Some (actually many) investors from time to time think of selling stocks and withdrawing their money. Especially such thoughts come to novice investors, trying to lure them back to the dark side of non-investing. Red candles of stock prices are like the red lightsaber of Darth Vader giving rise to despair. But calm down, folks, and keep your emotions out of your investment decisions. Make no rush selling your stocks even if you think that there’re reasons for that. Yes, there may be reasons for withdrawal, and we’ll tell you about them, but going forward there’re not so many.
So, converting stocks to cash. When is the time?
Rebalance your force my young padawan
Here we’re speaking about selling only a part of your stocks.
You create your portfolio depending on the risks you can handle. For example, you’ve bought 30% stocks and 70% bonds. In other words you’ve diversified your portfolio in order to lower risks. Stocks prices rise together with the percentage they’re taking in the portfolio. So, let’s say, if you had 30% stocks, maybe now you have 40%. In case you want to keep the primary percentage ratio, you’ll need to sell some stocks and invest the money you get in bonds.
Admit your mistakes (yeah, that hurts, we understand)
This advice applies more to those investors who prefer to thoroughly study the prospects of just a few businesses and invest big money in them. If the business incurs unexpected losses, then it may be necessary to sell its shares, otherwise, due to the lack of portfolio diversification, the investor may lose a lot of money. Of course, it may not be necessary if you think the losses are short term. It can be hard to say.
Investing a big amount of money in one or two businesses is risky, and if you do that and something happens that shows your investment idea was wrong, admit your mistake and sell the stocks in time so as not to lose too much money in the share market. Yes, it could be hard to sell stocks of the company you believed in. Stop-loss orders may become your best friends then as this feature automatically sells the stock if it drops by a certain percentage below the purchase price. Most of the investment tracker apps have this feature, so you can be calm about your money.
“Already know you that which you need”
Often people invest to achieve some goals, and when they do this, it’s time to withdraw the money.
For example, you started investing when you were 20. Now you’re 55, you have a lot of money on your investment account for not working anymore, and the time to go rogue has come.
Or maybe you’re a responsible and loving parent who wants their children to study in private schools and top universities. Your children have reached the age and you’ve gained the necessary amount investing? Well, sell stocks and press the withdraw button.
“…nothing else can save me, S.O.S”
Crap happens, and, as always, when it’s least expected. And if you don’t have a safety cushion, the only thing left is cashing out your shares.
Of course, if you saw a car of your dreams and now dying to have it, sorry to disappoint you but that’s not an emergency. If you need money to repair the car you have, well, it’s closer to SOS. But seriously speaking, an emergency is when one needs immediate medical help or they lose a job. To help cushion such emergencies it’s always a good idea to have some money held in bank accounts.
Okay, now we know in what cases converting stocks to cash can be a good idea. What else?
No one is safe from losing in the stock market. As well as no one is safe from emergencies. And you should keep it in mind. But again, don’t sell your stocks when you see they dropped. Make an analysis of the business development, read the news, learn information about the similar companies, and only after that make your decision.
Keep calm, and may the stocks be with you!
It could be far-sighted to open an ISA account so as to reduce the not taxes you pay when cashing in your investments*.
Orca does not provide investment advice. If a customer has any doubts, they need to contact an investment adviser. Terms and conditions apply. Your Capital is at Risk.
*Tax treatment is dependent on individual circumstances. Speak to a professional if you are unsure. Orca does not provide tax advice.
Orca is an appointed representative of RiskSave Technologies Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN 775330).