Question
When is the best time to sell an investment?Answer
I suppose the obvious answers are either when its value peaks or when you need the cash.
Although the latter is self-evident, successfully predicting investment peaks (consistently at last) is nigh on impossible. Some investors follow a disciplined approach by selling investments when they've had a good run (e.g. risen by 10%-20%), happy to take some profit rather than risk losing it. Others are more happy to invest for the long haul and ride out volatility in the hope the price keeps rising overall.
Both the above scenarios have had their share of winners and losers - there's little clear evidence one strategy is better than the other. Pity those who sold shares in a fledgling Microsoft after making a 20% profit and those who held on to HMV shares too long losing their shirts.
Other factors that might prompt you to sell include portfolio weightings and capital gains tax.
Suppose you buy £100 of shares in Company A and £100 in Company B. Your portfolio is split 50:50 between the two companies. Company A's share price soars and your shares are now worth £300, while Company B remains at £100. Your portfolio is now split 75:25 in favour of Company A - meaning you might want to sell some shares to reduce being overly exposed to the fortunes of one company.
Or suppose you have £100,000 invested across several companies that increases by about 10% a year. Sell shares worth around £10,000 every year and you can offset the gains against your annual capital gains tax allowance, i.e. no tax to pay. Neglect to do this and when you eventually cash in the portfolio you may face a big tax bill.
When is the best time to sell an investment?Answer
I suppose the obvious answers are either when its value peaks or when you need the cash.
Although the latter is self-evident, successfully predicting investment peaks (consistently at last) is nigh on impossible. Some investors follow a disciplined approach by selling investments when they've had a good run (e.g. risen by 10%-20%), happy to take some profit rather than risk losing it. Others are more happy to invest for the long haul and ride out volatility in the hope the price keeps rising overall.
Both the above scenarios have had their share of winners and losers - there's little clear evidence one strategy is better than the other. Pity those who sold shares in a fledgling Microsoft after making a 20% profit and those who held on to HMV shares too long losing their shirts.
Other factors that might prompt you to sell include portfolio weightings and capital gains tax.
Suppose you buy £100 of shares in Company A and £100 in Company B. Your portfolio is split 50:50 between the two companies. Company A's share price soars and your shares are now worth £300, while Company B remains at £100. Your portfolio is now split 75:25 in favour of Company A - meaning you might want to sell some shares to reduce being overly exposed to the fortunes of one company.
Or suppose you have £100,000 invested across several companies that increases by about 10% a year. Sell shares worth around £10,000 every year and you can offset the gains against your annual capital gains tax allowance, i.e. no tax to pay. Neglect to do this and when you eventually cash in the portfolio you may face a big tax bill.
Read this Q and A at http://www.candidmoney.com/askjustin/800/whens-the-best-time-to-sell-investments
I got here much interesting stuff. The post is great! Thanks for sharing it! Child Investment Account
ReplyDelete