When it comes to deciding whether you want to sell or not to sell, there are important notes that you should remember.
Reasons to Sell
Generally, investors who want to offset gains until they can realize them in a lower tax bracket. For instance, when you are at your earning prime, your investing income will be taxed more stringently than when you are retired.
As a result, there are only a few reasons to sell before that time.
Adjusting Your Portfolio
The most common among such reasons is to adjust your portfolio. There are many reasons that a portfolio might become unbalanced or inappropriate for your defined investing goals.
This could be because of a life changing event like marriage, divorce, retirement, the coming of a child, or simply an accidental saturation of capital in one sector.
Putting all of your stocks in one sector – or even putting all of your money into a certain risk level of investments – is quite not safe.
Diversifying generally negates the chance that you will lose everything at once, but you have to be careful not to over-diversify, which will hamper your portfolio’s growth. When your portfolio needs to be diversified, or needs to be refocused, the goal is to shoulder as low fees and taxes as possible while making the changes.
Freeing Up Capital
Another reason to sell an investment is to free up capital. This capital could be needed to make a down payment on a house, fund a new business, pay for a luxury good, or take a vacation. The best way to free up capital is to realize losses to offset your gains.
If you have two investments, one of which has fetched gains and other shed some value, you might want to sell them both to avoid having an overall profit that is subject to capital gains tax.
If you really need the money, don’t let taxes keep you from selling. If your only other option is loan, then you are better off to leave it and don’t let yourself get burdened with high interest debt over the years.
When it comes to raising capital, you have to make sure that you calculate how much you will be paying in taxes and fees and check that you will have the amount you need by the end of the day.
Reasons not to Sell
Before you decide to sell, you have to think about whether your investment goals are still realistic and within your current risk tolerance levels. There are a number of reasons when selling may not be your best option.
Reaction to Lackluster Performance
Selling because of a dull quarter or a rocky year is one of the worst reasons to sell an investment. Assuming that you have performed your due diligence has been done and the investment is sound, bad quarters are when you should be buying more.
Slumps in the price of a solid company can be triggered by any number of factors that are unrelated to the company’s performance, such as a sector-wide correction, a bear market, rumors, or investor panic.
“Inherited” Investments
Another problematic motivation to sell is to unload cash in on inherited investments. Investors usually feel less favorable toward these investments since they didn’t choose them and, as a consequence, react more harshly when it comes to price fluctuations than they would in any other circumstances.
When you inherit shares, on the other hand, the previous capital gains are gotten rid of. This means that even if shares are stagnant, you still have a tax write-off along with the capital from selling them. If they appreciate in value, you won’t be able to complain.