How to Know When It’s Time to Cut and Run On an Investment

Nobody ever likes to admit when they are wrong, but sometimes it really is best to just cut your losses and run. This can apply to many different things in life, from relationships to money, but since this blog primarily focuses on good personal finance habits, let’s dig straight into the money parts.

Investments

Let’s face it — the odds are you’re eventually going to pick a loser and end up taking a big loss on a stock. When you buy individual stocks, a big risk you take is that the investment can lose money. As such, you should make a set of rules for yourself as to when you should sell. For example, you might decide to sell when the stock goes down 10%, or maybe 20%. Whatever threshold you choose, think about how you could be using that same amount of money to invest elsewhere rather than having it sit in a losing investment just tying up valuable cash.

The bottom line is that you should have a rule in place that you execute across the board once a stock drops below a certain percentage. That allows you to take emotion out of the equation, and cut your losses when you need to.

Real Estate

Real estate is another investment where you sometimes have to decide when to cut and run. For example, if you have a vacation home or timeshare which you no longer use, you may want to consider selling it. The good news is, when the housing market is down, people will still buy homes as long as they are listed for reasonable prices.

Timeshares, however, are a much harder sell. If you want to sell your timeshare, you may not get too much for it. But, by not having the timeshare, you will save yourself from paying your annual maintenance fees.

And by getting rid of any excess property, you can also save yourself from paying extra property taxes or other fees associated with them.

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