Many investors want to know whether they should sell in such a raging bull market. After all seasoned investors know that equity markets never move in straight lines. And the idea of a perpetually rising stock market is deeply flawed.
But knee-jerk reactions can induce a person to act rashly and make things worse in the long run.
In Why you should never regret a profit, two investors share their views on how they tackled the delightful problem of how long to keep running a winner.
There is no right or wrong answer. If you are saving for retirement 20 years down the road, there probably is no reason to sell. But if you are five years away from retirement, it may wise to begin offloading your equity holdings.
To enable you to act wisely, ask yourself:
- Given where I am now, what actions move me closer to my long-term goals?
- Has anything fundamentally changed with the investment that I want to sell?
- Has anything fundamentally changed with my goals?
- Has anything fundamentally changed with my strategy?
- What would be the tax implications of me selling?
- If I sell, where must I put the proceeds? The investment I pick, will it make me push my goals further?
Use the principle of regret minimization when facing trade-offs: Do I sell or hold? Do I buy or wait? These questions can only be answered at the individual level. You need to answer: If I end up making a mistake, which mistake will I regret less?
The smartest move would be to make the sell decision through the prism of asset allocation. And if the equity allocation has taken on a disproportionate share, you could ease up a bit there.
