Selling Investments: When Should You Sell an Investment?
When should you sell an investment?
At certain points in the portfolio management process, you may decide that you should rebalance or even redesign your portfolio. Either choice may require that you sell some or all of your investment holdings. Or you may want to take profits in a particular investment, or harvest tax losses in order to offset capital gains in another investments. Or you may simply be considering replacing one investment with something else.
There are many valid reasons for selling an investment, and not all of them are based strictly on its performance. However, you shouldn’t take the decision to sell lightly, and you should carefully consider the timing of any sale. An important part of successful portfolio management is knowing when to sell and when not to. Properly and improperly timed sales can directly affect the overall return you receive from your investments.
General guidelines for when to sell
Generally speaking, it is recommended that you sell a particular investment under one or more of the following conditions:
- The investment has performed poorly, well below your expectations. You have either suffered a loss or received a less-than-acceptable level of return. You have every reason to believe it will either continue at that same level or plummet further. In this case, you may feel that selling is the only way you can prevent further losses.
- The investment has performed well and exceeded your expectations. It is worth considerably more than you paid for it. You have every reason to believe, however, that it has reached its peak and can only go down. In this case, you may want to sell while the market price is high so as to maximize your gain before the anticipated decline begins.
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