While quite a bit of time and research goes into selecting stocks, it is often hard to know when to sell – especially for first-time investors. The good news is that if you have chosen your stocks carefully, you won’t need to sell for a very long time, such as when you are ready to retire. But there are specific instances when you will need to sell your stocks before reaching your financial goals.
You may think that the time to sell is when the stock value is about to drop – and your broker may even advise you to do this. But this isn’t necessarily the right course of action.
Stocks go up and down all the time, depending on the economy, and of course, the economy depends on the stock market as well. This is why it is so hard to determine whether you should sell your stock or not. Stocks go down, but they also tend to go back up.
You have to do more research, and you have to keep up with the stability of the companies you invest in. Changes in corporations have a profound impact on the value of the stock. For instance, a new CEO can affect the value of a stock. A plummet in the industry can affect a stock. Many things – all combined – affect the value of a stock. But there are only three good reasons to sell a stock.
The first reason is having reached your financial goals. Once you’ve retired, you may wish to sell your stocks and put your money in safer financial vehicles, such as a savings account. Though I would advise against this, you may spend over three decades in retirement, and shifting from stocks that may be risky to something stable that pays a dividend would be a better choice.
This is a common practice for those who have invested to finance their retirement. The second reason to sell a stock is if there are major changes in the business you are investing in that cause or will cause the value of the stock to drop, with little or no possibility of the value rising again. Ideally, you would sell your stock in this situation before the value starts to drop. This takes a lot of time to properly follow and stay up to date with all the news and information surrounding a company and its stock.
If the value of the stock spikes, this is the third reason you may want to sell. If your stock is valued at $100 per share today but drastically rises to $200 per share next week, it is a great time to sell – especially if the outlook is that the value will drop back down to $100 per share soon. You would sell when the stock was worth $200 per share. I avoid the Reddit chat rooms and most social media that surround buy and sell recommendations, but I will note this. This week a stock I owned went up over 50% in a single day and was way overvalued based on all the information I know about the company and what I valued a share to be worth. So, I sold it one day and bought it back within a few days with about a 40% gain in the number of shares I own now compared to before. It pays to watch what sudden price movements in either direction mean and determine if the move is based on hype as this was or an underlying reason such as surprise earnings or a change in the dividend.
As a beginner, you want to consult with a broker or a financial advisor before buying or selling stocks. They will work with you to help you make the right decisions to reach your financial goals. See the following post for ideas on market corrections, https://kgmeyerpc.com/dealing-with-stock-market-corrections-ten-dos-and-donts/.
If you have questions or need assistance, please feel free to contact me directly. As a fee-only Registered Financial Counselor and Certified Financial Fiduciary, I always put your concerns and needs first.
