When Should I Sell My Stocks?
stocks to buy now. It can be easy to get caught up in the research of picking stocks and finding what you think is the next best investment. However, many investors buy stocks with no exit strategy, so you’re not alone if you’re asking yourself “when should I sell my stocks?”
Below we are going to share reasons you may choose to sell your stocks so you can feel better equipped to make your own investment decisions.
There is a ton of information circling the internet about what Table Of Contents
Refresher: This Is How Stocks Work When Should I Sell My Stocks? When To Not Sell Your Stock How To Sell Stock: The Exact Steps Alternative To Selling StockRefresher: This Is How Stocks Work
In case you’re fairly new to the investing world, let’s do a quick review of how stocks work. When you buy a stock, you’re buying a small slice of ownership in a specific company. Stocks are divided into shares, so when you buy a stock you’re becoming a shareholder within that company. Some stocks pay dividends, which are a distribution of the company’s earnings given to shareholders. This is a benefit for the investor and you can often choose to reinvest those dividends or simply take the earnings. When you buy and sell shares, you’re doing so through a network of exchanges. It is basically like a big auction house where companies who need to raise capital list shares of their stock on the exchange. Investors like you purchase those shares. All the while, the exchange tracks the supply and demand of those shares which helps determine the stock prices. The reason investors may choose to buy and sell shares is to make a return on investment. Meaning you buy at “the right time”. Ideally, this means you buy when the stock prices are lower and sell when they are higher so you can secure a return. Your return can be expressed as a dollar amount or a percentage. For example, most investors are investing for the long term, and historically the stock market has provided a return of 10% each year over the long term (minus 2 to 3% for inflation). There is never a guarantee with investing, which is why looking at a long-term strategy to build wealth as opposed to buying and selling individual stocks is the more applicable investment approach shared by financial experts. That said, you may still choose to buy and sell stocks individually and take on the additional risk of buying and selling ‘at the right time’. Generally, investors will want to do so outside of their long-term investments. Meaning, you’ll want to do so in a separate brokerage account and not in your established 401(k) or IRA. Otherwise, you could potentially be missing out on that long-term return of 10% each year. This is also a personal choice, people with a comfort with investing in the market might choose to invest in individual stocks.When Should I Sell My Stocks? Here’s What You Need To Know
Deciding when to sell a stock can be a tricky decision and is not one to be done based on emotions or headlines. Below are the important takeaways to consider before you decide to sell your stock. Selling Stocks Is Tricky Let’s be honest, no one wants to lose money. As humans, this makes it really hard to know when to sell a stock because we innately have loss aversion. In contrast, we also want to make a good return on our investment, which can cause the little green monster called greed to appear on our shoulders telling us how long to wait to sell a stock. Does greed actually know when to sell a stock? Nope, not at all. It’s these human emotions paired with not knowing the future of the market that makes knowing when to sell stocks and when to buy stocks really difficult. Thankfully there are automated investment strategies and long-term investment strategies that can take this responsibility off investors. Trying To Time The Market Is Not A Viable Strategy The premise for making a return on buying and selling stocks is that you buy low and sell high. This requires that you try and ‘time the market’, meaning you make an educated guess and pick stocks that you think have a high chance of going up in price so you can later sell them for a return. The only problem is that stock prices are impacted by numerous factors including supply and demand. There is no way to truly predict this, making it an investment strategy with a higher risk. Financial experts agree that time in the market, not timing the market is ideal for investing. That said, buying and selling some stocks on the side of your regular investments could be fun and interesting. Just be sure you have the money and aren’t afraid to lose some money. Investing In Stocks Is For The Long Term, Not Short Term For Most Investors The market moves up and down a lot. This is called volatility and can be the cause for major stress when you want to buy or sell stocks in a short amount of time. However, consistently investing over many years in diversified investments allows you to come back from the harsh downturns of the market and take advantage of a historically healthy return. So whether you bought individual stocks or you have an index fund, don’t rush into selling your stocks. Instead, review your long-term strategy and discuss rebalancing your portfolio with a financial planner if you’re concerned about how your investments are doing.When To Sell Stocks
There are a handful of reasons that you may choose to sell a stock, even if you’re investing for the long term. The decision should be made considering your needs and the data. Let’s dive in! You No Longer Support A Company You’ve Invested In When you originally purchased stock in a company, you probably did so because you determined the company had potential. However, not all companies are successful which may be a reason you choose to sell your stocks. Indicators a company is not doing well may include:- Revenue numbers dropping considerably over multiple quarters (a sign of reduced demand).
- Declining profit margins within the year.
- A significant reduction in their company headcount (this can cause stocks to rise in price temporarily and then plunge).
- Of course, a company you invested in may make controversial business decisions you don’t agree with or have legal troubles, which can also be a legitimate reason to sell your stocks.