Here’s when it makes sense to sell stocks

Maybe you’ve taken the usual personal finance advice to avoid staring at your 401 (k) balance during market volatility, and when stocks are going down or the headlines are screaming, you’re calm.

Overall, this attitude will serve you well. Over the past century or so, the S&P 500 Index has produced an average annual return of 11%.

However, there are times in an investor’s journey when it would actually be more helpful to pull out their card and make changes to their plan, experts say.

This revaluation can be especially significant after the long market rise: the S&P 500 has had a cumulative return of over 250% over the past 10 years, and during that time a $ 500,000 investment in the index would have reached over more than $ 2.3 million, according to an analysis by Morningstar Direct.

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“There are several instances where adjustments are warranted,” said Mark Mirsberger, CEO of Dana Investment Advisors in Waukesha, Wisconsin, which ranked No. 1 on CNBC’s FA 100 list in 2021.

If your short-term cash flow needs have changed, your allocation may also need to change, Mirsberger said.

For example, maybe you are about to need a down payment for a house, you are expecting significant medical expenses, or you have learned that your income will soon be reduced.

In such a case, you might want to withdraw the required money from your investment account and reallocate it to cash, Mirsberger said.

On the flip side, if you’re pushing a goal, it may be time to increase your exposure to stocks, said Nick Holeman, certified financial planner and head of financial planning at Betterment.

“If you were planning on retiring next year but had to delay those five years, your longer time horizon probably means you can afford to take a little more risk in your retirement portfolio,” Holeman said. .

Another reason to change your allocation is if your risk tolerance has changed, according to experts.

If you obsessively check your accounts or lose sleep at night, Mirsberger said, it could be a sign that you need to divert your money away from stocks and more to bonds, certificates of deposit, or even cash.

Just keeping your investment plan on track may require frequent changes, said Allan Roth, CFP and founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado. After a long bull market, many investors will find that stocks take up more of their portfolio than expected.

“I believe in maintaining a relatively constant asset allocation,” said Roth. “This means when stocks go up you have to sell to rebalance.”

“When stocks accumulate, you have to buy,” he added.

At least once a year, investors should make sure their planned allocation is still intact, said Carolyn Wegemann, senior director of public relations at Vanguard.

If you find that your desired allocation to an asset is five percentage points or more lower, “consider rebalancing,” Wegemann said.

After a few years of strong markets, some retirees may want to revisit their portfolios, said Alex Doll, CFP and president of Anfield Wealth Management in Cleveland, Ohio.

“We tend to be way ahead of what we planned to be,” Doll said. In some cases, it will reduce their stock accordingly.

“This allows us to stay on track while reducing portfolio risk a bit,” he said.