Reasons to sell ASX shares may include the investment case for the company changing or an investor wanting to rebalance their portfolio, says Morgans financial advisor, Tania Smyth.
But it's important to remember that selling involves transaction costs and has tax consequences.
In an article published by the ASX, Smyth says there are six specific things investors should ask themselves when considering selling stocks.
Here they are in summary:
1. Have you achieved your ASX shares investment goals?
If you have accumulated sufficient funds (after any taxes and brokerage) and plan on executing your goal within 6-12 months, you may want to consider the timing for selling any shares required for this purpose.
It's not unusual for shares to experience fluctuations of more than 5% in any given month – the broad Australian market index over the last 12 months has experienced four months of price movements greater than 5% up and down.
2. Has the investment case changed?
Examples may be a change in regulation that impacts the business or an unexpected incident or fault that leads to falling profits for that ASX share.
3. Is it time to rebalance your ASX shares portfolio?
Managing risk is an important feature of a well-managed portfolio and due to market movements, a portfolio can become either over or under exposed to risks (or not enough risk) for your stated risk tolerance.
Note that rebalancing might be an annual event, may not be at the same time of year and in some years doesn't need to happen. It all depends on market conditions.
4. Have you made a mistake?
Smyth says it takes discipline to sell shares when you realise an error, adding:
Part of the investing journey is making mistakes – you may have overestimated the business case for investing, got caught up in the hype of a good story which turned out not to be a good investment or fallen in love with a business after investing so much time researching it and can't bring yourself to let go.
5. Is it your emotions selling?
Volatility is simply part of shares investing and shouldn't prompt rash decisions.
Most investors have a stronger emotional reaction to volatility when prices are going down and this can lead to poor decision-making, including selling shares at the wrong time.
During these periods it's good to remind yourself of your goals, consider whether the fundamentals of the companies you've invested in have changed and remain calm.
6. What about taxes and costs?
The sale of ASX shares triggers a capital gain or loss. Smyth says capital gains are generally taxed at an investor's marginal tax rate, while losses can offset gains now or in future tax years.
She says transaction costs can also add up quickly if an investor regularly transacts.
There are large fee variations among online and traditional brokerages.