With the stock market at its high levels, many investors should review their portfolios to see if they have enough and whether they want to maintain their level of risk or perhaps take some money out of the stock market.
When you make a decision to reduce your equities, you will need to sell something. Here is the dilemma. How will you feel if you sell some stocks that then increase greatly in value? It would be human nature to be upset. Contrarily, how will you feel if you decide not to sell anything and the market drops? I am sure you would feel bad about that.
So, my question is. Where would you be more upset? Selling stocks that increase, or not selling, and the stocks decrease in value?
Both have the potential to get you upset. Where would you be more upset?
Just to guide you into a decision, when you review your portfolio, you should also review the cash flow it provides. If the cash flow is more than you need, then might I suggest you might be taking risks with no appreciative benefit. Further, reducing your risk by selling some stock might even increase your cash flow because the money market or T-Bill rates might be greater than the dividends you are currently receiving on the stocks you sold.
If your cash flow is below your needs, then perhaps you should take a different look at your portfolio and make some changes that would increase that cash flow. Stocks can increase in value but still pay low dividends. You will feel good when stocks increase in value, but the cash flow is still what you would need to spend.
Investing should have a goal to provide eventual financial security and the cash flow that comes with that security. Once your goals are met, or more than met, why subject yourself to a greater risk than what would be matched by a benefit commensurate with that risk? That is what the reality is once you’ve met your financial security targets. The gains will not cause a better standard of living, while losses might cause a decline in that. Think about this.
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