Selling your investments – what’s your strategy?

By Lynette Tan

If you’ve only got a minute:

• Selling investments is as important as buying them. It's crucial to have a clear exit strategy to realise gains, manage risks, and free up capital for new opportunities.
• Define clear selling guidelines, monitor company fundamentals and market conditions, and seek professional advice to make informed decisions.
• Consider different strategies, such as selling in increments, using predefined triggers or leveraging time to maximise your returns and manage your portfolio effectively.

Deciding whether to hold onto a stock or selling it can be a tough call. There's no magic formula for selling, as the right decision depends entirely on your personal investment strategy. Factors like your risk tolerance, how long you plan to invest, and your financial goals all play a key role in determining when it's time to sell.

Fear, greed, and regret can lead us to make hasty choices, potentially jeopardising our long-term financial goals. Thus, there is a need to formulate clear guidelines for investors to know when they should be closing their investment positions.

Why Selling Matters

While most investment advice focuses on getting started, the often-overlooked aspect of selling is equally important. It's through selling that we realise gains, limit losses and manage our risk exposure effectively. Whether it's reaching a profit target, mitigating a potential downturn or freeing up capital for new opportunities, selling plays a vital role in the investment journey.

Investments can either go up or down, and it would be useful to establish profit targets and clear exit strategies when you acquire an investment. This prevents you from making an emotional decision while facing market volatility, or when the investment is not performing in your favour.

Here are 4 compelling reasons to consider selling an investment.

1. Realising Gains or cutting losses:

• Locking in profits: Selling allows you to turn paper gains into real profit. If you've invested wisely, selling at the right time can help you reach your financial goals faster.
• Cutting losses: Sometimes, an investment doesn't perform as expected. These can be due to several reasons, such as downward industry trends or negative company news. Selling can help you minimise further losses.

2. Managing Risk:

• Diversifying: Selling allows you to re-allocate funds to other investments, potentially diversifying your portfolio and reducing overall risk.
• Reducing exposure: If you're concerned about a particular investment's performance or a market downturn, selling can help you reduce your exposure and protect your capital.

• Short-term needs: Selling investments can provide the funds you need for immediate expenses, such as a downpayment on a house or funding your children's education.
• Long-term goals: Selling can help you re-invest in other assets that align with your evolving financial goals, such as investing in a rental property or starting a business.

When you review your investments, you may also consider selling certain investments due to over-allocation in specific sectors to rebalance your portfolio. Others may consider re-allocating their investment funds into new investment opportunities with higher potential returns, thus making it worthwhile to exit existing holdings to free up investment capital.

How to decide when to sell

There is no hard and fast rule to know when to sell your investments. Most importantly, investors should avoid panic-selling by establishing clear selling guidelines when acquiring an investment.

Set criteria for selling

Price targets: You can use pre-determined price targets or performance benchmarks to guide your selling price. For instance, 15% returns from an exchange-traded fund or an absolute selling price for a single stock. 

Technical analysis: Investors who look at charts and indicators may use these patterns to derive a selling price. For example, if a stock breaks through a key support level, it might signal a potential downturn.

Research and analysis

Market conditions: Changes in market conditions and investor sentiments often impact investment performance. These could be interest rate hikes, recession fears or the performance of economic indicators.

Company/sector fundamentals: if you are buying into single stock, it is important to monitor the company’s financial health and watch for red flags, such as declining profits, changes in management or increased competition. 

Seek professional advice

Do consult with your financial advisor for personalised guidance and discuss your individual circumstances and risk tolerance.

Selling Strategies

There are many ways that we can buy or sell an investment. For instance, you may use a dollar-cost averaging strategy to buy into an investment with a fixed amount every month, smoothing out its average buying price. You could have bought a 100 lot of X company shares this month and added on another 100 lot in the following month since you felt that it had a long-term growth potential.

Similarly, when it comes to selling your investment, it does not need to be a one-time execution where you sell all of it. Instead, here are 3 ways of selling an investment.

Sell in increments: Gradually sell off portions of the investment instead of dumping everything at once.

For instance, if you have 200 shares of Y company and it has already reached your price target and you think there is more potential gain ahead. What you can do is to sell 100 shares first to capture the profits or preserve your capital and allow the other 100 shares to continue its potential for growth. 

Sell on a specific trigger: You may use predefined price targets, stop-loss orders or other technical indicators to trigger a selling price. You can opt to use notification alerts to notify you of your target price if you do not actively watch the market.

Sell based on time: Some investors consider selling investments after a predetermined holding period or when approaching a specific target date. Sometimes, certain investments may have such “selling date” built in, such as government or corporate bonds, certificates of deposits or options contracts.

Conclusion

Selling is an integral part of a well-rounded investment strategy. By developing a clear approach that considers your individual goals, risk tolerance, and market conditions, you can make informed selling decisions that help you achieve your financial aspirations. Remember, discipline, objectivity, and seeking professional advice are essential when navigating the complexities of selling investments.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

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