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Investment exit strategies – what to do when it’s time to sell

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If an investor is selling for tax loss harvesting, they should try to set up a switch trade, so they can sell and exchange their position with a similar investment that is required to hold for more than 30 days, in order to declare a loss.Spencer Platt/Getty Images

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Investor psychology can be a powerful force. No matter how investors fill out their risk tolerance assessments, when faced with a prolonged market downturn like the one we have seen this year, many will be considering exiting a portion of their investments.

When it comes time to do some selling, it’s important to keep in mind the best investment exit strategies and how to implement them.

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“The selling of securities in any account should always comply with a long-term investment strategy and not be a knee-jerk reaction to volatile market conditions,” says Mary Hagerman, portfolio manager and investment advisor at The Mary Hagerman Group with Raymond James Ltd., in Montreal.

“It’s important that investors do not act impulsively when selling. They need to step back from the markets and have a good answer to ‘Why do I want to sell now?’”

Ms. Hagerman notes that sharp market downturns are not necessarily good times to sell. Rebalancing might be better if the overall asset allocation still makes sense for the long term.

Instead of selling a specific investment for cash, Ms. Hagerman advises considering staying invested but looking for a different or more diversified option that has better potential when the markets turn around. For instance, selling a single stock holding in technology and buying a tech index such as the Technology Select Sector SPDR Fund XLK-A or Invesco QQQ ETF QQQ.

Ms. Hagerman also has some specific tips and strategies for exiting investments.

“Never put in a sell order on the market open or too close to the close, especially for ETFs (exchange-traded funds),” she says. “Give the markets some time for price discovery.”

For large orders and in very volatile markets, she advises setting a limit price, and also keeping in mind the underlying market. For example, European ETFs should be transacted early in the day before their markets close, if possible. Also, if the investment is hedged, keep in mind the direction of the exchange rate when selling – it could be working for or against the trade.

For equity and fixed income, be mindful of ex-dividend dates and income distribution dates that could affect the trading price. Also, any geopolitical events or important announcements that might be pending and could affect pricing.

Ms. Hagerman likes to look at market technicals such as 200- and 50-day moving averages and follows the advice of her firm’s head technical analyst for the overall direction of the market when looking to rebalance or liquidate part or all of a position.

“There is often a bounce right after a big selloff that gives a better exit price,” she says.

Another technique Ms. Hagerman mentions is that if an investor is selling for tax-loss harvesting, they should try to set up a switch trade, so they can sell and exchange their position with a similar investment that is required to hold for more than 30 days, in order to declare a loss. The investor can then switch back to their original holding if they so desire.

Setting stops at inflection points

David Burrows uses a disciplined and systematic approach to selling in his role as chief investment strategist at Barometer Capital Management Inc., in Toronto.

“We identify a price below our entry level where we would stop ourselves out in the event that it does not work out as expected,” he says. That is, a pre-determined price to sell if the stock falls to that level.

“In effect, it quantifies our risk budget on each position and protects against a small mistake turning into a big one.”

Mr. Burrows notes his firm sets stops at what they see as a inflection point where a position goes from being in a clearly defined uptrend to a downtrend. And when positions breach these inflection points, they choose to exit. Barometer also resets stops over time to higher levels.

From a tax perspective, Mr. Burrows says that by quickly selling weak positions and holding winning positions, his client portfolios build a taxable loss pool that can offset future gains.

“We tend to make the business decision first and tax decision second. Better to pay tax and protect a gain than to hold a failing position in order to save tax,” he says.

Should you ‘throw in the towel?’

When it comes to exiting investment positions, sometimes the best first step is to determine whether you should be selling at all.

“I certainly recognize that investors are psychologically primed to want to throw in the towel the deeper the downturn in markets gets, but logically, the depths of a downturn when recent returns have been the weakest is the worst time to exit an investment and is the exact point in the cycle when future returns are the best,” says Brian Madden, chief investment officer at First Avenue Investment Counsel in Toronto.

Mr. Madden says a better approach is to have a written asset allocation policy, and rebalance it quarterly, or at least annually. This approach would have the investor partially selling richly valued and/or highly appreciated assets closer to peaks in the cycle and adding to them closer to the depths of a downturn.

“At the risk of oversimplifying, there’s only two reasons to sell a stock – you were right, or you were wrong,” Mr. Madden says.

