When Should You Stop Investing?

Investing has become a popular practice owing to its numerous benefits, such as increased Income and greater control over finances. Most people constantly prepare themselves to achieve maximum profits from their investments. All it takes is sound advice from parents, philosophers and financial advisors to make the right choices when putting money into something. However, very few are familiar with when to stop investing. The reason behind this could be that the losses can be far more substantial than gains once enough has been saved to achieve your goal without stopping first.

So, if you are confused and don't know when you should stop investing, this article will take you through varying situations where it would be better to back off from putting your hard-earned money.

Ideal Time to Stop Investing your Money

Since investing is a long-term process, and you may be cautious enough throughout your investment journey, but one of the major things to be a successful investor is to know when to stop. If you are confused, here are some scenarios that may sound appropriate pertaining to when to stop investing.

1. If you Have Crossed an Age Threshold

One of the most important things to consider when deciding to stop investing is your age. Once you touch a certain age, your priorities change, and the goal becomes to live a comfortable life. If your age is above 50 years, you might want to stop investing in risky assets like stocks/ equities, because they are more volatile than other investments.

You can stop investing in risky assets, but can re-invest in debt Mutual Funds like Liquid Funds and ultra-short duration funds as they provide easy liquidity and are less volatile than the other instruments. Debt fund invest in various fixed-income securities like Government securities, Treasury bills, Corporate Bonds, etc. It is ideal to invest during your retirement days, especially when you are exiting from risky funds, you can re-invest in low-duration debt funds to earn a steady income. Also, a liquid fund's returns are better than that of a Savings Account. Moreover, it gives you the option to make instant Redemption where you can withdraw the money anytime.

2. If your Portfolio isn't Working out Anymore

Those who have been investing for years altogether would have come across such instances when their strategy would not have performed as expected. Perhaps your approach wasn't as effective as the alternative, or your Portfolio underperformed. If you never made consistent profits over several years, it's time to get out of the stock Market. There are many factors to look after when reconsidering your strategy.

Do you have enough experience to invest in stocks? Are you willing to take a greater risk? Once you answer these questions honestly, you'll be ready to move forward again with a new plan. Thus, for the time being, it would be smart to stop your investments and start building a new portfolio. When you re-start with building a portfolio, ensure you focus on different assets like mutual funds, ETFs, gold, etc because multiple assets keep your folio strong and balanced. Ideally, people invest in just one asset which doesn’t always bring stable returns. Diversification balances return, so even if one asset in the folio gives negative returns, other assets can balance the risk.

3. If you Experience a Dramatic Shift

Another sign would be when something in your life changes drastically, affecting your ability to continue investing. Let's take an example, generally, your financial situation will alter if you lose your job, are separated from your spouse, or have a serious medical emergency. In this situation, you might end-up temporarily living off your emergency fund. If that is the case, your priority should be to put back the amount you have taken out of the emergency funds. This can indicate halting your investment until you can replenish your emergency money after returning to work.

4. When the Price Falls Beyond a Certain Point

Investing in stocks is about buying low and selling high. The higher the stock's price, the greater the risk investors take on. But remember, there will always be a market decline at some point. You should be able to determine the amount of risk you are ready to bear and still make good money off your investments. Also, you must look at trends and past performance of the stock. Track the experts and look at their suggestions. If they predict that the market won't get saturated soon and you'll have financial difficulties, pause investing for the time being.

5. If you are in Debt

The most crucial asset you have for generating wealth is your income. Having your most valuable asset for accumulating wealth entangled in Credit Card Debt, auto loans, or education loans is equivalent to being in misery. In the long term, pressing pause is the ideal method to break free from that chain so you can invest even more in your future. But do not fret. Once you pay off that debt, you can start investing again right away.

People usually enter into the debt cycle because they either take cash from someone during an emergency or take a loan for a child’s education, marriage, etc. But, you can avoid taking that route when you can pre-plan your Financial goals and invest beforehand. A Systematic Investment plan (SIP) is the most ideal way to invest your money for your future goals. You can start with as small as Rs. 500 and keep going for a long period of time. For example, a newly married couple can start SIP for their child’s future education or invest beforehand to buy their dream house, etc. This way you can avoid getting into debt.

The Bottom Line

No doubt, investing is an important part of everybody's financial life. It can help to grow your money so that you can have more security and freedom in the future. But there are instances when you should completely forgo investing for time being. The best time to stop investing from the asset is when you have reached your goals pertaining to that specific investment. Such a goal could be anything, be it saving for retirement, or having a certain amount of money in stocks or in cash. But, as guided above, you can start rebuilding your portfolio again as per your goals.