In the months following the presidential election the major indexes all rose to new record levels. Washington turmoil has put a pause to the market’s rally, but many stocks remain new their highs, and have possibly assumed too great a position in your portfolio.
It is never easy to sell a winning position. It becomes very easy to convince ourselves that winning stocks will continue to win, but that is not always the case, and sometimes we must force ourselves to lock in some gains.
The biggest problem that comes from a stock enjoying big gains over a short time period is that they can throw a portfolio out of balance. A balanced and diversified portfolio is crucial to long-term investment success, so we much constantly pay attention to each holding in our portfolio.
Take for example insurance provider Aetna (AET). After Trump’s victory, and with interest rates rising, you may have thought the stock was a good buy in November. AET was trading at $109.74 the day before the election, and shares are currently trading at $140.86. If you had bet on the interest rate sensitive stock rising after the election, you could be looking at a 28.5% gain on paper. The problem is that if you allocated 3% of your overall portfolio to AET, that percentage is much higher at this point, and you would need to unload some shares in order to bring your portfolio back into balance.
Let’s take a look at a few stocks that have enjoyed big gains in recent months that are probably throwing your portfolio out of balance. Each of the stocks have been outperformers, and in every case there are good reasons to continue holding the stock.
We are not suggesting that investors dump these stocks, but instead to take a minute to examine their weighting and consider whether or not now may be a good time to lock in some profits to help rebalance their overall portfolio.