Business & Real Estate

Is now the right time to sell your investments?

Here’s a question I get quite frequently from clients, friends, relatives and even strangers I meet at seminars: Is now the right time to sell my investments?

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.”

Below 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 entire 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 purchased 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 of 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.

Not-so-good reasons

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

• You think that 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 Standard & Poor’s 500 index had experienced its worst January loss in history, how many people predicted that stocks would turn around and end the year with a nearly 10 percent gain? If you had sold at that time, you’d still be kicking yourself right now.

• You want to quit while you’re 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.

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 deciding when to sell your investments much easier and more efficient.

Los Altos resident Artie Green is a Certified Financial Planner and principal at Cognizant Wealth Advisors. For more information, call 209-4062.

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