When is the right time to sell stocks?
Seeing how the world’s doing nowadays, you might want to sell stocks right away. The stock market took a tumble due to the coronavirus pandemic. If you’re not careful, though, you might miss out on potential gains.
Know that your urge to sell stocks comes from your mind and the environment. Understand these motivations to find out if you have good or bad reasons to sell stocks. Stop acting on impulse and keep a level head when tracking your portfolio.
You’ll find countless articles about the outside factors of selling stocks. What they fail to mention is that investors are humans who sometimes make mistakes. Understand why you might make bad decisions to find the wisest action to take.
Wrong reasons to sell stocks
When people think of stocks, jargon from CNBC and other economic channels come to mind. The investors talk about millions of dollars gained and lost as lines go up and down.
What we don’t discuss is that these people are regular folks too. They have lived similar to ours. They handle personal issues that could factor into their investment moves.
Unfortunately, these may cause them to make bad decisions. Investors are prone to these personal factors, no matter if you’re a rookie or a veteran.
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Stock price crash
First-time investors may panic once their stock does poorly. They might see a dismal news report and think their investment is a waste. In response, they sell supplies to cut losses.
However, stock market prices change over time. Lots of options go down temporarily. Later on, they make a rebound and skyrocket in value.
If you’re a long-term investor, keep this in mind. Your stock’s poor performance today doesn’t mean it’s done forever. Check other factors to determine if it will recover soon.
Short-term investors would suffer massive losses if they sold every time the price drops. That’s why they should be wary of price fluctuations much more.
Stock price boom
A newbie investor may look at a price increase and immediately sell. After all, this means quick returns from their investment. They might miss out on further gains, though.
Experienced investors consider several factors before they sell stocks. A bump to the stock price may signal a more significant spike later. Only then do they trade stocks.
Short-term investors or day traders buy and sell stocks more frequently. Depending on their performance, they lose or earn money faster than long-term investors.
Stock wastes your time.
Investors research a potential addition to their portfolio. If the option has a promising future, they buy the stock. This takes a considerable amount of time in real life, though.
What’s more, an investor has to keep track of the stock. They have to tune in to the news and monitor the charts. Day traders have to check those prices every hour or minute!
Unfortunately, a stock may ruin their expectations. The price might crash too much. Its gains might not be as good as intended.
When this happens, investors may consider a stock sale. They might realize that the time and effort they’ve spent doesn’t make the stock worth it.
It’s best to learn from such a bad investment. You may want to use new methods in choosing stocks. For example, check metrics like the price-to-earnings ratio.
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Other bad news
Events outside the stock market may affect your investments. Let’s take President Biden’s proposed increase to capital gains tax.
Stock investors doubt that it would affect them. In contrast, crypto investors sold massive amounts of cryptocurrency due to this report.
This caused the price of Bitcoin and Ethereum to fall drastically. Stock investors may react to similar scenarios. They get bullish or bearish, depending on their outlook.
News reports shouldn’t be your only source of investment research. The internet offers far more information that is more updated and useful.
You may have responded to the more significant taxes on stocks by quickly selling stocks. If you check the news thoroughly, this proposal may not even affect you!
Good reasons to sell stocks
If your investments follow a plan, you may have acceptable reasons to sell stocks. Your motivations may stem from a proper analysis of the stock market.
For instance, you might want to take advantage of other assets. You may sell some of your stocks so that you could invest in these alternatives.
On the other hand, you may have reached your investment goals. After earning your desired amount, you might want to be more lenient when investing.
Your personal life may prompt you to sell stocks. A significant event may occur, and you may need extra money quickly. Your investments are a great source of emergency funds.
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Sell stocks to rebalance the portfolio.
Stocks aren’t the only investment option. There are others like exchange-traded funds (ETFs), bonds, and index funds. Each may rise or fall independently.
If bonds seem appealing, you may sell stocks to catch its upward trend. This will help you earn from an asset class that provides better returns.
You don’t want to rebalance too frequently, though. Otherwise, your investments may lose time to grow in value properly.
Investment goals accomplished
People buy stocks for various reasons. For instance, they might want to earn a certain amount of money. That’s why they might purchase long-term dividend stocks.
They hold on to the stock and earn dividends regularly. Eventually, they accumulate enough to meet that specific amount of money. After completing their objective, they might want to relax.
They could sell stocks for more funds. After all, there’s no need to devote time and effort to them. This move will depend on your investment goals.
Sell stocks for emergencies.
Numerous events in your life might prompt you into selling. Let’s say you got fired or furloughed from work. However, you don’t have a lot in your savings account.
You may sell stocks to gain extra cash. This will help you afford necessities as you look for another job. Once you find new work, you may rebuild your portfolio.
Still, it’s better to have an emergency fund ready before investing. Set aside a sum that may last you 3-6 months. Also, fixed-income from bonds could help build this fund.
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Choose the right broker for your market orders. They could suggest ways on how you should implement your sell orders.
A financial advisor could also help you decide on selling stocks or not. They offer additional insight into your potential gains from limit orders and stop orders.
It would help if you diversified your investments wisely. The famous investor Warren Buffett despises diversification. He believes this investment strategy is “a protection against ignorance.”
He means that investing in too many options won’t yield much. Instead, you should choose your options carefully and focus on those. Research stocks thoroughly before investing.
Learn more about the right time to sell stocks
When should I sell my shares?
You should sell stocks if they deviate from your investment plan. If the stocks aren’t going to meet your goals, you may want to sell.
Do I owe money if my stock goes down?
You only owe money on stocks if you borrowed funds to buy them. If you used your hard-earned cash, you’d only miss out on potential gains.
Do you pay taxes on stocks?
People pay capital gains tax for their stocks. The amount you need to pay depends on how long you’ve held your shares.