In the first case, a selling decision should be based on a reassessment of the fair value of the stock and likely catalysts for its future growth. In the latter case, he says “you must coldly and unemotionally” revaluate the potential value of the shares, as well as their growth prospects. If at that point you conclude that the rosy future you once envisioned for the business is no longer feasible, it’s time to “rip off the band-aid” and sell the shares.

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9 Types Of Investment Assets

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When investing, stocks get the lion’s share of the attention. Investing in individual stocks is one way to grow your wealth, but there are plenty of other investment assets to explore and understand.

Depending on your financial goals, timeline and risk tolerance, you should invest in a well-diversified combination of the following nine assets to build your portfolio.

1. Stocks

Stocks are the basic building blocks of investing. When you buy stocks—frequently referred to as equities—you receive shares of ownership in a public company.

As the company grows and earns greater profits, the value of your shares of stock should appreciate. You may even be entitled to dividend payments as a shareholder.

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Here are four ways to think about the different stocks available:

  • Growth stocks. These are companies that are growing their revenues, cash flow and earnings at rates that are much greater than their peers.
  • Value stocks. Very often, the share prices of perfectly solid and healthy public companies drop well below where they should be, due to larger market developments outside of the company’s control. When a stock’s price is low like this but its business fundamentals are good, it’s called a value stock.
  • Dividend stocks. Companies that pay dependable dividends are viewed as providing shareholder a steady stream of income.
  • Blue-chip stocks. These are the stocks of large, established public companies that have become household names, like Apple, Disney and Microsoft. Blue-chip stocks have a proven track record of dependable performance and a history of regular dividend payments.

To buy stocks, you need an account. You can opt for a tax-advantaged account such as an individual retirement account (IRA), or a taxable brokerage account.

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2. Bonds

Bonds are fixed-income securities that corporations and governments issue to raise money to fund projects. When you buy a bond, you lend money to the issuer. In exchange, the bond issuer pays you interest and, once the bond reaches its maturity date, the issuer returns your original investment.

Bonds are less risky than stocks, but they also offer lower returns. If interest rates rise, bonds become less valuable because new bonds offer higher rates.

To buy bonds, you can purchase them directly from an issuer, or you can buy them through a brokerage account.

3. Cash

When financial professionals refer to cash as an investment, they’re not talking about literal bills and coins. Instead, cash investments—commonly called cash equivalents—are short-term investments that provide stability to your investment portfolio.

Common examples of cash investments include the following:

  • Money market funds. These mutual funds invest in government bonds, tax-exempt municipal bonds and corporate or bank debt securities.
  • Treasury bills. Known as T-bills, these are short-term investments issued by the U.S. government with maturities ranging from four to 52 weeks.
  • Certificates of deposits (CDs). CDs are deposit accounts that usually offer higher rates than savings accounts. CDs have terms ranging from a few months to several years, and the money cannot be touched before the end of the CD term without incurring significant penalties.

Cash equivalents are useful if you have short-term financial goals and will need the money within a few months. They are also appealing to retired investors that can’t afford to take on much risk.

You can invest in cash equivalents through banks or TreasuryDirect.gov. Some brokerage firms also offer brokered CD accounts.

4. Mutual Funds

A mutual fund pools money from investors to invest in groups of stocks, bonds and other securities. Its combined holdings, known as a portfolio, are managed by experienced financial professionals.

There are several types of mutual funds:

  • Stock mutual funds. A stock mutual fund is a collection of stocks chosen by a professional money manager. The fund is typically designed to track a market index, such as the S&P 500.
  • Bond mutual funds. Bond mutual funds invest solely in bonds rather than stocks. These funds provide stability to an investment portfolio and typically have lower returns than stock mutual funds.
  • Balanced funds. These mutual funds own a mix of both stocks and bonds, typically with a fixed asset allocation such as 60% stocks and 40% bonds.

Compared with individual stocks, mutual funds are lower-risk investment assets. By investing in a mutual fund, you diversify your portfolio by owning many stocks or other securities at once.

There are thousands of mutual funds, but we’ve identified the best mutual funds to help you get started. If you’re ready to invest your money, you can buy mutual funds through your brokerage account.

5. Index Funds

Index funds are a form of mutual fund that’s passively managed and best suited for long-term investors.

While many mutual funds are actively managed by professionals who try to beat the performance of a market benchmark, index funds aim to replicate the performance of market indexes, such as the Dow Jones Industrial Average (DJIA) or the S&P 500.

