Objective information about retirement, financial planning and investments


I Just Want to Break-Even Before Selling


As a financial advisor this sentiment is one of the most frustrating things I have encountered over the years. Generally this is expressed by in connection with individual stocks. Many investors are reluctant to book a loss on a holding until the price recovers to the point where they have at least broken even.

Some investors are just incapable of admitting that they made a poor investment choice. This mindset can be a roadblock to investment and financial success.

I typically ask whether they would make this investment today. What happened in the past is irrelevant. The only consideration is your estimate of how this holding will perform going forward.

There is a huge potential opportunity cost of holding on until your investment breaks even. Could you have deployed these dollars elsewhere and earned a better return by booking the loss and moving on?

I generally subscribe to the use of an overall asset allocation for clients built from their financial plan. But that said, each investment holding needs to have a role in the portfolio. If the reason for keeping a particular holding in the portfolio changes I suggest eliminating or reducing that holding to my client.

Overall my message is that individual holdings are irrelevant. What matters is the overall portfolio and how that portfolio is performing relative to the client’s risk tolerance and relative to the financial goals that it is designed to fund.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.