Please welcome guest writer, Andrew Altman.
Selling Your Investments: When Is the Best Time?
Although selling your investment is a crucial part of making consistent financial gains in the market, it can be difficult to determine the best timing. Regardless of your chosen investments, the goal is to sell at the market’s peak and be ready to purchase another asset when the market is lower.
To maximize your financial gains and understand the market better, read on to learn five tips for selling your investments.
1. Banish Emotions
Allowing your emotions to get involved in investment decisions is one of the biggest mistakes you can make. These emotions can keep you stuck in failing investments that you should abandon.
Investors have discovered the hard way that pretending an investment is going to pull through does not mean it will. If you have calculated the numbers, completed the necessary research, and still notice a downward trend in a bear market, it is best to cut your losses and move on.
It is hard for anyone to admit a loss, but dealing with a smaller loss now might prevent an even greater loss later.
Alternatively, boom markets can cause investors to get overly greedy and carried away with the belief that a market will continue to rise indefinitely.
As proven in 2007 and 2008, markets can always come down, and when they do, it is often in a big way.
It is essential to look at markets from a rational viewpoint so you are better able to recognize when a good run is coming to a close.
Although human emotions can be misleading, numbers are not. Be sure to remind yourself of this point when deciding whether or not to sell an investment.
2. Be Familiar With Fair Value and Accept It
Evaluating a stock, property, or commodity can be done in a variety of ways. Although supply and demand is an important factor, there are other key factors to take into consideration.
If you purchased an asset and it has increased to a price higher than you assumed it was worth, it may be the right chance to consider selling. Once the security is higher than fair value, it is only a matter of time before it drops. Do not let wishful thinking allow you to believe that it will continue to rise forever.
Be wary of investments that have not responded negatively to selloffs or weak economic data. If you are hanging on to an asset that has resisted a downward turn, obtain the most current data available and crunch the numbers again.
3. Remember to Factor in Fees
Prior to selling an investment, it is important to factor in any associated fees to determine your final profit.
Some investments involve fairly small fees at a fixed price. Other assets, such as mutual funds, carry a wide range of fees.
When you decide to sell an investment, prepare a list of any associated fees and add them up. Evaluate how this will affect your overall profit and financial plan. Be sure to come up with concise answers prior to moving forward with any decisions.
When tallying up fees, also remember to include taxes as these can be the largest fees of all. A professional level tax calculator can help handle the difficult work for you.
4. Take the Balance of Your Portfolio Into Account
Even during productive, smooth times when your portfolio is doing well, it is still important to perform periodic assessments of the balance and any securities it consists of.
If the majority of your portfolio is exposed to a specific portion of the economy, your level of risk rises. If a negative event occurs in this sector, it will affect a significant portion of your portfolio.
Diversifying your portfolio is an excellent investment strategy that helps protect your assets. If you are considering selling off some of your assets because your portfolio is overexposed in a particular sector or industry, this is probably a smart financial move.
It is always smarter to be proactive rather than reactive. Diversifying your portfolio to improve its balance is usually a wise reason to sell.
5. Determine Your Personal Goals
Any solid financial plan includes a clear exit strategy. An exit strategy is a set exit point (usually a particular amount of money) at which you collect your profits and purchase a new home, a car, or retire.
Your goals will change along with the changes in your life. Prior to selling your assets, consider what specific goals have been met. If your original intention was to earn enough to pay your children’s way through college and your portfolio has reached this capability, it may be a good time to sell your investments since you are ahead.
If your portfolio is doing well, the economy is growing, and your chosen companies are rapidly expanding, you might decide it is worth holding on even if your goals have already been met. Alternatively, you may decide to sell your assets before anything has the chance to go awry.
Selling an investment is not a black or white choice – it depends on the individual. It involves a variety of mathematical, personal, and economic factors.
Following the tips mentioned above will help you navigate the investment process and give you a better understanding of when to buy and sell.