Know When to Fold 'Em!
by Ken Dolan November 21, 2007 02:37 PM
We know that deciding whether or not to sell an investment can be agonizing. Selling too late or too soon is one of the biggest sources of investor regret. But to be a truly successful investor over the long term, you must not only know when to buy, you must know when to sell.
Use these guidelines to decide when it's time to take your money off the table.
1. SELL when the investment has produced the gain you hoped for. In other words, take your profits to the bank. Set a target gain on the day you buy an investment and stick to it. It's easy to become attached to a winner, hoping it will keep going up. Having a target will help take the emotion out of your decision.
2. SELL if you're losing sleep over an investment. If you're up nights worrying that you'll lose some profits if the market goes down, or worrying about whether your investment will ever go up, it's time to sell. It's just not worth it. There are plenty of other opportunities that will let you sleep well at night.
3. SELL if there is a change in circumstances - for you or the investment. Maybe there's been a change in your life. Perhaps your ability to handle investment risk has changed due to job loss or because you are getting closer to retirement.
Or perhaps the company has a management shake-up, or a mutual fund changes portfolio managers. Should you automatically sell? No, but you should monitor your investment closely for three to six months and be prepared to sell if the investment's performance is negatively affected.
4. SELL when you make a mistake. Nobody picks a winner every time. Making mistakes is part of investing. Don't let your money languish in a bad investment. Cut your losses and use that money to take advantage of other opportunities.
"How do I know when it's time to move on?" you ask. It's easier than you think. If it's a mutual fund, check your fund's performance figures against others in its group (for example, check your tax-free bond fund against other tax-free bond funds.) If your fund performs more than 20% below the average for two consecutive quarters, consider selling. If it's an individual stock you're concerned about, you know you've made a mistake if there's bad news about that specific company or the entire industry.
These reasons to sell may sound very basic and, to tell you the truth, they are. But you'd be amazed at the number of investors who skip the basics in search of more complicated strategies. That goes against one of the investment rules we live by: Don't make investing too difficult ... it doesn't have to be!
And, of course, don't forget Warren Buffet's mantra: Rule #1 is Don't Lose Money. Rule #2 is Don't Forget Rule #1!
What You Will Find Here
- OJOS11
- Articles and news of general interest about investing, saving, personal finance, retirement, insurance, saving on taxes, college funding, financial literacy, estate planning, consumer education, long term care, financial services, help for seniors and business owners.
READING LIST
-
▼
2010
(74)
-
▼
June
(10)
- Gold ETF IAU 10 for 1 stock split (ishares)
- Downgrade: Miami Municipal Bonds (Miami Herald)
- When to Sell an Investment (from the Dolans)
- What's in Your Retirement Account? NY Times on Div...
- How to Send an Email to President Obama
- Which States are in the Worst Shape (FDIC)
- BP and Bankruptcy (NY Times)
- How to Get More from Social Security (US News & Wo...
- Where to Find Higher Yield (Kiplingers Magazine)
- Florida Retirement System: Veto for Changes to FRS...
-
▼
June
(10)
Blog List
-
-
The EU Is Spending Billions on Hydrogen-Ready, But Where’s the Hydrogen? - I'm all in favor of hydrogen-powered plants to produce electricity if only we had cheap hydrogen. But we don't and likely won't.
-
How Companies Dodge Tariffs - Protectionist trade policies are popular on both the left and right. But some economists say they’re likely to backfire.
-
Neom wants to build a 1,500-foot infinity pool that's almost 4 times longer than one in Dubai - The pool planned for the Treyam region of Saudi Arabia's Neom megaproject will be 1,500 feet long and suspended 220 feet above the sea if completed.
-
Everybody Else Is Reading This - Snowflakes That Stay On My Nose And Eyelashes Above The Law Trump’s New Birth Control […]
-
Maximizing Employer Stock Options - Oct 29 – On this edition of Lifetime Income, Paul Horn and Chris Preitauer discuss the benefits of employee stock options and how to best benefit from th...
-
Wayfair Needs to Prove This Isn't as Good as It Gets - Earnings were encouraging, but questions remain about the online retailer's long-term viability.
-
Hannity Promises To Expose CNN & NBC News In "EpicFail" - *"Tick tock."* In a mysterious tweet yesterday evening to his *3.19 million followers,* Fox News' Sean Hannity offered a preview of what is to come from ...
-
Don’t Forget These Important Retirement Deadlines - *Now that fall is in full swing, be sure to mark your calendar for steps that can help boost your tax-advantage retirement savings.*