Money Management

There are good and bad reasons to sell stocks — do you know the difference? 

The stock market has been very turbulent recently, and many investors might be tempted to sell their stocks and stay on the sidelines. And that’s especially true if your stocks are down — after all, losing money can be scary, and it can seem like a good idea to cut your losses, especially with many experts calling for a recession.

However, it’s generally not a smart idea to sell a stock just because the price went down. In this article, we’ll discuss some good reasons to sell stocks, as well as when you shouldn’t.

Good reasons to sell

Every situation is different. But for the most part, the good reasons to sell stocks fit into one of these categories:

Your reasons for buying no longer apply — For example, if the company you invested in starts losing market share to its competitors, it can be a good reason to walk away.You need the money — I generally suggest that any money you might need in the next couple years shouldn’t be in the stock market, but if you need the money, it can certainly be a valid reason to sell. For example, if you’ll need to pay your child’s college tuition in the fall, it could be a smart move to sell some stocks and put the money in a savings account or CD until you need it.You need to rebalance — It’s generally a good idea to maintain an asset allocation that fits your risk tolerance and to avoid putting too much money into any single stock. So, rebalancing your portfolio can be a smart reason to sell some stocks.Your stock is being acquired — If the company you invest in agrees to be acquired by another company, it can be a good reason to sell and move on.You find better opportunities — If you find an incredible buying opportunity in a company you have your eye on, it can be a good reason to sell some stock to free up cash in your brokerage account.

Bad reasons to sell

I alluded to this in the introduction, but it’s generally a bad idea to sell a stock just because it went up or down. If you’re a long-term investor, you own stocks because you think they’ll perform well over the next five, 10, or 20 years — not to cash out when they first start doing well.

I’ve discussed this many times, but this is a lesson I learned the hard way. I bought Tesla stock shortly after its IPO and decided to sell when MotorTrend named the Model S its 2013 Car of the Year and the stock nearly tripled. But the company was doing everything I hoped, and there was no real reason to sell other than the price. If I had held on, I would have ended up with a six-figure profit.

On the other hand, selling just because a stock went down is also a bad move. It’s common knowledge that the goal of investing is to buy low and sell high, but getting rid of a stock “before things get any worse” is literally doing the exact opposite. Now, it can be a good idea to sell if a stock’s price went down and something changed in your investing thesis. But price alone is a bad reason to sell.

Sell for the right reasons

Even the most notorious buy-and-hold long-term investors, like Warren Buffett, sell stocks regularly and for a variety of reasons — but not just because of price. There are certainly some good reasons to sell stocks, so before you do, look through the list in this article to make sure you aren’t selling for the wrong reasons.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Matthew Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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If you hate airport security lines, this could be just what you need. 

Spring break is nearly upon us, and while that means R&R and nicer weather for a lot of people, it also means painfully long lines for all those flying to their destinations. Waits could be especially bad this year, as the Transportation Security Administration (TSA) predicts that travel volumes could exceed pre-pandemic levels.

If you’re looking to cut down your wait times, you could try enrolling in TSA PreCheck. Here’s what you need to know in order to decide if it’s right for you.

What is TSA PreCheck?

TSA PreCheck is a service the TSA offers to help travelers proceed more quickly through airport security. Passengers who pass the required background checks and pay the fee can go through the special TSA PreCheck lines at the airport. They also won’t be required to remove shoes, laptops, small liquids, belts, or light jackets when going through the scanners.

In February 2023, the average TSA PreCheck passenger waited less than five minutes in line to get through security. And if you’ve ever gotten stuck in line while your flight’s about to board, you’ll know how valuable that is.

Is TSA PreCheck worth it?

In 2023, you can pay for TSA PreCheck expedited screening benefits for an $85 fee. This is valid for five years, and all children aged 12 or under traveling with you can join you in the TSA PreCheck lines for free. This amounts to a total cost of about $17 per year.

It’s not a bad deal, especially if you travel frequently. But it may not be worth it if you only fly once or twice per year.

Those with an airline credit card may be more motivated to pursue TSA PreCheck because some of these cards reimburse cardholders for the necessary fees. So you could essentially get your TSA PreCheck benefits for free. Look into this if you have an airline or travel credit card.

But before you make your final decision, look into Global Entry as well. This program is similar, but it’s aimed at providing faster U.S. customs screening for international travelers. It costs a little more at $100 for five years, and the application requirements are a little more stringent. But if you enroll in Global Entry, you automatically receive TSA PreCheck benefits as well.

How to apply for TSA PreCheck

There are two steps to applying for TSA PreCheck membership. First, you must fill out an online application with some basic personal information, like your name, date of birth, and contact information. Then, you must schedule and attend an in-person appointment at one of over 500 enrollment centers throughout the country.

At this appointment, the TSA will fingerprint you and conduct a background check. You could be disqualified from TSA PreCheck for having certain felonies on your record or if you’re under want, warrant, or indictment for a felony.

