Right Time to Stop Investing2012 Feb 2
Investment Has Its Beginning and Ending
Everybody is talking about investing as a necessary thing. And maybe it is true in some way because investment portfolio may be significant stabilizer over life period. That stability provides safety, and the safety is one of most important things in the life.
However, we are not coming in to this world only for stability and safety. I am not sure what those other purposes are, but I’m pretty that there must be some of those. Yet, this is another topic. As for now, let’s get back to investing. It is obvious that if you have some free cash, you should invest it (the question is only what investments to choose), because money have to work and nobody should argue about that. If you have enough of money then money could even work instead of you, and that would mean that you are no longer in need to go to the job.
Invest Is OK. But for How Long?
But now I want to raise another question. When to stop investing? If you would ask, why to stop investing, I could say that everything has its beginning as well as its ending too. Investing one day also should end. In life you can be completely sure only about thing only: sooner or later life will go to an end. Let’s hope that it will be later, but we never can be sure about it. The wide known true is that there is no reason in being the richest man on the cemetery.
All this is about the right time to sell investments. That means to use your capital to meet your need. Well, if you have hundreds of millions or billions worth investments, you may need some charity to do as well. However, most of the people are fully capable to spend their investments by themselves.
If you will keep all your savings till retirement, it might happen that during retirement you will have more money to spend than during all your life. That is not very proper. To determine what exactly you need for retirement you should know what will be your retirement benefits from all the other sources. Then you should calculate what additional income is needed for you to make monthly income equal to your salary or at least that such your retirement income would reach 80% of your current salary. And the amount that you are lack of, you should receive from investments. Most of the investments should come as dividend yield and interests, but during time you also should be able to use some of main capital for spending during retirement because there is not the best choice to die wealthy.
If you are already rich enough, then you don’t need to wait for official retirement. When your potential income from investments (only in stable measures) reaches your earnings from job, it means you have full potential to start your early retirement or increase spending rate, and there is no reason to increase investment amount any more.
However, it is not an easy decision to make turnaround in your brokerage account balance. If you were allocating every month some amount of capital, it may not be so easy mentally to stop that. But you will get used to that very soon…
When to Sell Stocks
Still, buying and selling stocks is all about timing. Timing at investing is one of the most important things. If you will decide to sell stocks during stock market crash, it may be a big mistake. As the saying goes, buy low sell high. And that much of a true. Stocks have to be sold for a good price when valuation multiples are high or at least normal.
The best time to sell stocks is during bull market when everybody is bullish and are thinking that stocks will rise forever. When you see a parabola chart in stock price indices, it may be a signal of an investment bubble and maybe it is the right time to sell stocks. Maybe after that stocks will continue to rise even more and you never can be sure about that. But you will never earn all the money in the world. Sell your stocks gradually, for example every 5% in a quarter.
Of course it is just one of many possible investment strategies. The particular actions of yours should depend on many factors including yours personal characteristics and family needs.
By Rokas Lukosius, author of the book Investing For Beginners Exposed
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