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Is Now The Time To Sell My Investments?

“Is now the right time to sell my investments?” is a question I get quite frequently from clients, friends, relatives, and even strangers that I meet at seminars. When I inquire as to what prompted the question, the responses run the gamut from “I read that stocks are overpriced right now” to “The loud-talking guy on TV said so.” One of the great fundamental investment gurus of our time, Warren Buffett, has said his favorite investment holding period is forever.  Unfortunately our time available on this earth to enjoy our savings is considerably more limited.  So we will all need to sell our investments at some time or another.  In this post I’ll share what I consider to be good and bad reasons for selling.

The bad first.  Here are some less-than-beneficial reasons for selling investments:

“I think the market is about to turn negative.”  It’s human nature to speculate about the future.  But there’s ample evidence that it is impossible to consistently predict it.  At the end of January 2016, after the S&P 500 had experienced its worst January loss in history, how many people predicted stocks would turn around and end the year with an almost 10% gain?

“I want to quit while I’m ahead.”  Quit what?  Investing? You will need to continue to grow your savings until you die.  Just because an investment has run up in value doesn’t mean it needs to be sold.

Any financial advice you read or hear about in the media.  Always remember that the media is in the entertainment business, not the education business. Their objective is not to teach you how to invest wisely.

Fortunately there are numerous good reasons for selling investments:

You need the money.  This is probably the most purposeful reason for selling.  The whole point of saving is to have enough money to enjoy your life, especially after you’ve retired.  Most people’s goal is not to die rich. But there is a caveat.  The most efficient way of selling investments is to plan it.  That means understanding the frequency and timing of your spending needs so that you do not find yourself having to sell a lot of assets at a time when the market has dropped significantly. The additional benefit of having a well-defined savings withdrawal plan is that it helps you avoid the emotional inclination to sell when asset prices are dropping (selling low) and to buy when everyone else is buying (buying high) .

Your portfolio needs rebalancing.  Rebalancing means periodically selling investments that have grown faster than others and buying those that have underperformed. This approach keeps your asset class allocations consistent with your investment strategy and supports the concept of selling high and buying low. Rebalancing additionally serves to reduce portfolio volatility which helps avoid making bad decisions based on emotions.

Your investment strategy has changed.  Perhaps you went through some kind of life transition such as a job change or a new marriage, resulting in a change to your future goals and consequently the investment strategy needed to optimize saving for them.  Or perhaps you are nearing retirement and want to avoid the risk of a major downturn right at the point when you retire.  Whatever the reason, a life change can be a good reason for an investment strategy change resulting in the need to reallocate your investments (similar to rebalancing).

There’s a better investment opportunity.  It’s certainly OK to replace one mutual fund or stock with another as long as you don’t lose sight of why you bought the original one.  At least understand what’s different about the new fund and why you are considering making the change.  But if the change involves a major allocation shift, such as selling half your stocks to buy a rental property, that could have a pretty big impact on your investment strategy and should not be undertaken without a significant amount of due diligence.

The worst thing you can do is to invest indiscriminately.  Having a well-defined investment strategy together with a savings withdrawal plan will make selling investments that much easier.


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