Everyone should think about keeping some of their money in stocks. Even though stocks don’t give you anything you can use right away, they can pay dividends and might increase in value. Since 1926, the S&P 500 has, on average, returned about 10% per year.
At a certain point, cashing out some of your stock investments to reap the benefits makes sense. If you never use the gains from your investments, then what’s the point of investing in stocks in the first place?
Stocks, unlike physical things like property that you can actually use, or collectibles such as art and wine that you can enjoy in a more tangible way, don’t provide immediate pleasure. So, it’s crucial to see stocks as tools to help you reach your financial targets.
When to Think About Selling Stocks
Let’s skip the idea of trying to time the market since predicting its moves is extremely hard. Instead, let’s look at solid reasons to sell off some stock:
1) Getting a car: If your stocks have done well enough that you can buy a car with the earnings, it might be time to sell. But remember to follow sound financial guidelines, like spending only a fraction of your income on a car, since the market tends to go up over time.
2) Paying for college: A lot of parents save for their kids’ college in accounts like 529 plans or Roth IRAs, which grow tax-free. Selling stocks and bonds in these accounts to pay for school is simple. Just make sure the degree is worth the investment.
3) Buying a house: Real estate usually doesn’t earn as much as stocks, but it’s less risky. If you’re planning to stay in one place for a while, using stock profits to buy a house can be a smart move. Plus, you get a place to live and the chance for the property to go up in value.
4) Handling emergencies: It’s smart to have some money set aside for unexpected costs. If an emergency comes up that costs more than your emergency fund, you might need to sell some stocks.
5) Planning for retirement: For many, the main reason to invest in stocks is to have money for retirement. It might be tough to start using your investment money, especially if you retire early, but it’s part of making sure you can enjoy your later years.
Choosing Which Stocks to Sell
Active investors might wonder if they should sell stocks that are doing well or ones that aren’t. Usually, it’s best to first sell the ones that aren’t doing well to take advantage of tax breaks for losses. If you need more cash after that, then consider selling some of your successful stocks, ideally in a way that evens out gains and losses.
Selling stocks is a key step in achieving your investment goals. It’s about striking the right balance between growing your wealth and enjoying life.
Exploring Investments in Private Growth Companies
Investing in private growth companies in areas like AI, fintech, and proptech is another exciting option. Platforms like Fundrise have opened up venture capital, letting investors get into these innovative sectors with much lower barriers than traditional venture capital funds.
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