Bought Too High?

QI bought a stock at what ended up being its all-time high. It’s fallen in price. Should I sell it? Did I buy at too high a price? — D.H., Hartford, Connecticut

A Don’t think so much about what you paid for the stock. The purchase price (your “cost basis”) matters whenever you sell and have to calculate your gain or loss, but you can ignore it most of the time. Instead, focus on the stock’s current price and what you think its intrinsic value — its true fair price — is. For example, let’s say you bought shares of Buzzy’s Broccoli Beer (ticker: BRRRP) at $50 apiece and they’re now near $30. If your research suggests the shares are really worth around $40 each, then they’re undervalued and probably worth holding, waiting for them to eventually grow in value. If you think that the shares are worth around $20, though, selling makes sense. With any stock holding, whether you’re sitting on a gain or loss, what matters most is where the shares are now and where you think they’re headed. Don’t hang on to any stock you’ve lost faith in, and don’t hold on waiting to gain back any losses. Instead, sell and move whatever money is left into your best investment ideas.

Q What’s the tax rate when you sell stocks? — R.Y., Lima, Ohio

A For stocks held for a year or less, the short-term capital gains tax rate is the same as your ordinary income tax rate — and tax brackets for 2020 range from 10% to 37%. For stocks held longer than a year, the long-term capital gains tax rate is 15% for most folks. High- and low-earners face a 20% or 0% rate, respectively. Want more information about stocks? Send us an email to foolnews@fool.com.