I’ve been reallocating my investments in my Roth IRA over the last few days working under one simple principle: Would I buy it today at the current price?
It was easy to sell stuff that had gone up and I thought was currently overvalued. For example, I was up about 10% on Las Vegas Sands (LVS). I don’t think the economy is going to be really strong over the next couple years and I don’t see people going to Vegas to spend a bunch of money. I sold for a small profit.
Unfortunately I invested in a few companies that were down 10-30%. For example my investments in Bank of America (BAC) were down from where I originally purchased, but when I look at the US banking industry I don’t see it going up. I obviously don’t want to take a loss, but I didn’t want to risk an even bigger loss.
I sold for a substantial loss.
Compare Current Holdings to Investments You Might Buy
When I looked at the unrealized loss with BAC, I had to ask myself the following question: Would I rather have $500 worth of BAC today or $500 worth of a Gold ETF (GLD)?
Selling for a loss is hard to do mentally, but selling Bank of America and buying gold is the easiest decision I’ve ever made in my life. When I thought of it that way I couldn’t sell fast enough.
Every Dollar You Have Could Go Somewhere Else
I used to think I needed to accumulate as many dollars as possible. Now I’m worried that the dollar isn’t a stable currency and I think it’s stupid to have a bunch of dollars without having anything that’s physically valuable (like a house).
My only investment goal over the next 18-24 months to to have enough money for a 20% down payment on an awesome house. The problem is I don’t want to save up cash.
Yesterday the Federal Reserve announced another round of quantitative easing. That means they are going to print a bunch of money.
That also means that everyone’s dollars just got less valuable. If you are holding cash, you lost money yesterday. It’s important to be invested in something that will at least rise with inflation, and hopefully outpace it.
That’s why I’m moving my investments into a gold ETF (GLD), a gold mining ETF (GDX) Asia Pacific (excluding Japan) large cap dividend stocks (AXJL) and the Australian dollar (FXA).
At the end of the day, I had to decide if I wanted to hold Bank of America or get gold, gold mining companies, big international companies, and the Australian dollar. It was a no brainer.
Readers: Are you holding any investments (stocks, ETFs, your house) that you wouldn’t buy today? If so, how are you going to change it?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
I got a few shares of BAC at $5 and will probably take some profit soon. I guess it depends on where you got in. I also have some shares of SINA which took a bath… Not sure if i want to hold on to these.
Good for you buying low on BAC. I bought higher and had to take a big loss. I just don’t trust US financials at the moment (which isn’t so much a product of the financial industry as it is a product of the US government).
I only really have one turd stock in my portfolio at the moment at that is Boston Scientific (BSX). The only reason I have this stock is because I owned Guidant, which BSX purchased. BSX grossly overpaid (they did a 50% cash 50% stock purchase) for Guidant and I came out really well on that one. So even though BSX is down from my entry point, I am still up overall.
I also believe that BSX can make a comeback since they make stints and other heart related devices. Since the Obesity problem in American isn’t going away anytime soon, I’ll continue to hold this turd.
Of course I might sell it to offset a capital gain on a different stock in the future. But right now I don’t have anything I feel I have to sell.
Yep, some 50 shares of GSIT. Bought right before they got sued. It’s such a small amount I’m just holding it to see what happens with the lawsuit… which is still a bad excuse.
Took a bath on CRR too, but I’m planning on holding that one for a while.
Definitely learning that you make money when you buy, not when you sell.
I only have two mutual funds. VBIAX and VFIFX both of which I have no problem buying today. I don’t meddle with individual stocks because I don’t want to take the time to do the necessary homework to hold them.
really interesting points here kevin, and I find your pessimism kind of curious. You make a great point about buying investments today versus when you actually bought them, but I dont agree with taking a haircut because things have changed since you bought the stock. If you bought BOA or some other bank stock in 06, and hung on (for whatever reason) of course you wouldnt buy it now, but there’s no reason to lock in a loss unless you absolutely need the cash. It could go back up (you never know) just like it could (and did) go down from the time you bought it – and of course, had you known that when you bought it, you wouldnt have bought in the first place.
long story short, I probably wouldnt sell something just because I wouldnt buy it today unless I was really hard up for cash. I’d sit on it and hope to ride it out and try to get back to the break even point. It may not be possible, but you never know.
Every day is an opportunity to change your investments.
Look at where stuff is today. If you think Bank of America is overvalued and gold is undervalued then it doesn’t matter when you bought BAC and whether you are holding a gain or a loss. You sell what you think will underperform and buy what will overperform current prices.
Holding a company you think isn’t going to go up just because you want to avoid confirming the loss is an emotional reaction, not a logical one.
Good point kevin. Unfortunately, as much as we like to think ourselves rational beings, we are proven time and time again that is not the case.
What do you think about buying “Short S&P 500”, SH? I am sort of considering it, how much higher can the S&P 500 go from here?
I was taught at an early age to take the view every morning that you sold everything. Then you ask the question: what are the best investments for the future? If you hold A but B will do better for you, you’re better off selling A and buying B. The future is all that matters. Because none of us can tell the future, you’re bound to get some wrong. The best strategy is simply take those losses if buying something else will do better.
My variation of that is having a two year horizon. I ask myself: which stock will do best over the next two years? That allows me to not take one day’s fluctuations too seriously.
I have no interest in investing any time in the next 10-20 years ( read here for why: http://www.offroadfinance.com/2011/11/07/why-im-a-speculator-rather-than-an-investor/ ) but I would be perfectly happy to speculate to the long side from here.
You mentioned you’re doing this to save for a down payment in 18-24 months. Can you talk about your strategy? Are you going to withdraw from your Roth IRA when it’s time to make the down payment?
I have the same goal, to save to buy my own house in about 18 months. I’ve been saving cash for about 2 years, but still have a way to go. Meanwhile, I’ve been contributing the max to my Roth IRA every year. The problem is, I opened in 2010 so if I can’t take money out for a down payment on my first home penalty-free until 2015. I’m wondering if I should keep maxing out my Roth and wait until 2015 to buy?