SMI regularly suggests that one’s investing decisions usually can be made with little regard for what’s going on in the investment markets. This seems counterintuitive. Let us once again make our case, then we’ll apply it to the question of deciding whether now is a “good” time to sell some of your stock holdings.

Where do investment decisions originate for many investors? The starting point is found in the impersonal “outside” world of current events, magazine articles, and “expert” recommendations. Their decisions are guided primarily by outside considerations. As they respond to the data thrown at them — sometimes buying, sometimes selling — their personal “inside” financial worlds take shape. Their thinking is “outside-in.” They need a continual stream of outside information to stimulate their thinking and provoke them to action. Decision-making would be impossible without it.

For other investors, the starting point of decision-making is “inside” information. The focus is on their own financial needs and a personalized long-term strategy designed to meet those needs. Their buy/sell decisions are made based on what’s required to make sure their financial holdings are in accord with the game plan.

This is “inside-out” thinking, where decisions are primarily shaped by inside considerations. Thus, current market fads, trends and so-called expert opinions are largely irrelevant to inside-out investors. The “outside” world of investment professionals comes into the picture only when assistance is needed in executing decisions already made.

We’re encouraging you to be an inside-out thinker. In other words, make your investing decisions as you would other consumer purchasing decisions. For example, if your family has grown to the point that you need a minivan to haul everyone around, you wouldn’t buy a sporty little MX-5 Miata instead because a magazine article said they’re “hot” at the moment. Or, if you need a medicine that lowers your blood pressure, you wouldn’t let a glowing recommendation from your druggist convince you to bring home the leading antihistamine for allergies instead.

It would be foolish to let irrelevant external influences (outside-in thinking) steer you into making such inappropriate purchases. Instead, you make your decisions based on your needs at the time, irrespective of what the marketplace would like to sell you.

This is obvious, you say. Yet, many people have a difficult time applying this consumer mindset to their investing decisions. One frequently-asked questions in recent months has been a variant of “With this bull market now in its ninth year, should I sell some of my stock holdings now?” These folks may decide whether to reduce their stock holdings depending on how volatile the market has been, what the business magazines say, what action the Federal Reserve may take, or — heaven help them — what our best guess might be.

Outside-in thinking will never tell you whether it’s a “good” time to sell stocks because no one knows what the market will do in coming months (as evidenced by the continual reporting of conflicting opinions from Wall Street’s bulls and bears).

Here’s a checklist an inside-out investor might run through in deciding the “Is it a good time to sell?” question.

  • Is my financial foundation rock solid? That is, am I debt-free (at a minimum, SMI encourages readers to be debt-free with the possible exception of a reasonable mortgage) and is my emergency-savings fund sufficient? If not, I should sell enough stock (or stop contributing to my 401(k) plan long enough) to repair the cracks in my foundation.
  • Are my earlier assumptions about my lifetime earnings, retirement and lifestyle goals, health needs, and life expectancy still acceptable? If in doubt, I should once again run the numbers (the MoneyGuidePro® software described in SMI’s February 2017 cover article provides a valuable tool for working through these issues). The results might dictate a change in my portfolio mix between stocks and bonds (see The Sound Mind Investing Handbook, page 159 or the Getting Started section of the SMI website).
  • Am I currently using investing strategies that reflect my emotional tolerance of risk? The wrong time to make adjustments to your plan is to wait until a bear market arrives, then panic and sell based on the overwhelming emotion of the moment. Knowing yourself, and building an all-weather portfolio that you know you can ride through the next bear market, exemplifies a healthy inside-out investing approach. It may lead to some selling in one strategy now in order to transition into another strategy.
  • Are my protective boundaries still in place? (See Seven Key Principles For Christian Investing in the SMI Bonus Reports section.) If not, what adjustments should I make at this time? For example, I lose needed diversification if more than 15% of my total investments is in the stock of my employer. In that case, even if I think my company’s stock will do well in the future, it’s probably wise to sell the excess and reinvest the proceeds in other assets.
  • Am I meeting my giving goals? If not, perhaps I should make lifestyle adjustments or sell some of my stock holdings to fund additional giving.

Notice that the focus is on the personal needs and circumstances of the individual, not on the headlines of the day — which almost never tell you anything that will enhance the quality of your decision-making. While current events may provoke you to run through your personal list of review questions, they should not dictate the answers.