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Is Now The Time To Sell My Investments?

This 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 such a question, the responses run the gamut from “I read that stocks are overpriced right now” to “The loud-talking guy on TV said so.”   In this post I’ll share what I consider to be the best reasons for selling at any given time.

You need the money.  This is probably the most purposeful reason for selling investments. The whole point of saving is to be able to use the money to enjoy your life, especially after you’ve retired. However, the most efficient way of selling investments is to plan for the frequency and timing of your spending needs so that you do not find yourself having to sell a lot of assets after market downturns. The additional benefit of having a well-defined savings withdrawal plan is to help you avoid selling out of fear when asset prices are dropping.

Your portfolio needs rebalancing.  Rebalancing is periodically selling investments that have grown faster than others and buying those that have underperformed. This approach is consistent with selling high and buying low and keeps your asset class allocations aligned with your investment strategy. Rebalancing additionally serves to reduce portfolio volatility, which helps mitigate our inclination to make investment decisions on an emotional basis.

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 update that might result 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 be cautious about making a major allocation shift, such as selling half your stocks to buy a rental property. Any change that could have a big impact on your investment strategy should not be undertaken without a significant amount of due diligence.

There are also numerous not-so-good reasons for selling your investments.  Here are a few:

“I think the market’s 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 a nearly 10% gain? If you had sold in January you’d be kicking yourself right now.

“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. Teaching you how to invest wisely is not their objective.

The worst thing you can do is to invest indiscriminately. Having a well-defined investment strategy in conjunction with a savings withdrawal plan will make selling your investments easier and more efficient.



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