If your investments include shares, listed funds or Australian Real Estate Investment Trusts (A-REITs) here are some things to consider when selling: 
 

[Editor’s Note: Do not read the following information as advice on when to sell shares. Every investor is different and has varying needs when it comes to selling shares. Do further research of your own or talk to a licensed financial adviser before acting on the information below. In some cases, selling shares can crystallise capital loses or gains, depending on the share’s performance, and have tax consequences and transaction costs. Selling shares too early, or too late, can pose other problems for a portfolio.]
 

1. You have achieved your investment goals

If you have accumulated sufficient funds (after any taxes and brokerage) and plan on executing your goal within 6-12 months, you may want to consider the timing for selling any shares required for this purpose.

It’s not unusual for shares to experience fluctuations of more than 5% in any given month – the broad Australian market index over the last 12 months has experienced four months of price movements greater than 5% up and down. 

2. The investment case has changed

There are times when things change that can result in your investment thesis changing and you decide it’s no longer in your interests to continue to hold. 

Examples may be change in regulation that impacts a business, or an unexpected incident or fault resulting in falling profits. Or perhaps there’s a change that increases the profitability of a business, but the change doesn’t align with your personal preferences – an example may be that, to reduce input costs, a packaging business no longer uses recyclable materials. 

3. It's time to rebalance

Managing risk is an important feature of a well-managed portfolio and due to market movements, a portfolio can become either over or under exposed to risks (or not enough risk) for your stated risk tolerance. 

For example, if Australian shares experience a major correction, you may find your portfolio has a greater weighting towards fixed interest as a result. A rebalance in this example, trimming some of your fixed interest in favour of adding to your Australian shares brings your portfolio back toward your risk tolerance – in this case adding risk in an effort to make greater long-term returns – and it means you are adding extra shares at a time when prices are lower. 

Note that rebalancing might be an annual event, may not be at the same time of year and in some years doesn’t need to happen. It all depends on market conditions. Also, beware of rebalancing too often – you could be selling investments that are performing well and are expected to continue performing well and adding ones that are inferior.  

Having an adviser can help you to determine a risk tolerance suited to your personal circumstances, and to monitor your portfolio to determine if and when a rebalance is needed and keep you on track to meet your goals within a risk level you are comfortable with.

4. You have made a mistake

Part of the investing journey is making mistakes – you may have overestimated the business case for investing, got caught up in the hype of a good story which turned out not to be a good investment or fallen in love with a business after investing so much time researching it and can’t bring yourself to let go. Having the discipline to sell when you make a mistake is an important part of investing.

5. Be alert. Is it your emotions selling?

Investing in shares involves risk. There’s an old saying: the admission ticket to the share market is volatility. Volatility is a measurement of the up and down movements in a share price. Most investors have a stronger emotional reaction to volatility when prices are going down and this can lead to poor decision-making, including selling shares at the wrong time. 

During these periods it’s good to remind yourself of your goals, consider whether the fundamentals of the companies you’ve invested in have changed and remain calm. 

6. Consider taxes and costs

A part of each decision to sell requires you to consider taxes and costs. Capital gains are included in your tax return in the year you sell any shares and generally are taxed at your marginal tax rate. 

Tax losses can be used to offset gains either now or can be carried forward into future tax years. It’s important to seek tax advice so that you fully understand your unique tax situation and avoid any unexpected tax bills.  

Also, consider transaction costs – the cost of buying and selling shares, which can add up if you transact regularly.

7. Enjoy the journey

Investing is all about using your capital to earn the highest rate of return possible within your investing comfort zone – your risk tolerance.  

Constantly reminding yourself of your destination – achieving your goals – can keep you on the investing road. It’s rarely a freeway and like any scenic route it requires time, patience, avoiding potholes, driving safely and occasionally changing direction. Enjoy the ride as you drive towards your goals. And if you need a co-driver, consider finding an experienced and qualified financial adviser. 

DISCLAIMER

The information contained in this report is provided to you by Morgans Financial Limited as general information only, and does not consider an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.