We’ve noticed that some clients have two problems: significant cash balances as well as significant capital gains. Clients can sometimes be torn between investing more, or lightening up. On an investment journey, those courses of action seem small now but are crucial over the long run. Here are four reasons you might want to sell.
1. My life changed
I want to buy something for my family. A vacation for a family of four with flights, dinners, itineraries, hotels, experiences, etc., is expensive. It also might cost as much as 10% of your annual income for a 10 day experience. Expensive but worth it. So is education for your family members, a memorable wedding ceremony or assistance with a down payment. You might tap your portfolio to access these things.
I see an opportunity. Maybe it’s time to take on a position in an investment that’s unique to you and only you because you’re close to the founder, know that investment landscape very well, or have some particular insight by virtue of your experience that others wouldn’t be able to see. It’s less “being the smartest” and more “being in the right place at the right time, and without feeling pressured by money stress, a spouse or yourself”.
My income dramatically changed. After Alex sold his company he decided to stay on for one transition year to help smooth the transition for his team. He couldn’t stand the new working environment so he took some time off to figure out his next move. Since his income just dropped by a few hundred thousand per year, he needs to figure out what to do next. We helped create a strategic buffer by selling carefully selected securities and tax lots to cover new costs and keep Alex risk constant.
I made partner. I’m flush with more and more cash every month. Let’s take some longer term riskier bets so I can achieve a higher return. In other words, skip the bonds. We have many suggestions for this type of investment scenario.
2. The market changed, BUT, my life hasn’t
Bubble? The press loves a bubble, or at least the prospect of one. If the prospect of a bubble isn’t worth it to you, meaning you would feel horribly stressed, sick to your stomach or paralyzed by a -20% turn in the market, sell down your riskier positions before you get there. That’s often a very personal decision. Some people prefer to accept the prospect of a lower return in order to preserve capital and the freedoms that come with it. For some, that might mean going all the way down to CDs and accepting no more than +1.4% (as of June ’17). (We don’t charge a fee on cash management) That’s what a fiduciary does – custom portfolio management for personal situations.
Global crisis? Once we’re in a global financial crisis, it’s not too late to rebalance, is it? Unfortunately, yes it is. Disciplined investors will be balanced going into the crisis because they’re sticking to their all-weather strategy. It can feel annoying to sell assets when they are performing well – as one does when they rebalance, but it’s all part of the discipline and we’re here to keep that going. Not to worry. Jeremy Grantham, a known bearish spotter of investment bubbles, recently stated, “this is the broadest market of all time… That is not the nature of a bubble.”
3. The market and my life changed, at the same time!!
This really is a worse case scenario. You end up retiring right when the market is crashing. The financial crisis leaves you with the gut wrenching feeling that you might be left out in the cold despite years of disciplined saving and investing – it’s unfair. In the case of 2008, it’s best to wait it out and keep expenses low. Resist the urge to sell when you see red. Crises are socially pandemic, meaning prices, rents and costs drop lower because demand is lower everywhere. You’re not the only one who is feeling the pinch. Look at your 3-5 year retirement window and make your decisions ahead of time. Hoping it simply won’t happen is a risky plan. We can help.
4. Neither has changed, all that much…
Spreads loosen a bit, your income is predictable, emerging market returns are positive, college is paid for, muni yields are still low but rising… Our advice, stay the course. If you have a regular investment plan, like $50K per month, stick with it. If you’ve committed (or we’ve committed for you) to keeping a certain balance, stick with it.
Keep your eyes open for opportunities, reinvest the profits, and keep updating your plans for the next 3-5 years. Resist the urge to tweak your investments just for the sake of tweaking. In the mean time, don’t forget to get your wills and trusts in order. We’re here to guide you through your investment journey and there’s always something to do. If you want, ask us, and we’ll give you a list. Or you might hear from us as a friendly reminder.
Max Osbon – email@example.com
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