Bad Reasons to Sell
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Bad Reasons to Sell
How selling can hurt
Sticking with a good long-term investment is, in the eyes of many experienced investors, better than trading in and out as it goes up or down. The problem is timing. Investments can make big gains and losses in a short period of time, but it’s impossible to predict such short-term movements. The challenge isn’t unique to investors trying to pick the "right time" to buy a particular stock. Studies show that it’s tough to time the broad market, too.
Things To Know
- Just because an investment has risen is not necessarily a reason to sell.
- Selling because you need the money is a terrible position to be in and one you should avoid at all costs.
If you’ve done the homework necessary to find a good stock or fund, consider just sticking with it. Timing an investment’s highs and lows is nearly impossible to do.
Maybe you’re not a market timer, at least not consciously. But you may be prone to sell an investment for the wrong reasons. Any of these bad reasons sound familiar?
The investment has lost a lot
Despite the attention lavished on the ups and downs of an investment’s price, an investment’s price movement doesn’t tell you much about the investment’s future prospects.
Let’s say you own a stock or fund that’s gotten crushed. It’s tempting to sell, right?
But think about it: what good does it do to sell after the investment has fallen? Whatever the bad news was (if there was any), it has already been incorporated in the investment’s price.
The more rational reaction to a drop in an investment’s price is often exactly the opposite of a sale: If you really like the investment, perhaps you should take advantage of the lower price to buy more.
You’re almost certain to make more money in the long run if you ignore what other investors are doing. That means ignoring price movements. Selling only turns paper losses into actual losses.
The investment has gained a lot
Likewise, just because an investment has risen is not necessarily a reason to sell. It’s oh-so-easy to sell (or fail to buy) a great investment simply because it has already had a good run. It has to peter out, right?
But myriad examples show that no, investments don’t have to peter out. The fact is, most investors would be better off if they tuned out daily market updates. That’s just noise that, if listened to, can interfere with your long-term investment success.
You need the money
Selling because you need the money—regardless of how your investments are doing—is a terrible position to be in and one you should avoid at all costs. Before you invest in stocks or funds, make sure you have an emergency stash in an easy-to-access savings or money market account to cover unexpected car repairs or sudden unemployment.
