To keep this post readable and a reasonable length, it's impossible for me to fully answer this question. There are too many answers that could be correct. But I’ll try to hit the high points.
The best answer, from Warren Buffett, is never sell! His stated favorite holding period is forever. Make a long-term investment and hold it. Hard to disagree with the wisdom of the Oracle of Omaha!
But we don't have as much cash on hand as Buffett’s Berkshire Hathaway. Sometimes we need to sell to raise cash. Sometimes we need to rebalance. Or sometimes we must sell to take advantage of other strategies. Even Buffett sells sometimes.
Selling for a loss should be an easier decision than selling a gainer. Capturing a loss for a tax deduction or reinvesting in a stronger position makes sense. Whether you are an adviser or an investor, the hard part is just admitting a mistake; thus, sometimes investors sell only winners because it feels good to take a profit. Then they end up with a portfolio of losers in their account.
A pretty good rule of thumb says sell losers for tax losses and hold your winning investments. This gives you the opportunity to create large, unrealized, untaxed gains indefinitely.
But today's steadily rising market reminds me of a mentor's guidance decades ago: “When the market is strong and there is no reason to sell, that's the time and the reason!”
“If you’re going to need to sell sometime, take some money off the table when everything looks good,” he'd say
Whether you manage your own money or work with a professional adviser, avoid reacting emotionally. Carefully consider your repositioning needs, if any, calmly and try thinking in a contrarian manner. Consider selling when everyone loves the market and is buying; look for long-term bargains when no one wants to buy.
There are lots of considerations, but this is a constant truth:
Most people want in when everything looks good at a market peak and prices are high. The same people desperately want out when the news is bad and values are low during the inevitable downtimes.
But if your portfolio allocation was built intentionally based on your goals and needs, unless there's a need for a change, the best course of action is often to be patient and do nothing.
The opinions expressed by the author is their own and may not accurately reflect those of the Buckingham Strategic Wealth. This article is for general information only and is not intended to serve as specific financial, accounting, or tax advice.