The stock market is trading at all-time highs. The S&P 500 topped 4,000 this week, it’s up more than 53% over the past year, and investors are euphoric. As the market climbs, is it time to sell stocks? Unfortunately, there is no one simple answer for everyone, so let’s examine a few reasons to sell your holdings.
- You need money. If you don’t have an emergency fund or your cash balance is low, sell some shares to meet your needs.
- You need your money in one year or less. Stocks have generated substantial returns over time, but they can be extremely volatile in the short term, producing significant gains or painful losses. If stocks drop when you need the money the most, it may impact your goal.
- You’re 100% invested in stocks. If you’re allocated 100% to equities, sell shares to add bonds or cash to your portfolio. The bonds and cash will lower the volatility in your account.
- Your risk exposure is too high. Last year, stocks soared. If you didn’t rebalance your account, your stock exposure might be too high. For example, if your target equity exposure is 70% and jumped to 80% last year, sell 10% of your holdings to reduce your risk.
- One or two stocks dominate your portfolio. If a stock accounts for more than 25% of your assets, consider selling some shares to reduce your exposure to 10% or less.
According to Dimensional Fund Advisors, when stocks reach all-time highs, they keep going. After one year, stocks were 14% higher. As stocks continue to rise, enjoy the ride. Don’t worry about a correction, instead focus on your goals and your plan. If your plan is working, stay the course.
Given a 10% chance of a 100 times payoff, you should take that bet every time.” — Jeff Bezos
April 7, 2021
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
 DFA 4S Framework: Stock Market Conditions – 1926 to 2018.