Investing 101: When You Can't Decide, Split the Difference

One of the principles that you will learn in investing 101 is that you should split the difference when you cannot make a decision. There are many different areas in investing in which this can be applied. Here are a few things to consider about splitting the difference when you are unsure of the direction to take.

Selling Half of Stock

Many times, investors feel like they should liquidate their shares of a particular company. They might have read some type of recommendation or have done their own market research in order to come to this conclusion. Them before they decide to sell, they second-guess their decision and decide to keep the stock. In this case, it may be in your best interest to split the difference. Instead of keeping all of the stock or selling all of the stock, you can sell half of it. Keep the other half for long-term speculation. When you do this, you are going to be able to get half of the profit that you planned on and keep half of your holdings in the company as well. If the stock continues to increase, you are going to be able to take advantage of it because you still have some shares. If the price of the stock plummets, it is not going to hurt nearly as bad because you got some of your cash out at a higher price.

Brokers

Many investors also have trouble deciding between two brokers. They want the help from a full-service broker, but they want to pay the commissions of a discount broker. When you cannot decide which broker to go with, you might as well go with both of them. You can open two different accounts and run some of your transactions through each account. By doing this, you are going to be able to get the benefit of the experience from the full-service broker and of the low commissions from another broker. You can place a few trades in your full-service brokerage account just so that you can have access to their resources and their assistance. Then, if you want to trade more frequently, you can place these trades in your discount brokerage account. You will essentially be getting the best of both worlds with this arrangement.

Hedge

Another situation in which this could apply is when you cannot decide which direction a particular security is going to head. For example, you might want to invest in a stock and part of you thinks that the price will go up while the other part thinks it will go down. In this case, you might want to consider investing in both directions. You can buy some shares and short sell some others. By doing this, you are going to be able to create a hedge in your portfolio. If the market goes down, you are going to be protected because you own interests in both directions. 

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