You’ll need to bring documents proving your identity and citizenship. An unexpired U.S. passport will do, but you can also use an unexpired Enhanced Driver’s License or Enhanced Identification Card. Immigrants may bring an unexpired foreign passport and their immigration visa or a green card. Here’s a complete list of valid identification documents you can use to get approved.

Most people are approved within three to five days, though it can take up to 60 days to get approved. So if you plan to travel in the near future, it’s best to do this right away if you want to skip the lines on your next trip.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Citigroup is an advertising partner of The Ascent, a Motley Fool company. Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.

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It’s an alarmingly large number. 

Buying a home is a huge financial undertaking. And it’s important to err on the side of being conservative when taking on a mortgage loan.

In fact, a good rule of thumb is to make sure your total predictable monthly housing costs don’t exceed 30% of your take-home pay. But recent data from Today’s Homeowner reveals that many homeowners aren’t sticking to that guidance at all.

Some homeowners are in over their heads

On a national level, U.S. homeowners spend an average of 28.4% of their pre-tax income on mortgage payments. And homeowners in 21 states and Washington, D.C. spend more than 30% of their median household income on mortgage payments.

That’s a problem, though, because when we talk about keeping total monthly housing costs to 30% of pay or less, it’s not just a mortgage payment that needs to be accounted for. Rather, that figure should include all fixed, predictable ongoing housing expenses, including:

Property taxesHomeowners insuranceHOA fees for those in homes that are subject to themPMI (private mortgage insurance) for those who don’t put 20% down on a conventional mortgage

In fact, some financial experts will even tell you that the 30% threshold should include expenses like maintenance and repairs. However, you’re okay to leave those out for a couple of reasons. First, they’re generally not a fixed expense. Secondly, you may not have to pay for them every month. It is important to have plenty of money set aside for home-related repairs and emergencies in a savings account, though.

What happens if you go overboard?

Spending more than 30% of your take-home pay on housing could have serious consequences. For one thing, you might fall behind on some of your bills, forcing you into expensive debt and causing your credit score to take a massive hit.

Plus, if you take on housing costs that are too high, you might fall behind on your mortgage itself and risk losing your home. So rather than run that risk, aim to stick to the 30% rule.

If you bring home $4,000 a month after taxes and other deductions from your paycheck, that means you really shouldn’t be spending more than $1,200 a month on housing expenses in total. So if you’re looking at signing a mortgage that will leave you on the hook for a monthly payment of $1,175, you’re actually risking getting in over your head, since you won’t have much wiggle room to pay for other things like property taxes and insurance while sticking to that 30% threshold.

Now, it may not be easy or feasible to keep housing expenses to 30% of pay or less in some parts of the country. If you’re moving someplace where the average cost of a tiny starter home is $1 million, then you may be looking at higher housing expenses that are just plain unavoidable.

But for the most part, try your best to keep your total housing costs to 30% of your pay or less. Doing so might not only help protect your finances, but also, make it so you’re not walking around perpetually stressed over the cost of being a homeowner.

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It’s not a perfect situation, but all is far from lost. 

You’ll need savings of your own to cover your living costs in retirement, since Social Security won’t be enough. And so by the age of 40, you should ideally have some money socked away in your IRA account.

But what if that’s not the case? You may have put off retirement savings in your 20s to focus on things like paying off your credit cards and educational debt. And you may have spent your 30s saving up to buy a home, covering the mortgage payments associated with that home, and paying for childcare so you could hold down your job.

In fact, it’s easy to see how you may have gotten to your 40th birthday without any money in your IRA. And rest assured that you’re not the only person in this situation.

But it’s a situation you need to remedy, and soon. By age 40, you may be close to the midpoint of your career, which means your window for saving for retirement is dwindling. So if you’ve yet to fund your IRA, it’s time to make those contributions a big priority.

How much should you have in your IRA by age 40?

Fidelity says that by age 40, you should ideally have three times your annual salary socked away in your IRA. So if you earn $75,000 a year, it means you should be aiming for an IRA balance worth $225,000.

If your balance is $0, it means you clearly need to play catch-up. The good news, though, is that there’s time to play catch up if you start prioritizing your long-term savings.

First, take a look at your budget and see what your essential and non-essential expenses entail. You may not have much wiggle room in the former category. But if you’re willing to make sacrifices in the latter category, like canceling cable, dining out less frequently, and taking cheaper vacations, you might manage to ramp up your IRA contributions quite nicely.

Another strategy you can use is banking your raises as they come in. If you make a point to save all of the extra money you get in your paychecks year after year, you can get into a good groove. And that might make it so you can fund your IRA steadily without having to deny yourself the things you enjoy.

In fact, let’s say you’re able to start pumping $400 a month into your IRA, and that you do so for the next 25 years. Let’s also assume you’re able to invest that money at an average annual 8%, which is a reasonable assumption for a window that long. (For context, the stock market’s average over the past 50 years is around 10%, as measured by the S&P 500 index.) All told, that would leave you with an IRA worth about $350,000.

