By Quentin Fottrell

'I'm curious whether there's a downside'

"I realize $1,000 isn't a huge amount in the grand scheme of things." (Photo subject is a model.)

Dear Quentin,

Two things I've learned about building wealth: buy low, sell high, and use dollar-cost averaging.

With the first one in mind, the market is obviously on fire right now and, in my opinion, stocks feel overheated. I haven't contributed any money to this particular brokerage account (it's a taxable brokerage account, not a 401(k) or IRA) in a while.

I get why people get addicted to online trading. Well, sort of. Back in the early days of the COVID-19 pandemic, I scooped up some Royal Caribbean (RCL) stock for around $20 a share. At the time, it seemed incredibly undervalued, COVID or not, so it was an easy buy for me. Fast-forward to today, and it's around $320. It was around $260 back in May, so maybe they've launched a new ship or something!

Either way, I sold a few shares. And honestly, I don't care if it goes to $400 from here. Buying it at $20 and taking some profits at $320? There's no way I can look at that as a bad deal.

Back to my question: If I sell $1,000 worth of stock now, wouldn't I essentially be locking in my gains, just like selling during a market downturn would mean locking in my losses? I realize $1,000 isn't a huge amount in the grand scheme of things, but I'm curious whether there's a downside.

I could use the $1,000 to pay off a car loan, although I don't necessarily need the money. Am I thinking about this correctly, or is there something I'm missing? I don't want to do something that I will regret later.

Working Stiff

Related: 'He's never been good with money': If I set up an annuity for my brother, 65, would it jeopardize his Supplemental Security Income?

You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.

If your car loan's interest rate is reasonable, and you're earning more on the market, keep your dough invested.

Dear Working,

How much is that car loan costing you?

Your point about your investment in Royal Caribbean stock raises a key issue: If this $1,000 is a drop in the ocean compared with the rest of your holdings, you may find yourself inclined to take the hit to future returns, pay whatever capital gains you owe on the long-term investment, and pay off your car loan for no other reason than you want to. If eliminating the debt gives you peace of mind and the interest rate is high enough, go for it. If not, I seriously urge caution.

There is some basic math to consider. If you're paying 10% interest, pay it off. If you're paying 2% or 5%, there's a stronger argument for keeping the money invested, particularly if you can tolerate at least some market volatility. What's less certain is what happens with the market next. It's on fire, sure, but how long will that last? Will there be a major correction, linked to geopolitical events or AI? Stocks have historically rewarded investors who stay invested for the long term.

Let's say you have a 7% car loan; paying it down is attractive. If you have a 2% car loan, keeping your $1,000 invested makes more sense on paper, because the potential long-term return from a diversified portfolio may actually outweigh the relatively low cost of the debt. The higher the car loan, the more incentive you have for paying it off. I see why it's tempting to pay off: You are, essentially, trying to achieve a saving instead of an uncertain investment return.

So, is it a wash from an interest-rate perspective? Not exactly. If your car loan is 5% and your investment might earn 5%, those aren't equivalent. Paying off the loan provides a guaranteed 5% return as you're avoiding 5% interest. Keeping the investment might produce a 5% return, but the actual result could be 30% over the next few years or, if you look at a year like 2022, it could be a loss of 20%. The investment return is not only uncertain; it's also potentially taxable.

Don't miss: 'My wife and I are both retired': Do we dip into our $2.3 million fund to pay off our $300,000 mortgage at 2.9%?

Itchy feet

You ask, "Should I sell $1,000 in stocks because the market is overheated and I have this car loan hanging over my head?" I have a question: Do you have an emergency fund? If so, use that. If not, build up an emergency fund. That also raises an even bigger question: Is paying off this $1,000 actually an emergency? I'd argue that it's not and, if your car loan interest rate is reasonable and you're earning more in the market, keep your dough invested.

Those stocks appear to be burning a hole in your pocket, but it's not always wise to scratch itchy feet, as this Moneyist reader discovered. "I'm one of the crazy ones who sold Nvidia within the last month, near its high," he wrote. "When I originally bought it, it was just another position in the portfolio, roughly the same size as everything else. But over the last decade, it absolutely went gangbusters and eventually became way too large a portion of my portfolio."

"At one point, I was seeing $25,000 swings in a single day, which was a pretty good indication that the position had gotten too big," he added. "Fortunately, this was in my Roth, so there are no tax consequences from the sale. I'm currently sitting on the cash in a money-market fund and am just waiting for an opportunity where I feel confident putting that money back to work." (For what it's worth, Nvidia rose by roughly 10% in the last month.)

What's more, your support of dollar-cost averaging promotes the wisdom of investing gradually, even if stocks look like they might be overheating (according to your own gut). Dollar-cost averaging, after all, involves investing a fixed amount of money over a period of time. If you're investing new money regularly, you don't necessarily need to decide whether today is the perfect time to buy. You rely on the long-term trajectory.

Just be aware that doing so doesn't necessarily make it the best financial decision.

Related: 'Her bank accounts were stripped bare by Medicaid': My late friend had $20,000 in credit-card debt. Will her life insurance pay for it?

More columns from Quentin Fottrell:

'He's never been good with money': If I set up an annuity for my brother, 65, would it jeopardize his Supplemental Security Income?

'I don't wish to be cold-hearted': My elderly relative can no longer care for himself. Am I wrong to leave his care to the state?

'There is zero transparency': My friend's sister controls their mother's estate. How can we stop her from stealing?

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-Quentin Fottrell

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08-14-26 0901ET