It’s becoming increasingly likely that the economic recovery from COVID-19 will be long and drawn out, which is not good considering that 3 million have been laid off over the last two months. Since the crisis began in Canada, MoneySense has been telling readers to hang tight with their portfolio holdings and not sell, and that’s been good advice—the S&P/TSX Composite Index is up 34% since March 23, while the S&P 500 has climbed by 30%.
While we still think people should stay invested, rebalance their portfolios and continue to save, knowing how difficult things may be financially for people over the next few months, there may come a time when you need to trade in your stocks for cash; though it’s great to have government programs like the Canada Emergency Response Benefit, for many people, the $2,000-a-month payment won’t be enough to make ends meet.
Selling stock isn’t as simple as it may seem. Just like you wouldn’t (or shouldn’t) buy stocks in an indiscriminate way, you don’t want to dump a bunch of companies without some idea of what it is you want to sell. You also don’t want to unload your entire portfolio, as you’ll still need some retirement savings and you’ll want those investments to grow as the market climbs higher. So, what is the best way to liquidate parts of a portfolio without putting your future at risk?
Start with your winners
The first place to start is to look at which stocks or funds have done well for you over the years. If you’ve made money off a company, then now might be a good time to take some profits.
Of course, a security’s performance will be largely dependent on when you bought in, but if you’ve been investing for, say, five or 10 years, there’s a good chance at least something you hold has made you money. This is especially true if you own a business that’s done well through the pandemic. Walmart, for instance, is up 56% over the last five years, while Shopify, which just became Canada’s largest company by market capitalization, has climbed by 2821% since listing in May 2015 and it’s up 88% year-to-date.
Brad Couttes, a financial advisor with Vancouver’s Nicola Wealth, also suggests looking at your gold holdings, which is an asset many people own as a way to hedge against a market decline. It’s up 42% in U.S.-dollar terms over the last five years, and up about 15% since March 18.
Keep in mind that you don’t need to sell it all; if you put $100 into a stock five years ago and it’s now worth $200, pare that investment back to your original investment amount. “Maybe you have too much in one sector or asset class and so it could make sense to trim a bit from here or there,” he says.
Sell the stocks you don’t like
It’s also important to think about which of your holdings will rise, either now or after the pandemic ends. If you’re bullish on a particular company, even if it’s taken a hit over the last two months, then keep that around. “In a perfect world,” says Couttes, “you wouldn’t sell the things that will continue to go up.”