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Holding On or Letting Go: Lessons from the Ageless Family Christmas Tree (and Your Investment Portfolio)

Confused man

If you were to visit my house sometime soon you might think it's still December. Never mind the gray skies, cold weather and bear trees. My family Christmas tree still stands tall without being dressed in twinkling lights and slightly dusty ornaments. Yes, the one we cut down as a family tradition the weekend after Thanksgiving. That's the one. There it stands outside my home proudly in the corner near our entryway. Here we are, on the cusp of May, and this festive fellow refuses to give up the ghost. It's a bit of a tradition in our family – we cherish the beauty of the tree for as long as possible, pushing the boundaries of its lifespan to comical extremes. I say "we" but it's really my thing. I think of all the time it took to find the perfect tree, cut it down, decorate, water it, sit by the fire with a glass of vodka or bourbon, and enjoy staring with a smile ear to ear. It's a reminder that life is too fast. That's why I'm in no rush to tear down the decor, yank the tree out of the stand then hall it out to the curb on Christmas night like so many do. There's no right or wrong, only preference. This is mine and I can be a stubborn fella so I don't see this changing anytime soon. The first year we tried this I had no idea how long we could keep it alive or at least preserve most of its grace without too many needles changing color or falling off. Surprisingly, we're able to keep them anywhere between four to six months! I'm sure I'll get some that hate on me for doing this but it's just a thing I do.

Exit sign

This extended holiday cheer got me thinking about a similar concept in the world of investing: knowing when to exit a position. Am I trying to hang on to a tree I should let go or am I actually getting some value outta the darn thing? Just like my stubborn ways of hanging on to the Christmas tree, holding onto an investment for too long can have diminishing returns.

There's no single answer to the "when to sell" question. How could it not be that simple? Why should it be more than buying something with a target then selling it and moving on? It's a complex dance involving various factors, some as personal as the twinkle lights on my tree. Yeah, that kinda personal! Let's untangle some of these considerations:

  • Profit Party or Panic Button?  Did you snag a stock that skyrocketed, leaving you with a hefty profit? Think a booming tech stock or random small cap that actually panned out for once. Or has a particular investment turned south, leaving you underwater? That'll certainly test your nerves and make you tell yourself, shoulda, woulda, coulda. Both scenarios might prompt a reevaluation. Just like that dusty tinsel, an investment that's no longer aligned with your goals might need to go. A lot should boil down to why you bought in the first place, what your intentions are, and an exit strategy.

  • Account Type Matters:  Is your tree (or your investment) nestled in a tax-advantaged retirement account? If you call property taxes in New York tax-advantaged! 🤣 Selling alone in a retirement account is one thing, but early withdrawals might come with penalties, so you might be more inclined to hold on for the long haul. On the other hand, a non-retirement account offers more flexibility for selling but that can also wake up Uncle Sam and require you to pay some taxes and even have them considered ordinary income. Yuck, that's no fun.

  • Risk Tolerance and the Crystal Ball:  Are you a thrill-seeking investor comfortable with volatility, or do you crave the stability of a well-lit evergreen (even if it's a little past its prime)? We work with all types of investors. Your risk tolerance plays a crucial role. Ideally, your initial investment thesis considered the stock's potential growth trajectory. Has it reached its projected peak, or is there room for further appreciation?

  • Planning for the Future:  Think back to why you bought the stock in the first place. Did it align with your long-term goals? Has the company's direction shifted, or have there been new market developments that impact its future outlook? Understanding your time horizon and investment goals is key. It's not buy and sit on your hands, but you should have a long-term perspective on the stock otherwise you're buying on speculation and that can be a messy game.

Long stretch of road at night

Just like that inevitable day, I'll have to dismantle my festive friend, exiting an investment requires careful consideration. There's no one-size-fits-all answer, but by factoring in these elements and conducting thorough research, you can make informed decisions.

Remember, a diversified portfolio is like a well-decorated tree – a vibrant mix of elements that bring beauty and balance. Don't be afraid to prune underperforming investments to make room for fresh opportunities that align with your financial goals and risk tolerance. After all, unlike my resilient (and slightly embarrassing) Christmas tree, the financial markets are constantly evolving. Evolve with it or remain stuck in the mud. Your plan should be a living, breathing document. It should change and adapt to the times.

Oh, and just to clarify, that is my actual tree and it is a tradition of mine. The wife and family are as embarrassed as can be. Me, not so much. 🤭

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