Here at the Fool UK, we’re big fans of the Stocks and Shares ISA due to it allowing holders to shield any profits they make in the market (or income they receive in the form of dividends) from the taxman.
That said, there are some — but only a few — perfectly rational reasons to sell some or all of the shares held in this kind of account.
1. “I’ve hit my goal!”
Investing involves taking a long-term perspective. But ‘long term’ is not ‘forever’ — there should always be a point at which you reap the rewards from having the patience to grow your wealth slowly. That’s why financial goals are so important.
We will, of course, vary on what we’re shooting for, be it saving for retirement, a child’s university fees or travelling the world in style. Bereft of a target or two, you’ll never know when the time definitely is right to bank profits and leave the party.
If I manage to hit a goal in 2020, I won’t be afraid to sell and celebrate.
2. “I’ve picked a loser”
Not every stock you buy will work out well. Indeed, finding more winners than losers over your investing lifetime is an achievement in itself!
Selling an underperforming investment can be wise but only once you’ve ascertained why it’s doing so badly. Is the share price drop due to investors falling out of love with a particular industry or something specifically to do with that company? If it’s not doing worse than its peers and there are no other red flags, it may be best to hold on.
Fortunately for passive investors, none of the above applies. Since index trackers and exchange-traded funds generate almost exactly the same returns as the market once costs have been taken into account, there can be no underperformance as such. So selling just because markets are down is almost always going to be a mistake and one I’ll be avoiding.
3. “Disaster has struck!”
Sometimes, the reason for selling stocks has nothing to do with performance at all.
Unfortunately, not all expenses can be foreseen. The car that ‘never lets you down’ suddenly develops every fault imaginable; the job you’d never considered leaving is suddenly taken from you.
While there’s no way of predicting what’s to come with any certainty, you can take the sting out of any unpleasant surprises by building up an emergency cash fund. If you haven’t got one already, I’d make that a priority in 2020 so that you can avoid selling any investments and interrupting compounding unnecessarily.
If, however, you find that your cash savings can’t cover the cost of something, consider ways of making up the shortfall. My personal favourite is flogging clutter on eBay.
One last thing…
As you may have gathered, I’m not a fan of selling the stocks I own on a whim. Even two of the three ‘sensible’ reasons for doing so can be avoided through planning and research. This being the case, I’m hoping to do as little as possible to my ISA portfolio next year.
This includes not reacting to the latest geopolitical event. As those who backed out of stocks on renewed concerns regarding our EU withdrawal in December 2018 and didn’t return will know only too well, it’s time in the market that matters, not timing.
