Hey all,
With investing, there are two sides to the market: an upside and a downside. If you are holding a position, there is no doubt that you want to be on the upside. However, with almost every investments, there will always be a correctional period. When you believe it is time to scale back your position, here are some strategies you can take and the effects of each:
Selling off your entire position:
This strategy is effective when you believe the company had its run for its money, or there is news that can severely effect the value of the company. There is no shame in selling off your entire position and in fact it is sometimes the best strategy. When you sell off your entire position, you have three options:
- Completely cash out
- Reinvest elsewhere
- Wait for a good entry point for the investment you just pulled out of.
Typically, the third option is saved for investments that have higher volatility, as traders are constantly in and out of positions making little gains multiple times. If you are more of a long term trader, it is still important to know when is the best time to sell off your position. Another sell-off strategy is listed below.
Taking a Percentage of Your Profits Out:
An alternative to going all in and cashing all out would be to develop a strategy that only affects a percentage of your holdings. This is definitely a safer strategy, as you take out your profits along the way and leave no risk of those profits open to fall in value. You might've heard the phrase: take out your initial investment and let the profits ride. What this means is let's say you initially invest $500. Your initial investment then doubles and is now valued at $1,000. You would then take out your initial investment of $500 and let the remaining $500 ride. You can then cash out your initial $500 or reinvest it in another project. While this is an extreme case, you do not have to take out your whole entire initial investment. Many investors set a limit where they tell themselves something along the lines of "When I'm up 25%, I'll take out 10%". Everyone has their own strategy. The downside of taking out part of your initial investment is that the value of that investment could continue to go up. If you had not moved your investment, additional shares could have benefited more if you had just left it in. That's why there is always risk and reward.
As always, if you liked this post please be sure to leave me an upvote and follow me for more content and advice like this. If you didn't like it, let me know why in the comments. I'm curious to see where you all are with investing and also encourage you all to add more advice in the comments. Keep crushing it!
Alex