Oct 20, 2022  | Tags: share market, shares

Our insights 

The sharemarket has been quite the rollercoaster ride in 2022.

The dips have outnumbered the climbs making it a real white-knuckle affair.

There is a great temptation to sell in turbulent times, particularly when the slides have been so dramatic.

The reality is, even the most experienced players on Wall St don’t know with any certainty what’s around the corner.

That’s why when considering whether or not to dump a stock, there are a number of factors you should weigh up before making a decision.

Stock analysis

Consider what stocks you own and their durability in the current climate.

Rising inflation is prompting governments to hike interest rates in a bid to slow spending.

This makes investors nervous and pivot towards stocks that perform better in that climate.

Energy prices are one of the chief drivers of rising inflation, hence stocks in energy companies and utilities are more attractive and particularly hardy at the moment.

Conversely, stocks with a high price-to-earnings ratio tend to fall because people are less inclined to want to invest for the long term.

Hence, tech shares have been among the hardest hit.

Consider your investment goals and strategies

History has proven that the only reliable way of ensuring success in the share market is to take a long term approach.

But it is possible your investment goals may have changed.

Perhaps you invested when you were single and now want to use that money for a downpayment on a house.

Or maybe you have decided to switch your investments to property.

Whatever the reason, remember diversifying is key to any successful investment portfolio and you should always seek quality advice from a professional before making any big decisions about your investment strategy. 

Put a plan in place

Too often, investors are panicked into making emotional decisions when selling shares.

When considering selling shares, it is prudent to employ a sensible strategy that works irrespective of economic conditions.

Long term thinking - If you’re working with an adviser and have a long term plan for growing wealth, you’ll likely invest in blue chip stocks and ride out the lows as you stick with the plan.

If you’re active in the market, you’ll play the game differently.

Trailing stop - a trailing stop is a safety net designed to help you crystallise profits and minimise losses. It is a commitment to sell a stock when it falls beyond a certain level. If the stock rises in price, so too does the trailing stop. But the trailing stop never moves backwards, meaning that as soon as a share starts tracking in the wrong direction, the stock is sold.

Bad news bear - this strategy relies on watching how a stock performs when it reports good news. If it can’t outperform the market or show a significant uplift in its better days, it’s usually a solid indication that not all is well. It’s probably time to sell before some bad news has a far more telling impact.

Dividends

The decision whether or not to hold a share shouldn’t just be about its price.

Many Australian shares pay handsome dividends and will continue to do so, even if their price falls.

Those dividends make up a significant income stream for investors and their yields far superior to anything banks will offer for term deposits, especially when the tax (franking credits) benefits of some company dividends are considered.

That income will be lost if the shares are sold.

Rebalancing your portfolio

Sometimes, share portfolios can become too heavily weighted in certain sectors.

This can be particularly poignant if the prevailing economic winds are not favouring the sector in which you are heavily stocked.

It may then be prudent to sell a percentage of your holdings in that sector and divert that capital into shares in other sectors with a more positive outlook. 

The cost of selling

There are three potential costs of selling, the first of which cannot be avoided.

Selling fees - transaction fees are charged whenever you buy or sell shares and this will potentially add to your loss.

Tax implications - selling shares may result in a capital gain which will result in a higher tax bill. Conversely, if you are selling a share because it is underperforming, the chances are you will have made a loss and this could reduce your tax bill.

Selling too early - if you sell too soon and the market improves, you may do yourself out of a tidy profit.

Get advice today

When dealing in the share market, the importance of playing the long game and not reacting to every economic downturn cannot be overstated.

Knee jerk reactions and jumping at shadows usually result in compounding losses that are rarely recovered.

Whether you’re weighing up big moves or not, it is really important to talk to a financial adviser. 

That’s where Calder Wealth Management comes in.

CWM has a team of financial experts who can help you make the best investing decisions for your long term interests. 

There really is no substitute for quality financial advice from someone personally invested in your future.

We can help you formulate a strategy that positions your portfolio to achieve your goals, and help you adapt to changing circumstances as needed.

We pride ourselves on leading our clients into the future with structure, financial stability and confidence.

Contact us today to discuss all of your financial needs and concerns.

Written by Anthony Hill.

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

CWM specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.