In an ideal world, we'd all buy the stocks we most believe in, and they'd appreciate quickly. We'd sell each one near its peak. But real-world investing is far messier than that. We often end up having to sell something because we want or need to buy something else, whether it's another stock or a kidney operation.
This topic came up recently on our Investing Beginners discussion board, when one Fool Community member asked how to decide where to find some much-needed cash from his portfolio.
Beware redemption fees
When you're selling funds, be careful about incurring fees. Some funds charge short-term redemption fees if you've held shares for only a short time. If you're in that situation, you might be better off selling individual stocks instead. You don't want to get socked with a 2% fee on your $10,000 fund investment -- $200 total -- just because you had to withdraw the moola before enough time had passed. (It's only been about two and a half years since the Securities and Exchange Commission permitted early-redemption fees. I think they're generally a good thing, since they encourage longer-term thinking and discourage investors from hopping out of funds too rashly.)
Our occasional need for fast cash makes it crucial to have an emergency fund on hand for life's little (and big) disasters. If your cash is in stocks, even very solid ones, you might have to sell them at depressed prices to get the money you need. Currently, stocks like Amgen
Additional ideas
Another community member suggested three other possibilities:
- You can sell equal parts of all your holdings, so that you don't end up selling the wrong part of your holdings.
- You can sell your biggest loser, to reap the benefits of tax losses.
- You could sell whatever has fallen the least, giving your other stocks a chance to recover.
Here's another possibility from me: Take some time to review all your holdings, ranking them according to the confidence you have in them and your expectations of their future performance. Then sell of the ones at the bottom of the list, hanging on to those companies from which you expect the best performance. Your money should always be focused on your best ideas, after all. (Admittedly, this approach will take a little more work up front.)
Asset allocation
Yet another member brought up asset allocation. If price fluctuations have left your portfolio unbalanced, you can use sales in certain areas to get back on track. On the other hand, if you sell too much in one area, you might actually create an imbalance in your portfolio.
For instance, if you aim to hold 80% of your investments in stocks, you probably shouldn't take money exclusively from that portion of your holdings. On the other hand, if the bull market has increased your overall stock value to 90% of your portfolio, selling a portion can get you back down to your 80% target allocation.
We regularly cover the critical topic of asset allocation repeatedly in our Motley Fool Rule Your Retirement newsletter. A free 30-day trial will give you full access to all past issues, allowing you to gather valuable tips on how some folks have retired early and well (and how you can, too). Editor Robert Brokamp regularly offers recommendations of promising stocks and mutual funds, too.
Further Foolishness:
