Individuals can move money from stocks to cash in their brokerage accounts. However, doing so can come at a cost.
Investors who cash out of the market before the market rebounds risk missing the start of a rally, and they could miss out on potential gains. There are several reasons to consider before moving to cash.
Selling Stocks to Meet a Major Life Expense
Investors sell stocks to get the money they need for a variety of reasons. They may want to take a profit, avoid losses or rebalance a portfolio. They might also need the funds for a major life expense, such as a wedding or down payment on a home. The timing of a stock sale can have a significant impact on investment results. For example, selling a stock during a market downturn can limit the investor's ability to benefit from a recovery in the markets.
Regardless of the reason, investors should carefully weigh their options before selling shares. They should consider the tax consequences of a sale, including capital gains taxes, and reevaluate their goals and time frame. For example, young investors who invest in stocks as part of a retirement plan might shift out of the equity component of their portfolios as they approach retirement to reduce their risk exposure. Parents who are saving for a child's college education might shift to more conservative investments like bonds and cash as the student approaches graduation.
In addition, it's important to remember why the investor purchased the shares in the first place. Stocks are often purchased as part of a long-term investment plan, and selling them too soon runs the risk of missing out on years of future returns. Some of the world's most successful investors are able to compound their investments for decades, and those who sell in down times lose out on future gains.소액결제 현금화 루트
Moreover, moving to cash is often counterproductive. It's not just that the investor has moved from a paper loss to an actual loss; cash doesn't grow in value and is eroded by inflation over time. Buying low and selling high is one of the worst investing strategies in history, and cashing out during a downturn is likely to result in an even greater loss than a wait-and-see approach. The best way to avoid this pitfall is to make a solid plan and stick to it, but many people find that the lure of instant gratification outweighs the importance of an investment plan.
Selling Stocks to Lock in Profits
When an investor has made a substantial profit on a stock holding, they may decide to sell shares and pocket the profits. This can be a smart move, especially if there's a chance that the stock could experience a correction in the future. There are many ways to lock in gains, including using a stop loss, selling at an entry point or selling to rebalance the portfolio.
It's important to remember that a sale of stock results in capital gains, which are taxed. This is one of the reasons why it's important to know your financial goals, tax situation and investment objectives before making a decision to cash out stocks.
In order to sell stock, an investor must open a position, which involves placing a buy or sell order with their broker. A sell order specifies the number of shares (or units) they wish to sell, as well as a price at which they're willing to sell. Once the market has matched the sell order, the investor's profit becomes realized.
Investors can also use a method known as tax-loss harvesting to reduce their capital gains taxes by selling some of their winners and buying back some of their losers. This is done by comparing the current price of each stock to its original purchase price and only selling a portion of the winning positions that are above their initial purchase prices.
An old Wall Street saying has it that "nobody goes broke taking a profit." This might be true as long as you never lose more money than you invest, but if you're worried about the direction of the market or have seen your gains shrink as the stock has corrected, it might be time to sell some of your holdings and cut losses.
A tried-and-true method of locking in profits involves simply selling half your position when a stock doubles. This allows you to take your initial investment off the table and leave room for further increases, but still allows you to potentially compound those gains by shifting funds into other stocks that are just starting a new price run.
Selling Stocks to Avoid Losses
Whether you have invested for the long term or have a short-term investment goal in mind, your personal financial goals should play a central role in your decision to cash out stocks. Whether you are saving for a down payment on a home, trying to generate supplemental income as you approach retirement or are working towards earning a comfortable living in dividends, your time frame and the amount of money you need can influence when you want to sell.
Even the most skilled investors can lose money from time to time. As a general rule, if you have made significant gains from the time you bought a stock and then see it drop significantly, you should consider selling it to avoid a loss. However, if the stock drops as part of a market correction and you have an allocation percentage set in your portfolio that would allow for it to rebound, holding on can be prudent.
Investors should be aware of the tax implications of selling a stock, which is often reflected in the sales price. Generally, losses from investment assets are considered capital losses and can be offset against any capital gains shown on your income tax return. If you haven't done so already, be sure to consult with a tax advisor to understand the impact of selling a stock.
A good selling strategy can be to determine a predetermined stop-loss level that automatically cuts your losses if a stock goes too far down in value. This way, you don't get too hung up on the potential for exhilaration or regret that could lead to hanging onto your stock as it plummets, and instead focus your attention on making the right decisions in line with your investing goals. Investors who follow the time-tested rules of IBD's CAN SLIM Investing System often find that stocks show common characteristics on the way up and down, and this insight can help you make sound sell decisions.
Selling Stocks to Rebalance a Portfolio
Rebalancing is an important aspect of an investment strategy that helps keep you in line with your original asset allocation mix. Rebalancing involves selling some investments to buy others in an effort to return your portfolio to its desired percentages of stocks and bonds.
Rebalance your portfolio regularly to reduce the risk of getting too invested in one area or too under-invested in another. For example, if you're invested in stocks and bond funds that are supposed to be equally weighted at 70% each, but the stock market has boomed over time, your stocks might represent 80% of your total assets, which is much more risky than the initial 60% target you set for yourself. Rebalancing your portfolio by selling some of your current winners to buy investments in under-weighted areas is an effective way to keep the portfolio on track with its original asset allocation plan.
Many financial experts recommend that investors rebalance their portfolios on a regular basis, like every six or twelve months. Some use a calendar to remind themselves of this task, while others let the percentages of their assets held in each asset class be their guide. For example, if stocks rise and you end up with a higher percentage of your portfolio represented by this type of investment than you originally intended, then you might sell some of the stocks to purchase investments in bonds and bring the percentages back to the 60/40 ratio that you've chosen for yourself.
If you are investing through a robo-advisor that offers automatic rebalancing, such as Webull, the service will do this for you. However, if you're investing on your own or with an online broker, you'll need to decide how often you want to rebalance. Many investors choose to rebalance their portfolios in April (tax time) or December (a good opportunity to take advantage of tax-loss harvesting maneuvers).
You'll also need to determine whether your method for rebalancing will trigger transaction fees or capital gains taxes. It's typically best to rebalance in retirement accounts where the resulting transactions won't be subject to any tax penalties. But, if you must rebalance in taxable brokerage accounts, it's a good idea to discuss the matter with your tax professional before making any trades that could increase your overall investment costs.