The Bulls have been stampeding!

To sell or not to sell – that is the question

How much time have you spent on deciding what to buy, compared to when to sell? We’re guessing quite a bit on what to buy and very little on when to sell.

As a part of your investment plan it is just as important to have a decision for when you are going to sell, and this means not just when to take your profits, but also when to cut your losses.

It‘s often said, it is good practice to have your sell decision made before you buy.

Why do this?

Well it can help take the emotion out of it….something you can so easily get caught up in, especially when you have real money invested.

The funny thing is, selling can be what we have the most problems with.

Just take a look this example…

“The reason why many have trouble selling is rooted in an innate human tendency to be greedy. For example, an investor purchases shares of stock at $25 a share, and tells themselves that if the stock hits $30, they will sell. What happens next is all too common. The stock hits $30 and the investor decides to hold out for a couple of more points. Surely, the stock reaches $32 and greed continues overcome rationality. They hold out for more.

Suddenly the stock price takes a turn downward and is back at $29. The investor then tells themselves that once the stock hits $30 again, they will sell it all. Unfortunately, this never happens and the stock price continues to drift lower. Succumbing to their emotions and frustrations, the investors sells at $23, below the initial buy price. As greed and emotion overcame rational judgment, sound investment principles were replaced by casino-like tendencies. The initial result was a loss. And while the investment loss was $2 a share, the true loss was $7 because the investor had the opportunity to sell at $30, but refused.”

(From the article When to sell stocks…by Sham Gad) Does this sound familiar? For many of you I am sure it does. So not allowing the emotion to kick in and having a plan that you stick to is vital, as it will ensure that you lock in your profits or reduce the likelihood of incurring a major loss.

What should your sell decision be based on?

As a risk management strategy you may find it helpful to have a predetermined falling sell (stop loss) in place, where you decide that if a stock falls to a certain level, you will sell – this can help remove the emotion out of the decision. Go here for more on how to use a falling sell.

Selling to lock in your profits, may be a little harder to determine as emotions can easily kick in…but if you can make a decision as to what profit you would be happy with, even if the stock continues to rise, be disciplined and take the action.

Helpful articles

Selling for Profit or Just Selling Out
by Dale Gillham

Knowing when to sell your shares. Five common mistakes.
By Lincoln Indicators

Watch: Sharemarket Challenge Update

Getting Started in Shares

All investments carry some degree of risk and it’s quite possible for share market investments to actually lose money. Risk is something you need to consider when assessing each and every investment.

So take a moment to reflect on these questions:

• What are my goals?
• How much money should I invest?
• Where should I invest: the share market, bank deposits, property?

Many people use qualified financial advisers to help them formulate their investment goals. This can help in assessing your strategies and the level of risk you’re prepared to accept.

How to buy and sell shares

Shares in ASX-listed companies are traded electronically, and can only be bought and sold through an ASX participant broker. Orders to buy and sell shares are entered into the ASX trading platform by operators within broking firms.

When you direct your broker to buy or sell shares – you’re ‘placing an order’. That’s when you agree with your broker what price you’ll accept.

A trade occurs when a buy order is matched with a sell order and you’ll receive a confirmation once your trade has occurred. If you’ve bought shares, you need to pay for them within 24 hours of your broker executing your order.

Choosing a broker

Full service brokers offer advice on buying and selling securities, provide research and compile investment plans. They typically charge a higher brokerage fee.

Execution only brokers don’t offer recommendations or advice, but their brokerage fees tend to be lower. This is an attractive option for investors who are confident in their trading decisions.

Floats

You can also buy shares directly from a company when those shares are offered for the first time through an initial public offer (IPO) – or ‘float’.

Starting at the Beginning – Goal Setting

Getting serious about saving is so much easier when you have a clear idea of what you’re setting out to achieve. That’s why it’s important that your financial plan should be made up of specific life goals. These goals become the motivation for your savings and investment efforts – so you’re not just saving for savings sake – you’re saving towards goals that are truly important to you.

Ideally you should be looking to save and invest at least 10 to 15 percent of your take home pay every month. Look at it as though you’re simply paying yourself first – before taking care of your other expenses. Set yourself up to succeed by creating an automatic withdrawal that transfers funds out of the account your pay goes into – directly into a savings account. You’ll be amazed how the savings accumulate and the investment opportunities that start to present themselves.

Our Moneywise Global Financial Advisers use a proven six – step process that helps you take a “big picture” look at where you are and where you want to be financially.

Using this process we can help you work out what you need to do now and in the future to reach your goals.

The 6 Steps of the Moneywise Financial Advice Process are:

1. Gather your financial data – we do this by coming out and visiting you in your office and look at details such as income, debts, assets, etc.
2. Identify your Goals – Short /Medium/Long Term
3. Identify and discuss any financial issues or deficiencies between where you are now and where you want to be
4. Prepare your financial plan, which will identify recommended structures and/or investments and address your attitude to risk.
5. Implement your financial plan – (We need you to work with us on this one)
6. Review and revise your financial plan. As your personal situation changes over time, your financial plan needs to be able to adapt. This is the only way to ensure that you reach the goals you’ve set.

We’re ready to get you started Living Your Best Life as soon as you are.

Call Moneywise Global today on 1300 728 249 to book your appointment with one of our expert financial advisers.