When should you sell an investment?
There are three valid reasons to sell: you need the money, the balance of your portfolio has drifted too far, or the reason you bought has changed. All three are about you or about substance. None is about today's price — and today's price is exactly why almost everyone sells.
The three valid reasons
The first is the simplest and the most legitimate: you need the money for what you set it aside for. That isn't a failure, that is the plan working.
The second is rebalancing: if shares have run up and now weigh 75% instead of the intended 60%, selling the difference puts the portfolio back where it belonged. The third is the most important: the reason you bought has changed — the company changed business, the fund changed strategy, your horizon got shorter.
The three that look valid and aren't
"It's fallen a lot, I'll get out before it gets worse." This turns a paper loss into a permanent one, and puts you in the position of having to guess when to re-enter — which almost nobody times, because the strongest rebound days happen inside the falls.
"It's risen a lot, I'll take profits before it drops" — which makes you sell what is working to keep what isn't. And "I read it in the paper": if a story is in the paper, it is already in the price.
The decision is made before you buy
The moment you think most clearly is before the money is in, when you have nothing to lose and no emotion in play. That is when to write down — even just a note — what the money is for, how long it must stay invested, and on what conditions you will touch it.
Whoever doesn't write it down ends up deciding during a 25% fall, with the news on. It isn't a matter of willpower: it is that almost everyone gets that decision wrong, taken at that moment.
In short
- Valid reasons: you need the money, rebalancing, the reason you bought has changed.
- Today's price is not a reason, up or down.
- The strongest rebound days fall inside the declines: getting out misses them all.
- Write your exit rules before buying, while you're clear-headed.
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