01 Nov I invested in a friend’s company. Should I sell out?

Q. I have a friend who had a company that went public. I invested $10,000 and it’s maybe worth half that. I considered it play money, sort of, and it’s been two years. Would it be wrong for me to sell? I never paid attention to the company outside of what he’s told me, and I don’t have the time for research.
— Friend-investor

A. You say this was play money, and we get that.

But one important item missing from your question is your broader investment outlook and financial situation.

Was this play money you could afford to lose because you have a beefy emergency fund and retirement accounts to go with it?

We hope so.

Working with a financial advisor can help you determine a course of action that takes into account your willingness and ability to take risks while keeping emotions out of investing, said James Suazo, a chartered financial consultant with Baron Financial Group in Fair Lawn.

He said it may not be wrong for you to sell this stock, but there are a few questions to discuss to arrive at a decision.

You may experience several behavioral finance biases as you work through this decision-making process, he said.

One is fear of regret.

“As investors, we sometimes experience this fear of regret because we do not want to make the wrong decision and so do not take any action,” Suazo said.

To tackle this, ask yourself what was the goal of the initial investment? Do you have the same goal, and is your tolerance for risk currently the same?

If you are not comfortable with the current risk exposure and don’t have the time to research the company, you may want to sell the investment, he said.

Another bias you may experience is called “anchoring.”

Suazo said this is the tendency we have as investors to attach ourselves to a certain price as the value of the investment instead of the market value.

“Given your initial investment is half, if presented with the investment opportunity today, would you invest in the company? If the answer is yes, then you may want to stick with the current investment,” he said.

Having a financial plan in place is key to making informed decisions for your portfolio, Suazo said.

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This story was originally published on Nov. 1, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.