The reason many people invest in stocks to start with is to earn some passive income as opposed to starting a business. When you look at it from the earning perspective, stocks are some of the highest yielding investments you can make for the long term. This is where questions such as ‘when to sell stocks’ become important to ask.
Buying stocks is a matter of taking initiative, experimenting, and learning overtime about the right timings to cash in your investment. When to sell stocks you own is a question that depends upon some personal and some market factors. You either find a perfect timing for the best profit margin or you find it is a necessity that requires immediate decision-making on your part.
There are a few questions, some basic and others advanced in the buying and selling of stocks that are answered in this article. Read on if you want to learn more about when to sell stocks:
What is the best time of day to sell stock?
In matters related to financial markets, the first hour of the trading day is the most important one in terms of prices and trading of shares. The first hour i.e. from 9:30 AM till 10:30 AM, is the most important one to trade or sell your stock at a good price or buy one that might benefit you.
What factors affect your decision to sell stocks?
When you’re in the early stages of your investment journey or are still doing research before taking a deep dive, learning these factors are critical to all your decisions in the future. When you start fresh, you don’t have any first hand experience or knowledge to back up your decisions, therefore making sure you do all you can to learn via theory is a good idea.
Now the reasons and factors that aid your decision making while selling stocks can be both personal or otherwise. In that light, let’s look at factors individually:
Portfolio adjustments
An investor is only as good as it’s portfolio, or so the saying goes in the stock market. Making sure your decisions impact your investment portfolio positively is very essential to your success. Every move you make in the stock market as an investor finds its way to your portfolio and that’s an important reason to consider selling your stocks.
\The first main reason when thinking of adjusting your portfolio by selling stocks is when you need to diversify your holdings. The old famous entrepreneurship phrase “Don’t put all your eggs in one basket.” is true for many situations and owning stocks is one of them. Sometimes you are in a conflicting state when a significant amount of your investment is in one company’s stock and it’s also very profitable. The decision to remove some of your ownership from a beneficial company is not an easy one, but it is important that your stream of earning is not largely dependent on just one company.
Another reason is reducing your stock exposure. As you grow old, your investment options cannot be too risky, therefore a fixed income investment alternative is the way to go. By selling your stock, you reinvest them in places where there are less chances for any unpredictable factor to influence your earning.
Acquisition of a company:
There are three ways a company gets acquired, all cash acquisition, all stock acquisition and/or cash-and-stock acquisition. These types impact the stock price of the company being acquired differently.
In case of an all cash acquisition, the stock price of the company moves towards the decided acquisition cost that in most cases is much higher than the company’s market value, making it an ideal moment to cash in your stock holdings in the company. This is an ideal scenario that reserves no other option, the stock price of a company being acquired gets to an all time high, making the decision easier for you
However, the situation in case of a stock or cash-and-stock acquisition is different because that really comes down to whether you want to continue owning stock in the company that is acquiring the company in which you have invested. It depends upon the investor to decide if they want to be a shareholder for the acquiring company or not.
Better investment opportunities:
Making hasty decisions is something you cannot afford to do, which is why it is important to recognize an opportunity where you see it and not let it go without taking action. In any ideal case, there wouldn’t be a need to sell some stock to buy others, in an ideal scenario there wouldn’t be a need for money-making through stocks if the investor already had ample cash-inflow
However, you do need to make sure you are quick on your toes while moving around the stock market. Therefore, selling your stocks when you see a better opportunity that benefits you in the long term is a great reason to do so.
Financial needs:
Another important factor that will do you good if you consider it before investing is to plan out your investment journey with regards to your financial needs. It’s a possibility that the money you are investing now might be required by you for whatever personal needs in a few months/years. That is a different case of need. But if you know certainly that you are going to require this money soon, investing it wouldn’t be the greatest option.
However, if a need arises, or if you are planning to invest with a certain goal in mind, selling your stock when that particular time comes is as good as anything. The purpose of investing is to make profits that could be accumulated in a handsome enough amount to benefit you, so if you see an opportunity where that can happen, go for it.
Reason to buy changes:
Your investment thesis helps you keep your objective to invest in mind. Higher stock price is not the reason every time. This gets confusing when the stocks you’ve invested in are doing really good; you wonder whether now might be the best time to sell and take the cash to your benefit. This can vary if your reason why you bought that stock in the first place has changed, then it would make sense to sell it.
Contrary to that, if your reason remains, it’s not a bad decision to hold on to your stock and continue being an owner.
At what percent should you sell stock?
There is no one right answer to this question. The ideal rate is considered to be between 20-25% within a consistent time period. But not all of your investments are bound to make such huge developments and be market winners. You need to decide what accounts are beneficial to you and if you want to sell it or not.
Bottom Line
Certainly, there can be a variety of reasons for you to sell your stock. So ideally, the answer to the question “when to sell stocks” really depends on your needs, financial market’s situation, and how the company is performing.
