Page 29 - Waterfall City Issue 5 May 2024

a stock if you want to increase your How do you plan to reinvest than CGT rates, so it’s crucial to keep
exposure to ETFs or fixed income. the proceeds from the sale? this in mind. Furthermore, remember
Your decision should be guided by that you’ll need cash to settle the CGT
Another example of rebalancing is why you’re selling in the first place. Is liability with SARS, so factor this into
when a single holding becomes too it due to specific stock reasons, or are your cash deployment strategy after
big when considering your overall you temporarily stepping back from selling a stock.
portfolio. This could be due to the the market until your predetermined
value of the share increasing materially entry levels are reached for re- It is also important to remember that
over time, resulting in concentration entry? If it’s the former, you’ll need your financial adviser can play a crucial
risk, which could, in turn, justify taking to explore alternative investment role in this process, particularly since
profits. options since keeping cash may not they consider your long-term financial
yield returns that outpace inflation in goals holistically.
Despite these guidelines, choosing the the long run.
opportune time to sell is never easy. They will ensure that you approach
When selling a stock, you are effectively Also, remember the challenge of timing the transaction objectively and do not
giving up further equity upside, so your re-entry into the market. The resort to panic selling. They will also
ensure that you are comfortable living recommended approach is to avoid assist you in deciding whether to sell
with share price moves after you have trying to “time the market” and execute your full holding or a portion of it.
sold. Also, ensure you are selling the your buy order when the appropriate
stock in the context of your financial time arrives. Speaking to an adviser
plan, which outlines your investment Finally, your adviser can clarify the
and financial goals for the short and Considering taxation repercussions of the sale, particularly
long term. Selling a stock triggers a Capital Gains regarding tax implications, and help
Tax (CGT) event. Additionally, investors determine your next investment based
Just as there are guidelines on when to will face taxes on interest income on your predefined investment goals
sell a stock, there are also guidelines on at their marginal rates if they invest and risk profile, ensuring that your
when not to sell. the sale proceeds in a cash solution. overall portfolio remains balanced and
Marginal tax rates are typically higher aligned with your goals.
#1: Don’t sell a stock just
because its price increased
Winning stocks increase in price for
a reason, and they also tend to keep
winning.

#2: Don’t rush to sell a stock
solely because its price has
dropped
First, assess if the broader market is
experiencing similar movements or
if there’s specific news affecting the
company, potentially causing the dip. It
could be a one-time event.

#3: Review the company’s
track record
Check if the company has faced similar
situations in the past and bounced
back. Evaluate the competitive
landscape as well. If competitors
haven’t experienced a dip, investigate
why and assess whether you still have
confidence in the company’s strategy.

Once you decide to sell a stock, there
are further considerations to bear.

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