While one of the major reasons people invest is to save for retirement, it's certainly not the only one. Life events such as buying a home, paying for your children's higher education, or purchasing investment property are likely to come up on your agenda long before your career comes to a close. And to swing those expenses, you may just need to divest yourself of some shares.
In this mailbag segment from the Rule Breaker Investing podcast, listener Jeff Pew is looking for some reassurance that he's taking the right approach. Should he be selling portions of his top stock positions to finance property purchase and the like? Of course, says Motley Fool co-founder David Gardner -- and for some younger-generation perspective, he's asked analyst Emily Flippen to chime in, too. And she has some important points to make on the subject of timing those stock sales.
A full transcript follows the video.
This video was recorded on March 27, 2019.
David Gardner: Mailbag item No. 5. Speaking of 'what a world,' love this one! Is this my favorite mailbag item of the month? Close. Maybe. Really close. Awesome!
"Hi, my name is Jeff Pew. I'm an actor in New York City currently performing in Frozen on Broadway. I've been a subscriber to Stock Advisor and Rule Breakers for a few years, and an avid listener to all of The Fool podcasts. Over the past year, I've been successful at converting two of my friends in the show to The Motley Fool way. We've enjoyed discussing stock picks, following The Fool's guidance, forming strategies on how to best position ourselves for the future. We are all currently beating the market thanks to you."
Well, Jeff Pew and friends, and really the whole cast of Frozen and frankly, all of Broadway, thank you! Awesome!
Jeff goes on: "Here's my question. Do you ever sell a position you've been holding for a long time to free up capital for a big purchase like a down payment on a house, down payment on a weekend house, investment property, renovation, new landscaping, college tuition, or helping a family member in a time of need? Ideally, we'd all have enough savings on top of our investments to pay for these types of big purchases. But what if we don't? Is it OK to be holding some of our biggest positions with the intention to sell when we have enough money to achieve a goal we've been working toward for a long time? When do we use the money we've been earning?
"I love The Motley Fool. I've been listening to you and your colleagues long enough now that I almost feel like I know you. Thanks for the fantastic advice and education. Sincerely, Jeff Pew."
Now, Emily, I know that we're of different generations, we've established this. You are younger than I am, I would say by about a generation. I have kids that are about your age. In fact, you were once a summer intern at The Motley Fool, and I believe at least one of my kids was that same summer. We probably each have different perspectives, which is why I wanted to have you on. I'm assuming you haven't had a lot of big lump-sum kinds of payments or needs for your investing portfolio thus far?
Emily Flippen: No. Have not been buying myself vacation homes just yet.
Gardner: Yes, I appreciate that. But do you have any take on this? Your thinking as an investor, in terms of, if you have larger positions, should you be actively thinking about harvesting them near the time that you might want to buy that house, or not?
Flippen: It's twofold. In general, I think it's fine to cut back on your larger positions or your portfolio as a whole if you need that money to make a planned purchase. That's what that money, for many people, is there for. The flip side of that is, you really shouldn't be doing it right before you need to buy a house, for instance. If you're planning to buy a house in three years, and you have all of that money invested and a lot of it into a handful of stocks, if the market goes down --
Gardner: Like fourth quarter of 2018, for example? A lot of our stocks lost a third of their value, even though a lot of them are back.
Flippen: Exactly. So it's important not to be withdrawing your money when the market could be going through a downtime. You should ideally plan to slowly transition that money out from whatever stocks, whatever holdings you choose, into a safer vehicle for when you need that money in the future.
Gardner: Thank you! Very well put! And I'll just add, Jeff, that yeah, in a lot of ways, this is why we invest. It's not just a game -- well, it is a game, it's fun, and you should try to win. But this is a game that has real-world consequences. Often, the reason that we invest is to do the things that you talked about. For me in my own life, I bought a house. I've done that a few times. I usually have sold off stock in order to buy that house. That's why I was investing. Really, looking backward, it was some of my arguably worst financial decisions, because some of the stocks that I sold have done far better than almost any piece of real estate could. So, sometimes you're paying an opportunity cost for transitioning money that was in great stocks into a house that probably won't grow at the same rate as Netflix. Regardless, this is why we invest. I don't think anybody should be shy about selling a large position in order to fund any one of those key life goals that you articulated.
But as Emily said, I do want to echo that as I approached buying that house, I knew it was going to be a house I was going to be buying in the next year or two, so I began to sell down positions. If it is going to be selling stock, you start doing it in advance so that you don't set yourself up for a really bad surprise last second, as you hoped to fund something big and the market cowed.