At other times, you might be tempted to liquidate your investments because you fear a market drop or your stocks are not performing as you had hoped. An impulsive decision to liquidate has transaction cost, tax and total return consequences, so consider carefully your reasons for liquidating before entering sell orders. Investments are a way to put your savings to work earning more money for a big-ticket purchase or for retirement. If you only need part of the total value of your investment, selling everything could have serious tax consequences.
Short-term capital gains are taxed at a higher rate than long-term capital gains, so first consider selling your longer-term holdings if you need only part of the money. Capital gains taxation rules change frequently, so consult a tax professional before you sell. If your stocks have not performed as you had expected, it might be time to review earnings reports, analyst reports and stock price charts for each investment type.
Rather than liquidating everything, first diagnose the financial health of your individual holdings and consider whether they are solid long-term investments or are likely to continue to underperform the market. Weeding out the poor performers and reinvesting in better prospects is a valid portfolio management exercise and is often preferable to a sudden and complete withdrawal. If you are concerned that the market is about to correct or drop significantly, consider using trading techniques to protect your investments.
These involve placing stop-limit orders or hedging with options. Each scenario has a fairly high probability of occurring at some point depending on your time horizon and location. You could always sell half of your investments to cover a down payment. Splitting things up would also leave you the flexibility to potentially take the rest of your investments and pay off the mortgage down the line if you change your mind. But the most important thing to remember here is how difficult it is to make a level-headed decision.
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First of all, nicely done. Here are three scenarios from this decision that could potentially bring you some level of regret: 1 You decide to sell out of your investments and stocks continue to rise. Now go talk about it. The bottom line: Rebalance, but not more often than once a year, says Brightman. Because tedious projects like rebalancing are easy to forget, many planners suggest that you set a regular, and memorable, date to do it. Make it your birthday. Tax day. Your anniversary. What matters is that you establish a routine and follow it.
If those factors change, so should your investments. It really depends on the event and you. However, if a spouse dies or the couple divorces, the need for emergency savings could skyrocket. A single person should have enough emergency cash to cover twice as many months of potential job loss. So a suddenly single individual may want to boost dramatically the percentage of his or her assets in safe, albeit low-yielding, accounts. The best strategy here is to step back and carefully review your financial plan and goals from start to finish.
After decades of saving, you got the gold watch. Now what? For starters, a good portion of your monthly paycheck will now come from savings rather than from an employer. This, too, demands selling some stocks, even if you already have five years of spending power in accounts holding bonds and other conservative, fixed-income investments the standard recommendation. Perhaps when a volatile asset class, such as emerging-markets stocks, has a particularly good year triggering the need to rebalance anyway , you can sell some of those shares and use the proceeds to cover your spending or feed the fixed account.
Rowe Price, the Baltimore-based mutual fund giant. Remember that a good portion of this money is earmarked for spending in the second half of your retirement, which might be decades away.
Over long periods, stock returns are far more likely to beat the rate of inflation and allow you to retain buying power. The most successful or luckiest investors can take a cue from the world of sports. After all, the game is won.
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