. You just haven’t realised the loss.
Unrealised loss of $3,000. The price could recover, stay low for years or fall further.
Realised loss of $3,000. Either way, your wealth is lower today.
And recoveries can take a long time:
The broad market has historically recovered, but individual companies can fail completely. That’s the big difference between owning one company and owning a broad ETF: diversification reduces the damage from any one business failing. It doesn’t remove market risk, though. A broad ETF still falls in a crash, and if you need the money for a home deposit or retirement, a lower balance changes what you can afford.
5. How different ETFs behave when markets fall
“My ETFs are down” can mean very different things depending on what they hold. In a share market sell-off, different types of ETF tend to play different roles:
Fall roughly in line with the ASX. Spread across 200–300 companies, so no single failure sinks you.
The Australian dollar often falls in a global sell-off, which can soften the hit in AUD terms. Often, not always.
Currency is largely removed, so you get closer to the full fall in overseas markets, and the full recovery.
The option premium cushions a fall a little, but you still own the shares, so it still drops.
High-quality bonds have often held up when shares crashed. Not in 2022, when rising rates hit both.
Gold has often been a diversifier, though it’s volatile. Cash ETFs barely move and can fund spending without selling shares.
That’s why a portfolio of only Australian share ETFs, or only one theme, feels a crash much harder than one that mixes shares, bonds, cash and other assets. More on currency in hedged vs unhedged ETFs.
6. Why do prices fall in the first place?
Think about buying a café. If rent rises, profits fall and a competitor opens next door, you’d pay less for it, even though the café still exists. Share investors do the same: they look at future earnings, financial strength and risks. Higher interest rates make shares less attractive compared with safer investments. And emotion plays a part too: in COVID, real concerns about profits were amplified by panic.
That’s why a falling price isn’t automatically a bargain. A $10 share falling to $7 is cheaper, but has the market overreacted, or is the business genuinely worth less? “It used to be higher” doesn’t answer that.
7. What should you do when markets fall?
Some investors panic and sell everything. Others never sell because they’ve been told holding is always right. Neither starts with why you bought the investment.
- When do you need the money? A home deposit in six months is very different from retirement savings you won’t touch for 20 years.
- Do you have accessible cash? It lets you cover expenses without being forced to sell in a downturn.
- What is each investment meant to do? Own a broad range of businesses for decades, or take advantage of a sector while conditions are favourable?
8. The core and satellite approach
Your core is the foundation: broad, diversified ETFs chosen for your long-term goals, such as Australian and global share ETFs or an all-in-one diversified ETF, plus bonds if they suit you. Its job is to make sure your future doesn’t depend on one company or sector. Satellites are smaller positions around it for extra exposure to a sector, theme or asset, such as technology, healthcare or resources ETFs. Check what they hold: a tech satellite may double up on companies already in your global core.
More on this in core and satellite investing and how many ETFs should you own?
9. How this works when markets weaken
Say the ASX sells off and both your Australian shares ETF and a technology satellite fall. Do you sell both? In my approach, the two get different questions:
A moving average smooths out past prices to make a trend easier to see. One bad day doesn’t mean a crash is coming, and these signals can be late or misleading. They’re tools for reviewing a tactical position, not a way to predict the top. If a satellite meets my rules, I may trim or exit, and the proceeds build up in cash while the core stays invested. Notice that this cash comes from actual sales to buyers, not from the “billions” that disappeared from the market’s valuation.
There are trade-offs. You might sell and watch the ETF rebound. Trading has costs and can trigger tax. You need a process for when to buy back in, because holding cash for too long can mean missing gains while inflation erodes it. And the core can still fall a long way. The structure doesn’t eliminate losses or guarantee better returns; it gives every holding a clear role, a sensible size and a plan before fear takes over.
Read more: when to buy an ETF and the base and trend method.
10. Buying and selling ETFs in a falling market
If you do trade when markets are volatile, a few ETF-specific habits help:
- Use limit orders, not market orders. In fast markets the bid-ask spread can widen, and a market order can fill at a poor price.
- Avoid the first 15 minutes and the close. The ASX opens in stages, so ETF prices are more reliable once all the underlying shares are trading.
- Watch for global ETFs on big overnight moves. When overseas markets are closed, market makers have to estimate fair value, so spreads can be wider.
- Remember the market maker. When you sell, a market maker is usually on the other side, quoting near the ETF’s value. That’s why ETFs keep trading in a sell-off. David Tuckwell explains how in what really happens inside an ETF.
Rebalancing and regular investing
Falls are also when two simple ETF habits do their work:
- Rebalancing: all-in-one ETFs like automatically rebalance back to their targets, which means buying more shares after they’ve fallen. If you hold separate ETFs, you can do the same by topping up whatever has fallen below its target.
- Regular investing: adding a set amount to your core ETFs each month (dollar-cost averaging) buys more units when prices are lower, without needing to pick the bottom.
And if you do sell an ETF at a loss, that capital loss can generally be used to offset capital gains. Check with your accountant before you act.
Get a free portfolio review →
Watch the full video on YouTube →
General information only. It doesn’t consider your objectives, financial situation or needs. ETFs named are examples, not recommendations. Past performance is not a reliable indicator of future performance.
Frequently asked questions
Where does the money go when the stock market crashes?
Mostly nowhere. A crash lowers the price investors are willing to pay, and that new price is applied to every share on issue. Only the shares that actually trade involve cash changing hands, so the fall in market value is far bigger than any money transferred.
Have I lost money if I don’t sell?
Your loss is unrealised, but your wealth is still lower. If you sell, the loss becomes realised. If you hold, prices could recover, stay low for years or fall further.
What happens to my ETF when the market crashes?
A share ETF’s unit price follows the value of the shares it holds, so a broad ASX 200 ETF falls by about as much as the index. Diversification reduces the impact of any one company failing, but it doesn’t protect you from a market-wide fall.
How long does the ASX take to recover from a crash?
It varies. After the COVID crash the ASX 200 got back to its previous level in just over a year. After the global financial crisis it took more than a decade to regain its peak, excluding dividends.
Which ETFs hold up best in a crash?
It varies by crash. High-quality bond ETFs and cash ETFs have often held up better than share ETFs, unhedged global share ETFs can be cushioned by a falling Australian dollar, and gold has often been a diversifier. None of these is guaranteed, as 2022 showed when shares and bonds fell together.
How should I buy or sell ETFs in a volatile market?
Use limit orders rather than market orders, avoid the first 15 minutes after the open and the close, and be aware that spreads on global ETFs can be wider when overseas markets are closed.
Should I sell my ETFs when the market falls?
It depends on why you own them and when you need the money. A long-term diversified core may not need to change because prices fell. A tactical satellite bought for a trend may warrant review if that trend breaks down. Consider your circumstances and seek advice if unsure.