When do I sell? How much additional risk makes it all worthwhile?
Most of us have no idea. If we’ve suffered losses, we are reluctant to “get out” of the market until we have at least waited long enough for a chance to get back up to the same amount we had before. But what happens if our losses are not recaptured? How much is exposure to losing enough?
The dilemma is, what do when you suffer additional losses? If money is important to you, and you face loss exposure, how much patience does it require to continue in a hold position? Many folks might think about a loss of 20% in one quarter, and the next quarter you gain 20%, you are still behind. You would have to have a 25% gain to be even. Consider the math.
Many investment accounts that I’ve reviewed over the past several years have had more modest gains than the client’s thought. Typically, if someone has had records going back 8-10 yrs, and I’ve been able to see the amount of money at the start, subtracting any funds withdrawn, and comparing the amount on hand today, I’ve been able to say, “Congratulations,” you’re right, you have made money in the Stock Market; you’ve averaged over the last 8 yrs. 3% each year. In most cases, a 3-4% return would be a far better return than the client might expect.
You could’ve quickly done that at your bank, not paying any brokerage fees, commissions, etc., and not lost sleep every time the market dropped!” The adage “Never wager more than you’re comfortable losing” is a good one when it comes to retirement monies. Understanding your exposure to loss can be a huge realization of the fact.
The perfect time to Exit the Market is when you’re UP! Buy low, sell high is always the goal. So why do so many people not only stay in the market after profiting from gains? Why do they also ‘let it ride’ every month? Very few amateur investors ‘take’ gains.
If you were at the Blackjack table in Las Vegas, would you push your entire stack of chips in and ‘let it all ride’ on the next hand? Of course not, but many investors do. Wagering shouldn’t be a passive pursuit, and you should be involved with your broker. The time to push back from the blackjack table is when you have a gain or pile of chips in front of you, not when you’re down to your last three chips.
Many people stay in the market too long because they want “Just a Little More.” It’s an error that can have a nasty ending. Before you invest, calculate your goals and what you are attempting to complete.
Make a plan and stay with it. Remember, we all run to safety sooner or later; what is right for you might not be right for others.