Questions To Ask Before You Liquidate Your Stocks

Because liquidating is something that will happen at some point in time, the goal is to make sure you are doing it for the right reasons. Here are a few questions to ask yourself before deciding to call a stock quits.

First off, if you’re investing in stocks, the goal is to hold for the long term. However, it’s only normal you get to this point. It might take decades, but liquidating is inevitable.

There are a million wrong reasons to liquidate your stocks and more often than not, they lead to poor results. From loss in value to tax costs, the risks could be disastrous.

Notwithstanding, because liquidating is something that will happen at some point in time, the goal is to make sure you are doing it for the right reasons. Here are a few questions to ask yourself before deciding to call a stock quits.

What Was The Reason You Got The Stock In The First Place?

Before you purchased the stock, it is expected that you had carried out a level of research first. Based on the information you had at the time, the stock was a worthy option.

It might have been paying great dividends or had a growth potential that was worth it. If, however, you changed your objective along the way due to new information or enhanced understanding, then it’s okay to loose the dead weight.

If the reason for getting the stock does not seem to be playing out or most probably will not, you can let it go.

Have You Carried Out A Cost-Benefit Analysis?

What are the possible losses you can incur and what are the possibilities of them occurring? Are there costs associated with removing your funds? For example, there could be capital gain taxes you have to pay as a result of the gains on your investment. If the cost is not worth the process of pulling out your funds, you have to reconsider your choice.

Is The Reason You Want To Pull Your Funds Temporary?

This is where most of the wrong decisions are made. People, because of temporary volatility, temporary financial needs, or temporary economic challenges pertaining to a specific industry, sell their stocks only to regret is later? Is it an issue the organization can resolve in a period of months or short years? Then it might not be worth liquidating.

Are You Trying To Rebalance Your Portfolio?

The goal is to have a diversified portfolio. This typically involves a healthy mix of stocks in diverse industries, of different sizes, and purchased at different prices.

In the process of diversifying, there are situations where you unknowingly end up overweight on some stocks or some industries. For example, you might end up heavy on agricultural stocks. One main purpose of a balanced portfolio in the first place is to control your risk exposure.

If there is an economic crisis that affects only the agricultural sector and your portfolio is heavy on agricultural stocks, your entire portfolio will be threatened. If you need to rebalance it, then it’s a good enough reason.