Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. For the next few weeks we look at investing from the point of view of our Successful Investor Wealth Management service. In each of these Toolkits, we examine portfolio decisions investors often face and what we advise. This week: the best stocks to invest in are liable to keep on rising—avoid the costly mistake of selling them too soon. 

Today: The importance of keeping your best stocks as they go from gain to gain.  

One of the costliest mistakes you can make as an investor is to sell your best stocks too soon. This mistake comes in two main varieties:

1. Routinely re-balancing your portfolio—that is, selling stocks you own that have gone up, and using the proceeds to buy more of stocks that have gone down.
2. Selling your best stock selections for small gains—taking a 25% or 50% profit on a stock when it’s just starting out on a rise that could ultimately produce a 250% or 500% gain.

The recent rise in the U.S. dollar tempted many investors to make this mistake, one way or the other or both.

As for the first variety, we’ve long advised investors to invest 20% to 25% or more of their portfolios in U.S. stocks. If you followed that advice, U.S. stocks could now make up 40% or even more of your portfolio, depending on which stocks (Canadian and U.S.) you bought, and when you bought them.

This may spur you to re-balance your portfolio by selling some of your U.S. stocks, and investing what’s left of the proceeds (after taxes if any, plus brokerage commissions) in Canadian stocks.

However, although the U.S. dollar has risen from $0.95 Canadian to the current $1.24 Canadian, this isn’t a record. The U.S. dollar traded as high as $1.30 Canadian six years ago, in March 2009. It got as high as $1.60 Canadian in the previous decade. In fact, the U.S. currency is roughly in the middle of its Canadian-dollar equivalent range of the past 45 years.

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Good stocks to invest in:  If you sell U.S. stocks now, you could lose two ways

As for the second variety, the U.S. economy has always provided a wider range of growth opportunities than our economy. Many U.S. companies can still profit, despite the U.S. dollar rise. They can simply shift production to foreign countries.

If you sell U.S. stocks because the U.S. dollar has gone up, you may lose out on two counts—the U.S. dollar could keep rising, and top U.S. stocks could keep rising as well, without even taking your currency gains into account.

A great deal could change for the U.S./Canada exchange rate in the next few years. Canada faces a federal election by October 2015, and the U.S. will hold its next presidential election in November 2016. The drop in the price of oil tends to hurt Canada’s dollar and help the U.S. dollar. Many Canadian think (or simply hope) that the oil-price drop is temporary, of course. But oil-price trends are notoriously hard to predict—much like currency exchange rates.

My best guess is that the U.S. dollar will gain at least a few cents more on the Canadian dollar over the next, say, six months. Meanwhile, hang on to your U.S. winners.