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Money Matters


By Mary Lynne Dahl, Certified Financial Planner ™


July 07, 2020
Tuesday PM

jpg Money Matters by Mary Lynn Dahl

Mary Lynn Dahl

(SitNews) Ketchikan, Alaska - At some point as an investor, you may need some cash from your investment portfolio. It may be for a major purchase or it might be that you need ongoing income. Regardless of the reason for needing the cash, you will face the question of how to decide which shares to sell to get the cash or income that you need.

In addition to selling shares to get some cash, you may also want to sell shares in order to change the balance of your portfolio. For example, if you decide that you have too much invested in financial stocks and would like to replace that part of your overall portfolio with shares of some other sector of the economy, the way to do that is to sell some of the financial fund shares and reinvest the money from the sale of those shares in another type of fund which invests in a different sector. This is called “rebalancing”. It is often done to keep a portfolio in a specific mix of differing types of funds and is a smart way to manage a portfolio.

Both are reasons to sell shares. One is for cash to spend and the other is to “rebalance” the portfolio. So, how do you do that? Do you use a strategy or do you just throw darts? What is the best way to approach the act of selling shares?

There are two theories of how to decide which shares to sell when you need to sell shares. This is true whether you are selling in order to get income/cash to spend or just to remodel a portfolio that has too many eggs in only one or only a few baskets.

One theory is to sell your “losers”. These are the funds that have not performed well over time when compared to other very similar funds or to the market in general. Getting rid of losers is ok if you have good, solid reason to believe that they will continue to underperform significantly. However, it is not a good idea to dump a fund that suddenly falls in value for a short period of time if the reason is explainable. Selling just to get out because you are fearful of paper losses or as an attempt to “time the market” is a bad idea and does not work.

The other theory is to sell your “winners” and reinvest in other categories or in shares of the other funds you have in your portfolio already (if the are different). So why would anyone sell their winners? Isn’t that counter intuitive and stupid? No, it is not. It can be a brilliant strategy and is used a lot by very savvy investors. The key is to sell off the “basis or the gains of your winners” rather than all of the shares. The basis is the original amount of dollars invested. For example, if you invested $10,000 in XYZ fund which has grown in value to $35,000, you would sell $25,000 worth of shares in that fund, reducing it back to a value of $10,000 and invest the $25,000 in something different. Or, if you built this fund over time with $10,000 in periodic contributions and now it has doubled in value, you could sell a specific percentage of the fund that equals your gain. An example is that if your fund has grown in value from $40,000 to $80,000, it has doubled so your gain in value is 100%. You would sell your gains of $40,000 (50% of the fund) while you keep the other 50% of your winner fund and diversify the gains into other funds that have the potential to become winners as well and produce even more gains.

Although it is effective, selling your winners is a proven strategy that many people are very reluctant to try. They are emotionally attached to their “best” funds but afraid to sell their “worst” funds, preventing their portfolios from the chance for better returns and better than average performance over time.

Note that I keep saying “over time”. Short term investing is not a smart strategy, ever. Smart investing is done with a long-term perspective, no matter your age. I have been saying this for over 35 years now, and know that nothing good comes of short-term investment goals or strategies that are based on greed and fear.

These selling strategies of winners and losers that I have outlined above are time tested and conservative. You can ignore them and let emotion guide your investment decisions, or you can become an unemotional, smart and systematic investor with a view to the long term. You will lose some and win some. You will go through ups and downs in the market. You will make a few mistakes; everyone does because no one has a crystal ball to predict the future. But as long as the world runs on an economy of buying/sellimg goods and services, businesses will sell their shares in order to have operating capital, profits and value. As long as people buy Coke, and laundry soap, and shampoo and beer, businesses will offer shares that have the potential growth, income and real value.

You can either do this well and increase your potential for better returns on your invested dollars, or you can hide your dollars in “safe” accounts that will not perform and will lose value as cash, due to inflation. Take your pick.

If investing is your choice, know when and how to decide to sell shares. For most people, figuring out which fund shares to sell when you want to rebalance or get cash is harder than which fund shares to buy when you want to invest.

My next article will give you some sensible and proven ways to evaluate funds when buying them. See you next time!



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©2020 Mary Lynne Dahl, CFP® is a Certified Financial Planner ™ and partner in Otter Creek Partners, a fee-only registered investment advisor firm in Ketchikan, Alaska. These articles are generic in nature, are accepted general guidelines for investment or financial planning and are for educational purposes only.

Mary Lynne Dahl ©2020

Mary Lynn Dahl can be reached at


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