The Right Time To Sell An Investment

Investment / Savings
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When is it actually the right time to sell or buy an investment?
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When is the right time to sell an investment?  When is the right time to buy?

Most people give the logical answer that the time to buy is when the price is low, and sell when it is high, but this creates three problems that need to be addressed.

 

Three problems with buying low and selling high with investments

 

Firstly, when has the high been reached?  Just because a share price, a fund or a market index has reached a never before seen high does not mean that it can’t go higher.  A quick look at the FTSE 100 index over the past 30 years shows that it has reached all-time highs more than 40 times (and you could argue it’s a lot more than that depending on how often you look).  Many highs are then followed by new, even higher highs.

Next, when is the bottom of a price fall and how quick, large and long will the falls be?  A fall that occurs for a day or a week and quickly recovers might happen too fast to be acted upon, depending on how the money is invested.  Some investment funds can take up to a week to buy or sell, and this is one of the arguments put forward by some fund managers and advisers for investing in daily traded investments.

Finally, what is done with the money between the sell and the next buy?  Leaving it in cash will often mean the money is losing value against inflation.  Putting it into a ‘safe haven’ such as Gold means it will be subject to the volatility, after all, investing in Gold is still risky and can be costly.  Moving into lower risk investments such as Gilts and Bonds will reduce risk, but does not guarantee there will be no fall in value.

 

When is the right time to invest?

 

The chance of making the ‘perfect’ call on these three factors every time is infinitely small.  The chance of making a ‘good’ call every time is still verging on zero, just ask any mathematician.  Then add to this the fact that every buy and every sell incurs costs.  You have to beat these costs just to break even.  

How then should investors decide when to buy and when to sell?

Over the past 20 years the FTSE 100 has made returns of over 170% (including dividends).  The Global stock market has made over 260%.  Being in the market (and ideally not just a single one but spread across all world markets) is the best way of making money in the long term, and it can be very inexpensive.  

So, the best time to buy an investment is…when you have money to invest.  The best time to sell is…when you need the money to spend.  Anything else is speculation and a very expensive exercise in trying to predict the future.

 
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