Making the decision to “sell” something is just as hard as it is to make the decision to “buy “ an asset. Most of the advice clients seek revolves around purchasing a particular investment but very little is asked about when to sell an investment.
Before you sell any investment there are a multitude of factors to consider including the costs involved in the sale, possible tax implications and your current situation. As a general rule it is worth remembering that assets (or money) are like soap the more you touch them the less you have left. However sometimes you need to exit investments, and it pays to know when to sell.
With this in mind there are a number of factors that may trigger the decision to sell an investment and these include,
1. Adverse regulatory changes
Where the government enacts laws that make it more difficult for a business or asset to operate this is likely to impact the future profits of that investment and the value will likely fall. Imagine the impact on property prices if the government introduced a capital gains tax that caught all property investment gains for everyone?
2. Industry Changes
The world is changing and to remain relevant businesses need to embrace change. Unfortunately the corporate world is littered with examples of those that didn’t including Kodak, book hops and many video rental businesses. Nothing stays the same forever and technology can very quickly erode any economic advantage a business once enjoyed just ask the owner of a Newspaper.
3. Deteriorating Financial Conditions and Yield
Where the financial position of an investment is falling this is a major red flag. With listed investments those looking for a sustainable yield need to pay particular attention to sales, earnings, expenses and cash flow. Whenever a business is in trouble the yield is one of the first casualties.
4. The need to re-balance your investment portfolio
Reweighting or rebalancing your investment portfolio regularly is a disciplined way of ensuring that you reduce the overall risk to your financial assets. The expression don’t have all of your eggs in the one basket is as true today as it has ever been.
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