With the market going up seemingly every day, it’s really, really hard to sell anything. There’s always the temptation to hold on one more day (or one more week) for a better price. And besides, you tell yourself, if things get dicey again, you’ll sell early, before the decline really accelerates.
But you really have no idea where the market’s going, and selling once the market turns around is a lot easier said than done. Besides, you’re not equipped to recognise a little dip (like the ones we had at the very beginning of October and September), as opposed to the early days of a sustained selloff. It’s impossible.
So now, with the Dow crossing 10,000, it’s a good time to just evaluate where you are, and where you have been, and consider that when the Dow was at its March lows, you CERTAINLY would have wanted to sell stock if you could at Dow 10,000 levels. And now we’re.
Felix Salmon, who is loathe to write anything that in any universe could be construed as advice, does, in fact, offer some decent advice today, noting that with the rally, many investors have gone from devastation to mere pain.
If you had an idea, back in March, of what your risk appetite really was, then now’s the time to rebalance your portfolio in line with the degree of risk aversion you discovered in yourself seven months ago. If and when stocks drop again, then you really will only have yourself to blame.
Of course, everybody’s individual situation is different, but in aggregate we’ve gone from devastation to mere pain. And when you’re involved in something painful, and you can get out of it, a quiet exit is often the best thing you can do. Of course, stocks could go up further from here. But that’s not the point. Unless you can afford to see your stocks fall, you shouldn’t be invested in them.
You don’t need to sell all your stocks, of course. Some exposure to equities makes perfect sense. But make sure you have a decent cash cushion first. And if you have any kind of debt at all — even if it’s just a mortgage — there’s a strong case to be made that you should pay that down by selling your stocks. Paying down a 6% mortgage is the functional equivalent of getting a guaranteed 6% return on your money, risk-free. (Ignoring the tax benefits of having a mortgage for the time being.) That seems a lot more attractive than buying stocks at these levels.