Like standard mutual funds, index funds provide diversification since you invest in many companies or industries at one time. If one company within the fund performs poorly, the other companies within the portfolio may offset the losses.

You can buy index funds through your employer-sponsored retirement plan or your brokerage account.

6. Exchange Traded Funds (ETFs)

Like mutual funds, ETFs pool money from investors to buy baskets of securities, including stocks and bonds. ETFs can track market indices or they can be focused on particular sectors, such as foreign energy companies or domestic technology securities.

ETFs tend to have lower investment minimums than mutual funds, so they’re a good choice for new investors without a lot of cash on hand. Like stocks, they are bought and sold on market exchanges throughout the day.

You can buy ETFs through brokerage accounts and employer-sponsored retirement plans. If you are new to investing, our guide to the best ETFs could be a good starting point for you.

7. Annuities

An annuity is a contract between an individual and an insurance company. When you purchase an annuity, you pay the insurance company in installments or a lump sum.

In exchange, the insurance company agrees to make periodic payments to you for a set period. Many people typically use annuities to get a steady stream of income in retirement.

There are three main types of annuities:

  • Fixed annuities. A fixed annuity pays a guaranteed interest rate for a preset period. Once the accumulation phase is complete, you will receive payments for a set period, such as 10 to 20 years.
  • Variable annuities. A variable annuity does not have a guaranteed interest rate. The interest rate and payments will fluctuate based on the performance of the underlying investments, such as stocks and bonds.
  • Index annuities. With an index annuity, interest and payments are determined by the performance of a stock market index, such as the Nasdaq Composite.

You can invest in annuities by working with an insurance company, bank or investment broker.

8. Derivatives

Derivatives are financial instruments whose values are based on an underlying asset. The three most common types of derivatives are futures, options and swaps.

  • Futures contracts. Futures contracts are agreements to buy or sell an asset at a future date and price. For example, you may agree to buy gold at $1,000 per ounce six months from now. If the price of gold goes up to $1,200 per ounce, you will profit from the difference. However, if the price falls to $800 per ounce, you will incur a loss.
  • Options contracts. These contracts are much like futures, but buyers have the right—but not the obligation—to buy or sell an asset at a future date and price. Call options give you the right to buy an asset, while put options give you the right to sell an asset.
  • Swaps. These are agreements between two parties to exchange cash flows in the future. For example, one party may agree to pay another party a fixed interest rate in exchange for a variable interest rate.

Derivatives can be used to speculate on future price movements or to hedge against losses. However, they tend to be complex, risky investment assets, so they may not be a good idea for the average retail investor.

9. Cryptocurrencies

As an investment asset, cryptocurrency has received a lot of buzz. The most well-known cryptocurrency is Bitcoin (BTC), but there are many others. Top cryptocurrencies include Ethereum (ETH) and XRP (XRP)

Investing in cryptocurrencies is risky, as their prices can be highly volatile. These assets are also not regulated like other investment assets, like stocks and bonds. But that may change as governments take a wider interest in applying more regulations to the sector.

 

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Commonwealth trains Cameroonian officials to attract inward investment

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A workshop, hosted by the Commonwealth Secretariat and the International Institute for investment Treaties, has trained Cameroonian government officials to attract foreign capital by better negotiating investment agreements.

Held in Yaoundé from 22 to 24 November, the workshop was a vital platform for senior legal affairs officials from various government agencies to strengthen their understanding of bilateral investment treaties and necessary policies to limit their negative impacts, including lawsuits.

Negotiating bilateral investment agreements is a policy issue for developing countries. Most such treaties are signed between capital-exporting developed countries and capital-importing developing nations.

Despite their positive impact, clauses of bilateral investment treaties can impose constraints on host countries. For instance, investors can sue governments if national policy harms their interests. These investor-state lawsuits are often unpredictable and can cost taxpayers a significant amount of money.

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Opening the workshop, Chinmoun Oumar, Permanent Secretary of Cameroon’s Ministry of External Affairs, thanked the Commonwealth Secretariat and the International Institute for investment Treaties for hosting the “timely” workshop.

He informed the participants that Cameroon was involved in several ongoing negotiations related to investment facilitation, but it lacked sufficient expertise to fully engage with its foreign partners. Oumar hoped the workshop would enable “Cameroon to build a formidable team of legal experts who could contribute to the ongoing and future negotiations”.

