Should investors cash out

Think in terms of things like a spectacular vacation or a one-time major gift. The reasons to raise cash shared above are tremendously strong ones. If any of them apply to you, by all means, go ahead and convert some shares into cash and enjoy the benefits that come from the improved liquidity you have.

If, on the other hand, you're just nervous because the market is up, you might want to think again before raising cash. Over the long haul, the market has provided investors with solid total returns from compounding of both growth and dividends. That growth over time means the market has regularly hit new highs in the past -- and continued to grow after hitting them.

So don't let the mere fact that the market is up drive you away from owning the stocks of great companies with strong long-term growth potential. Instead, evaluate those businesses based on their prospects and current market values. If the stocks' recent gains simply mean that the market is finally beginning to recognize those business' true potential, then you would likely be doing yourself a favor by continuing to hold.

Regardless of what you end up doing, a new high in the market does give you a great opportunity to evaluate where your cash position is compared with what you really need it to be. If it turns out you do need more cash, you'll be able to get away with selling fewer shares than you would have before at a lower price. If, on the other hand, it turns out that you've got the cash you need, then that's a good thing, too.

It should help boost your confidence to ride out any market volatility. So take advantage of the market's recent rise to consider whether your cash reserves are where you need them to be. If you let that drive your actions, you'll likely find yourself better prepared to handle whatever the market does next.

Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Stock Market Basics. Stock Market. Industries to Invest In. Getting Started. Planning for Retirement. Retired: What Now? Personal Finance. Credit Cards. About Us. Who Is the Motley Fool? Fool Podcasts. Her interest rate is 4. She also has a large emergency fund.

Is it a good idea? William already has a good interest rate too. But he still owns his home and can always use his leftover monthly income to invest extra in stocks or save up for a future investment property. Mortgage Refinance , Mortgages. Mortgages , Mortgage Refinance. Advertiser Disclosure. Understanding and monitoring a company's fundamentals are critical when investing in individual stocks. Investors should educate themselves on how a company earns revenue, its profit, and how dominant of a player it is versus its industry.

If an investor holds onto an underperforming stock or is lagging the overall market, it may be time to sell that stock and put the money to work in another investment. Sometimes it may make sense to sell a stock if a company has been acquired or merges with another company. Many times the stock price can rise dramatically if it is acquired for a significant premium.

As a result, investors may sell the stock after the merger. Investors familiar with technical analysis and charting can use various indicators to analyze stock price movements and establish a predetermined sell signal.

For example, a simple moving average SMA represents the arithmetic mean of the closing prices over a specific period. If a stock's price declines so that its day moving average MA crosses below its long-term day moving average, it might signal a change in its trend.

It also could signal that the company's fundamentals have deteriorated or that economic conditions for the sector have changed. If investors believe that a moving average crossover will lead to a prolonged downtrend, they might unwind the position. Many technical indicators exist that can help investors monitor their stock portfolio and help them make more-informed investment decisions.

Some investors can't hold onto a stock forever and ride out market corrections and large selloffs. If an investor needs the money in a few years and a recession occurs, it might be another few years before the investment recovers to pre-recession levels.

As a result, buy and hold portfolios can lose some or all of their gains. A few bad stocks might be enough to drag the portfolio into a negative return. Merely holding a well-run company doesn't guarantee the stock price will rise indefinitely.

In particular, those in retirement should be careful as to the level of risk being taken when investing since the money will be needed to provide income. Investors may sell a stock that's experiencing a loss and unlikely to get back to profitability. The loss can be used to offset capital gains realized on other stocks and, perhaps, lower the tax bill. However, a buy-and-hold strategy can help to lower capital gains taxes.

A stock held and sold for a period greater than one year might be taxed at the more favorable long-term capital gains tax rate instead of the higher, short-term rate. Please consult a tax professional to review your specific financial and tax situation before selling a stock or investment for tax purposes.

Before selling, it's important to consider which stock will be sold first because it can impact your tax situation. Typically, a stock that's sold is done so on a first in, first out FIFO basis unless otherwise stated. If you wanted to hold onto those shares, you can select which shares to sell at the time you place the sell order.

Selling an investment is like buying one—you have to make sure it is in line with your investing and financial goals. Also, it's important to understand your risk tolerance and time horizon. Please consult a financial adviser to help you develop a short and long-term financial plan. Internal Revenue Service. Portfolio Management.

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