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What to do with shares after the market plunge
Buy high, sell low (or is it vice versa, I forget)
With this global stock market turmoil the question is - what to do with shares? Sell, cut the losses (if there is still anything left) and lick the wounds or sit tight and wait it out, hoping for markets' speedy recovery?
depends on 3 things:
1) what you've got shares in
2) what your long term investment strategy is
3) your personal like or dislike of risk
1) what you've got shares in
2) what your long term investment strategy is
3) your personal like or dislike of risk
Well, if the shares you have are in sound companies that will be around in a few years, now is the worst time to sell.
The markets will not recover speedily. However, they will recover one day, or else our civilisation is doomed.
You should never invest money you might need over the next couple of years.
The markets will not recover speedily. However, they will recover one day, or else our civilisation is doomed.
You should never invest money you might need over the next couple of years.
Sell them to me.
you STILL have shares? Amazing!
I would BUY now.
I would BUY now.
It's a decision tree:
1. Is this money that you have an immediate need for in the next three years? If so, you shouldn't have had it in equity shares to begin with. Consider taking your lumps.
2. When did you purchase the shares? If the answer is last year at the peak, that's a different thing than shares you've held for a while that may still have some associated capital gains. Selling now created a taxable event, whereas riding it out does not. Long-term (>12 months, non-taxable in Germany until next year, 15% in US) vs. short-term (marginal income rate in both jurisdictions) should govern your decision.
3. Could you use any resulting capital losses to offset other capital gains/ordinary income on your income taxes? If so, selling could make sense, especially if the shares have little prospect of reaching previous highs ... you could redeploy the cash into something else and potentially cut your loss in half depending on your marginal tax rate.
4. Are the shares in financials? I personally believe the game has changed and bank/financial shares will start to trade like regulated utilities, with little prospect for long-term capital appreciation and/or fat dividends. Consider selling.
5. If they're non-financials, what's the dividend yield? You may be cutting off your nose to spite your face if the dividend yield on shares that have gone down a lot in price is higher than the interest you could earn on the cash you'd have left over after.
6. Do you believe in the future? If you don't, then you should sell. If you do, then you shouldn't, and maybe should average down your cost basis. Let's say you bought 100 XYZ at 100 in 2006. It's now trading at 50 in 2008. If you opt to use the average cost method for capital gains, then you could triple your position and own 300 at 67. If it goes up to 100 again as markets inevitably bounce, you could have a lower-taxed long-term gain at a lower blended cost basis, versus having bought a new position and being on the hook for short-term gains on a similar gain.
The foregoing is solely my personal opinion.
1. Is this money that you have an immediate need for in the next three years? If so, you shouldn't have had it in equity shares to begin with. Consider taking your lumps.
2. When did you purchase the shares? If the answer is last year at the peak, that's a different thing than shares you've held for a while that may still have some associated capital gains. Selling now created a taxable event, whereas riding it out does not. Long-term (>12 months, non-taxable in Germany until next year, 15% in US) vs. short-term (marginal income rate in both jurisdictions) should govern your decision.
3. Could you use any resulting capital losses to offset other capital gains/ordinary income on your income taxes? If so, selling could make sense, especially if the shares have little prospect of reaching previous highs ... you could redeploy the cash into something else and potentially cut your loss in half depending on your marginal tax rate.
4. Are the shares in financials? I personally believe the game has changed and bank/financial shares will start to trade like regulated utilities, with little prospect for long-term capital appreciation and/or fat dividends. Consider selling.
5. If they're non-financials, what's the dividend yield? You may be cutting off your nose to spite your face if the dividend yield on shares that have gone down a lot in price is higher than the interest you could earn on the cash you'd have left over after.
6. Do you believe in the future? If you don't, then you should sell. If you do, then you shouldn't, and maybe should average down your cost basis. Let's say you bought 100 XYZ at 100 in 2006. It's now trading at 50 in 2008. If you opt to use the average cost method for capital gains, then you could triple your position and own 300 at 67. If it goes up to 100 again as markets inevitably bounce, you could have a lower-taxed long-term gain at a lower blended cost basis, versus having bought a new position and being on the hook for short-term gains on a similar gain.
The foregoing is solely my personal opinion.
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