Disregard sunk costs

Q: What’s a sunk cost? — D.D., Waverly, Neb.

A: It refers to a price paid that can’t be recovered. Since it’s gone and not coming back, it shouldn’t factor into decision-making. Still, many people act on a “sunk cost fallacy” — they figure that since so much has been spent already, more should be spent to make the initial expense worth it.

For example, imagine that you spent $1,200 repairing your car, and you’re deciding whether to sell it or spend more on further repairs. Don’t think about the $1,200; instead, think about whether spending more or selling makes sense. The $1,200 is a sunk cost — don’t let it lead you to throw good money after bad.

Q: When is the ideal time to sell a growth stock and buy a long-term, stable stock? — C.R., Tigard, Ore.

A: Try thinking about it a different way: You don’t have to choose between the two. There are plenty of relatively fast-growing companies that have long track records and promising futures. Relatively few stocks are very stable, though, as the stock market itself can be volatile. When there’s a market crash, even blue-chip stocks can take a big hit — but every market crash has been followed by a recovery, with stocks of many solid companies going on to hit new highs.

So keep your focus on the long term, aiming to hold your stocks for at least five years or so, and keeping any money you’ll need within five (or even 10, to be more conservative) years out of the market.

Don’t be afraid to own growth stocks — just aim to buy them at attractive prices and follow their developments over time.