Speaking at the workshop, Opeyemi Abebe, Head of the Commonwealth Secretariat’s Trade Competitiveness Section, said:

“This workshop will enable Cameroonian officials to better promote and protect their national economic and development interests. We hope officials will now have a greater awareness of the implications of bilateral investment treaties for national policy and how to mitigate them, ensuring that foreign investment flows contribute to their country’s development objectives.”

The workshop featured a series of plenaries and best practices to help Cameroonian officials rethink what obligations they should include in their future investment agreements and whether to reform existing treaties in line with national interests. Participants also discussed investor-state dispute settlement practices and a roadmap to reform Cameroon’s investment treaties, especially in view of the Africa Continental Free Trade Area (AfCFTA).

The workshop was hosted at the request of Cameroon’s Ministry of Mines, Industry and Technological Development and Ministry of External Affairs.


Media contact

  • Snober Abbasi Senior Communications Officer, Communications Division, Commonwealth Secretariat
  • T: +442077476168 | E-mail

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Altius Commits to $21 Million Investment in ARR

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ST. JOHN’S, Newfoundland and Labrador, Dec. 01, 2022 (GLOBE NEWSWIRE) — Altius Minerals Corporation (TSX: ALS; OTCQX: ATUSF) (“Altius” or the “Corporation”) is pleased to announce that it has committed to purchase 2,298,700 common shares in the Altius Renewable Royalties Corp. (“ARR”) financing announced today.

ARR also announced that its 50% held Great Bay Renewables II (“Great Bay”) joint venture has completed a US$46 million royalty investment in support of Longroad Energy’s (“Longroad”) acquisition of the 70 MWac Titan Solar project in California.

With this participation Altius will maintain its 59% ownership in ARR. The financing, and Altius’s participation, is subject to customary closing conditions and associated regulatory filings, and is expected to close on or about December 8, 2022. For more information on this financing, see ARR’s news release here.

John Baker, Executive Chairman of Altius commented “In a short timeframe, ARR’s Great Bay joint venture has deployed almost US$300 million into the rapidly expanding US renewable energy sector. The joint venture recently reached the milestone of becoming cash flow positive and has created a strong embedded revenue growth profile. The pace of adoption of its royalty financing model continues to exceed our expectations as evidenced both by its current portfolio now consisting of 32 projects representing over 6500 MW of wind and solar generation and also the top-tier nature of its royalty counter-parties. We are pleased to take this opportunity to allocate further capital towards ARR as it continues to successfully execute its growth strategies.”

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About Altius

Altius’s strategy is to create per share growth through a diversified portfolio of royalty assets that relate to long-life, high margin operations. This strategy further provides shareholders with exposures that are well aligned with sustainability-related global growth trends including the electricity generation transition from fossil fuel to renewables, transportation electrification, reduced emissions from steelmaking and increasing agricultural yield requirements. These macro-trends each hold the potential to cause increased demand for many of Altius’s commodity exposures including copper, renewable based electricity, several key battery metals (lithium, nickel and cobalt), clean iron ore, and potash. In addition, Altius runs a successful Project Generation business that originates mineral projects for sale to developers in exchange for equity positions and royalties. Altius has 47,616,297 common shares issued and outstanding that are listed on Canada’s Toronto Stock Exchange. It is included in each of the S&P/TSX Small Cap, the S&P/TSX Global Mining, and the S&P/TSX Canadian Dividend Aristocrats indices.

About ARR

ARR is a renewable energy royalty company whose business is to provide long-term, royalty-level investment capital to renewable power developers, operators, and originators. ARR currently has 32 renewable energy royalties representing 735 MW of renewable power on operating projects and an additional approximately 6 GW on projects in the development phase, across several regional power pools in the U.S. The Corporation also expects future royalties from Great Bay’s investments in Bluestar Energy Capital and Hodson Energy. The Corporation combines industry expertise with innovative, partner-focused solutions to further the growth of the renewable energy sector as it fulfills its critical role in enabling the global energy transition.

Forward-looking
information

This news release contains forward‐looking information. The statements are based on reasonable assumptions and expectations of management and Altius provides no assurance that actual events will meet management’s expectations. In certain cases, forward‐looking information may be identified by such terms as “anticipates”, “believes”, “could”, “estimates”, “expects”, “may”, “shall”, “will”, or “would”. Although Altius believes the expectations expressed in such forward‐looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those projected. Readers should not place undue reliance on forward-looking information. Altius does not undertake to update any forward-looking information contained herein except in accordance with securities regulation.

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