Don't Make These Selling Mistakes
An important part of any investment strategy is developing a methodology for ultimately selling your investments. Unfortunately, many investors sell based on emotional factors, making one of several mistakes:
Holding on to an investment with a loss.Psychologically, it’s difficult for investors to sell an investment with a loss. Many prefer to wait until the investment at least gets back to a break-even level. Take a hard look and consider selling if you can reinvest in an investment with better prospects.
Hanging on to capture more gain. When an investment has increased dramatically, you may be reluctant to sell, even if you feel its price has gone too high too quickly. There’s always the risk you’ll sell and the price will keep going up. But sometimes it’s best to protect your gains.
Not setting price targets. One way to take the emotion out of selling is to set high and low price targets for reevaluating an investment. You don’t have to sell when the investment reaches those targets, but at least review whether you should sell. Sticking with rigid rules for selling when an investment declines by a certain percentage can help ensure you sell before incurring substantial losses.
Trying to time the market. Even if the stock market is following a general trend, there will be up and down trading days. Trying to buy and sell stocks based on daily fluctuations is difficult.
Worrying too much about taxes. Taxes can consume a significant portion of your investment gains. Even if you have long-term capital gains, up to 20% will go to the federal government in capital gains taxes. However, avoiding taxes may not be a good reason to hold on to an investment. There are typically strategies that can be used to help offset the tax burden, but there’s not much you can do about a loss in investment value. If it’s time to sell an investment, you should probably do so.
Not paying attention to your investments. Your portfolio needs to be evaluated on a periodic basis or you could miss signals that it may be time to sell. You should reevaluate an investment when the company changes management, the company is acquired by or merges with another company, a strong competitor enters the market, or several top executives sell large blocks of stock.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.