|Course 303: When to Sell an Investment|
|Bad Reasons To Sell|
Maybe you're not a timer, at least not consciously. But you may be prone to sell an investment for the wrong reasons. Any of these bad reasons sound familiar?
The investment has lost a lot.
Despite the attention lavished on the ups and downs of an investment's price, an investment's price movement doesn't tell you much about the investment's future prospects.
Let's say you own a stock or fund that's gotten crushed. It's tempting to sell, right?
But think about it: What good does it do to sell after the investment has fallen? Whatever the bad news was (if there was any), it has already been incorporated in the investment's price.
The more rational reaction to a drop in an investment's price is often exactly the opposite of a sale: If you really like the investment, perhaps you should take advantage of the lower price to buy more.
You're almost certain to make more money in the long run if you ignore what other investors are doing. That means ignoring price movements. Selling only turns paper losses into actual losses.
The investment has gained a lot.
Likewise, just because an investment has risen is no reason to sell. It's oh-so-easy to sell (or fail to buy) a great investment simply because it has already had a good run: It has to peter out, right?
But myriad examples show that no, investments don't have to peter out. The fact is, most investors would be better off if they tuned out daily market updates. That's just noise that, if listened to, can interfere with your long-term investment success.
You need the money.
For more about how to establish an emergency fund, review Portfolio 104.
Next: Good Reasons To Sell >>
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