Reasons You Should Sell Your Investments

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Warren Buffet has famously said that his holding period for his stocks is “forever,” but that doesn’t mean he never sells. The goal is to invest long-term for optimal results instead of weaving in and out of the stock market. That being said, here are 5 reasons you should sell your investments – from a long-term investor’s point of view.

1. Your Asset Allocation Is Wrong

A great reason to sell your investments is that you discovered that your asset allocation does not align with your financial goals or your risk tolerance. Maybe you just recovered from a stock market crash and whether or not you sold out of fear, it was too much for you to bear (get it?). If your initial allocation was way off, the only way to get it right within a reasonable time is to rebalance your portfolio. Hence, you will need to sell one type of investment for the purchase of another.

What is a good asset allocation?

For the simplicity of answering this question, let’s just talk stocks and bond.

A good rule of thumb is using 120 minus your age. Based on this rule, if you are 30 years old, you should have 90% invested in stocks and 10% in bonds. If you are 60 years old, you should have 60% in stocks, 40% bonds. Bonds will reduce your volatility, but also your potential gains as well.

Based on this rule, I should be 90% invested in stock, but I am very aggressive and have a high-risk tolerance. That being said, both me and my wife’s stock allocation is currently 100%. That means we feel both the full reward of a bull market, but also the full brunt of a stock market crash. We felt it for the first time when the stock market crashed 30% and we had to deal with “losing” $100,000 but we learned a lot about our risk tolerance. Thankfully, my wife and I survived our first bear market and learned how to be uncomfortable. I talk about our first bear market experience here.

Related: Our First Bear Market – Investment Portfolio Down by $100,000

2. It’s part of your plan

This reason is clearly the best reason to sell your investments. After all, when everything is going according to plan, it’s hard to stress out about it. The hardest part is sticking with it. If your plan is to withdraw $2,000 from your investments each month in retirement, it might be hard to continue doing in a down market. The beautiful part of being in charge of your plan is that you can adjust the plan accordingly.

For me, I don’t plan on selling any of my investments unless I am completing it as a part of my tax-loss harvesting strategy, capital gain harvesting strategy, or part of my drawdown plan. This is all outlined in my investment policy statement linked below.

Free investment policy template

For the new and the seasoned investor

3. The Government Forces Your Hand

What I am talking about here are required minimum distributions (RMD). After you reach a certain age, the IRS requires you to withdraw a certain amount from your tax-deferred retirement accounts (401k, 457, solo 401k or IRA). If you do not withdraw a defined amount that is set for you based on your balance and life expectancy, then you have to pay a 50% fee on the amount you were supposed to withdraw. Plus, you will still need to take that distribution.

As part of the Setting Every Community Up For Retirement (SECURE) Act went into effect in January 2020, RMDs have been moved from 70.5 years old to 72 years old.

4. Borrowing from your 401k

You are borrowing from your 401k as an emergency measure and have researched heavily into how to mitigate any consequences of it completely ruining your retirement plans. AKA, you “know” what you are doing.

Then again, if you really knew what you were doing, you should have had a sufficient emergency fund in place to prevent yourself from taking such rash measures to begin with.

5. Zombie Apocalypse

As a long-term investor, the only other time you should sell your investments is due to an impending apocalypse assuming you knew ahead of time where that money would actually be worth something. For example, if you had special intel about the government losing control of a vaccine for the SARS-CoV-2 virus turning all exposed subjects into flesh-eating zombies. Before the information becomes public, you could liquidate all of your money to expedite plans to fly you, your loved ones, and all necessary possessions to a secluded island.

Conclusion

In summary, making big financial decisions like selling your investments due to fear or what the headlines are saying is never a good idea. These moves should be based on a plan that aligns with the investment strategy that you created when you weren’t surrounded by economic doom. As a self-directed investor, I value simplicity because it makes consistency easy. I have laid out a set of rules that I follow based on what I read and what I believe will give me the best results. These rules that I created for myself are outlined in my investment policy statement. If you’re interested in learning more about it, check it out here.

Free investment policy template

For the new and the seasoned investor

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