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Shaky stock markets and growing concern about recession raise a question if you’re an investor who remembers the carnage of 2008-09.

Should you take profits on your stock market holdings and hold cash, or ride out whatever’s ahead? Here’s one reader’s take on this theme: A few years ago, she bought a U.S. equity fund that has increased in value by 22 per cent. “How do I judge when to sell?” she asked. “I can’t imagine it continuing to rise much further. I know this is a newbie question but would like some guidance even if it’s just a general answer that would be instructive to the rest of us newbies.”

This is a question relevant to all investors right now, not just newbies. It’s getting tense in the markets today – bond yields have plunged and stocks had a nasty time of it last week. No one wants to see investments that have done well get whacked.

Here’s a quick guide for everyday investors on how to judge when to sell.

  • Consider your time frame: If you’re decades away from needing your money, then making adjustments for anticipated short-term market ups and downs can be a wealth destroyer. It’s brutally hard to time your exit and re-entry properly. If you’re coming up to retirement, then now is a good time to reassess your asset mix and possibly get more conservative.
  • Does the investment still make sense for your portfolio? Core stocks and funds will get hammered, then recover. Be tougher-minded in assessing any speculative holdings you have in your portfolio. They may need to go.
  • Rebalance: What was your original target mix for stocks and bonds? If your current mix is different, sell a little of your winners and buy losers to get back into balance. Bond yields are low and falling, but you need bonds to cushion against a stock-market plunge.
  • Easy on the cash: It’s comforting to keep money in cash, but there’s a risk you never invest it and thus deprive yourself of potentially better returns from stocks and bonds.

The mark of a savvy investor is not how you deke around bear markets. Rather, it’s how you take advantage of market declines by buying more of the core stocks and funds that are selling at bargain prices.

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