So, now that we’ve clearly identified the problem, what’s the solution? Here are the steps we recommend for our clients:

1. Give yourself grace and understand the role emotion can play. We all want to think of ourselves as logical versus emotional investors, but emotion always plays a role. It’s essential to realize it and limit its impact.

2. Set price targets ahead of time. Again, this isn’t important if your investments are only in a diversified index or mutual funds, but it is important if you have something you need to sell. We typically recommend limiting any one individual stock to a maximum of 5% of a client’s portfolio. If an investment has grown well beyond that range, it may be time for a trim due to the excess risk from a lack of diversification. Setting price targets ahead of time eliminates the emotion on the day the investment reaches that target because the decision was made ahead of time. (Note: The 5% individual stock max will not be practical for those executives who get paid a large portion of their compensation in stock, but we believe it is good guidance for everyone else.)

3. Think in ranges rather than exact numbers. If you didn’t set a price target on a specific position ahead of time, thinking in ranges for assets that have grown may be helpful. Here are a few examples: If a stock has traded within a certain degree over the last 24 months, consider targeting that range’s upper half or quartile for an exit. Also, regarding retirement, advertisements on TV have convinced us we all have an exact number we need to get to for retirement, and if we fall below that number, financial security is lost. Your advisor can help you determine what range you need to be in, but please don’t anchor to an exact number for your own sanity.

4. Don’t let the tax tail wag the dog. Tax mitigation is very important, but no one ever went broke paying taxes.

5. Be clear about your goals. For most investors, the exact price of an investment is less important than their ability to meet their financial goals. Make sure you are in touch with what the money is truly intended for. If you have already achieved financial security, you might not need the emotional turmoil and stress of trying to perfectly time every investment transaction (which isn’t possible anyway).

CEO, Best Upon Request: A Culture of Caring and High Trust

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