You’ve decided to cash out your stocks, and you’re ready to hit the sell button. Before you do, however, it’s important to ensure that you’ve got your bases covered and have considered the four factors on this list.
The first thing to consider is the tax implications that come along with making a capital gain. Tax is a messy beast. Something that starts off as a small mistake can end up having serious ramifications, so it’s important to get things right the first time. The total time you’ve held the shares for, whether you’ve been making use of a dividend reinvestment plan to take advantage of compound interest, and other factors will all come into play here.
With this in mind, it’s a good idea to speak to a tax agent before making any decisions. Even if you’re selling for less than you purchased the stocks for, they’ll also be able to help you claim back any losses, so you’ll take less of a hit to your back pocket and hopefully increase your next tax return.
Your Rate of Return
They say that you should buy when there is blood in the water, but unfortunately, that’s only possible because so many people panic and sell when stocks crash. Unless you absolutely must have the funds from your stocks immediately, we suggest carefully considering whether it is actually necessary to sell if the market is at a low point.
In many cases, stock values will bounce back, and you haven’t technically ever lost (or made) money on shares until you cash out. So, if you have the ability to ride the market dip out, you could find yourself in a much better position financially.
Your Purpose for the Funds
Investing is generally seen as a strategy for a better future, but if you only sold because the market was high, suddenly having all that extra money in the bank can be quite tempting. While there’s nothing wrong with enjoying the fruits of your labor, it is worth looking at reinvesting some of those funds, even if it isn’t back into the stock market.
Bonds can provide good returns, as can term deposits. Likewise, a retirement account, like a Self-Managed Super Fund, can be a great long-term investment strategy if properly managed. Just be sure to consult an SMSF accountant if you go down this route.
The Impact of Lost Dividends
Finally, if you’ve been taking your dividend yields as income each cycle, you’ll now need to consider whether the loss of income from those dividends will affect your budget in any significant manner.
Even if it’s only an extra couple of hundred dollars a month, the difference can quickly show when it’s lost, so you should always carefully revisit your budget before making any decisions that will affect your cash flow. The immediate cash injection will obviously be wonderful, but the longer-term implications must also be investigated and prepared for if you want to maintain financial stability.
No matter how easy it may seem to get into (or out of) the market, buying, holding, and selling stocks are complex actions that need to be carefully considered if you want to make the best decisions for both your current and future situations. The considerations in this list are general in nature, and your personal problems or goals must also be taken into smsf account. If you are at all unsure whether selling is a good idea, we strongly suggest seeking the assistance of a professional. It may cost a little now, but it could save you a lot down the track.
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