Don’t panic, but get serious

If you’re 40 years old with no money in an IRA, there’s no need to panic. But you should also recognize that if you don’t make an effort to start saving soon, your retirement might truly suffer. Rather than run that risk, do what you can to start funding your IRA immediately — even if it means having to make some sacrifices along the way.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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It’s not a great situation to be in at all. 

Even before inflation started to surge, many Americans were living paycheck to paycheck. But a recent survey by SecureSave found that 74% of Americans live paycheck to paycheck today.

That means they have no money in their savings account to fall back on. It also means they risk racking up costly credit card debt the moment an unplanned bill arises.

Not only can a paycheck to paycheck lifestyle be dangerous financially, but it can also be stressful. If you’re constantly worried about money, it might impact everything from your relationships to your productivity at work.

In fact, the aforementioned survey found that some Americans spend one to two hours a day worrying about money. And it’s easy to see why you might land in that boat in the absence of a financial cushion.

If you’re tired of living paycheck to paycheck, there’s one important step you can take to bust out of that cycle. It won’t be easy, and it won’t happen overnight. But in time, you can stop living paycheck to paycheck and start having less to worry about.

Build your emergency fund

When you live paycheck to paycheck, you might worry if your grocery bill for the week comes in higher than expected, or if your kids suddenly need new uniforms for an extracurricular activity. And these are relatively small expenses.

What if your roof springs a leak and needs a $700 repair? Or what if your car stops working and you’re quoted $1,500 to get it back out on the road?

When you live paycheck to paycheck, these are expenses you may not have a chance at covering without resorting to credit card debt. But if you build yourself an emergency fund, you’ll have cash reserves to tap when situations like these arise. And that might help you sleep better at night.

Ideally, your emergency fund should have enough money to cover three months of essential bills at a minimum. The logic is that if you were to lose your job, it might take that long to interview and get hired elsewhere.

If you’re living paycheck to paycheck with no money in the bank, you’re not going to suddenly come up with three months’ worth of living expenses in short order — even if you’re willing to work a second job to boost your income. But you don’t need to save three months of expenses right away.

If you’re able to save $300 in the course of a couple of months, that’s $300 you didn’t have before. And it buys you a little protection. And then, when you save your next $300, you’ll have that much more protection.

Set realistic goals

The idea of building emergency savings can be daunting. So rather than set lofty goals that aren’t realistic, be kind to yourself. If you’re able to trim a few expenses, it might put $100 in your savings account at the end of the month. Do that for 12 months, and you’ll be sitting on $1,200, which is a heck of a lot better than $0.

In time, you can, and should, aim for that three-month emergency fund. But for now, do your best to save something so you can stop living paycheck to paycheck with absolutely no cushion.

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You deserve a more positive outlook — and frame of mind. 

If you’re feeling down about your finances, and if financial worries are taking up way too much of your brain space, you’re not alone. A recent survey by SecureSave found that 75% of Americans are stressed out financially to the point where it’s impacting their productivity at work. Given that 74% of Americans are living paycheck to paycheck without any money in their savings accounts to fall back on, that’s not surprising.

If your mental health has taken a hit because your financial situation isn’t so great, it’s important to get ahead of that issue. As Suze Orman, co-founder of SecureSave, says herself, “When you can’t afford to pay your bills…it can impact your mental health and productivity.” So rather than continue to struggle, here’s what to do.

Build an emergency fund

Orman says that when you lack savings, “you live in a constant state of fear, shame, and anger.” And that’s clearly not a good thing.

Now, building a lot of emergency savings isn’t something you’re going to do overnight. But a good bet is to set small, attainable goals that allow you to build up some savings over time.

The aforementioned survey found that 67% of people could not cover a $400 emergency expense with money in savings. So let’s say you’re in that boat, and your savings account has less than $100 in it. If that’s the case, try to save $25 a week. If you stick to that goal, you’ll have $100 at the end of the month, and $200 at the end of two months. Keep it up long enough, and you’ll grow your savings to $1,000 or more, which buys you more protection against emergency expenses.

Get a handle on your bills

Inflation has been making it very difficult for many people to keep up with their expenses. If you’re barely scraping by, it may be time to get on a tighter budget and start cutting some non-essential spending.

To set up your budget, group your expenses into needs and wants. Your needs are your rent or mortgage payments, car payments, food, utilities, and healthcare expenses. Your wants are things like takeout meals, cable, and streaming services.

Once you’ve accounted for all of your needs in your budget, see how much money you’re left with each month based on what your paycheck looks like. That will give you a sense of how much you can afford to spend on wants.

You may find that you’ll need to cancel some services or subscriptions that aren’t essential to avoid a financial crunch. But shedding those expenses could actually give you more peace of mind, because you won’t be spending your paycheck in its entirety. And that way, you’ll be able to carve out a little money to save for emergencies.

It’s easy to see why so many people are grappling with financial worries these days. But if you make an effort to build some savings and take control of your bills, you might get to a much better place both mentally and financially.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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