The primary objective of every investment is to generate income, grow capital, and assure financial safety by preserving that capital.
However, there comes a time when investors want to stop holding an investment and instead sell it.
Therefore, if you are wondering”when should I sell my stock?” you have a valid question. However, you should understand that there is no fixed hour, minute, or second when you should sell your stock.
Similarly, there is no specific period of time for which you must hold your stock before selling it. Rather, your personal financial and investment schedule is what will determine for how long you hold your investment and when you will sell it.
However, there are several reasons why you may decide that you’ve held your stock long enough and it is time to dispose of it. These factors are to a large extent what determines for how long you hold an investment and when to sell it.
Therefore, below is a breakdown of these determinants to help you understand the best time to sell your stock.
a) When diversifying your portfolio
Adjusting an investment portfolio is a vital strategy that investors use to ensure capital growth or capital preservation. The stock market is dynamic and so a stock that was low-risk when you bought it might have become high-risk.
If a large chunk of the stocks in your portfolio is high-risk, you may want to diversify that portfolio.
Diversification helps you spread the risk of your portfolio and protect capital. In such an event, it may be a good time to sell some of your high-risk stocks and invest that capital in other assets in order to balance out your portfolio. A great way to diversify your portfolio for as little as $1 is to invest in ETFs (Exchange-traded funds) such as IVV (iShares Core S&P 500 ETF), which represents the top 500 US companies.
b) When you need to free up capital
Stock markets are not the only highly dynamic environments with frequent fluctuations. Real life itself is also constantly changing and a life event, family responsibility, medical emergency, or an investment goal may put you in a position where liquidity is paramount.
For instance, if you have found a piece of real estate that you need to put a down payment on, you may have to quickly come up with cash. When confronted with such situations, it may be time to sell your stock and free up some of the held up capital.
c) When purchasing another stock with higher potential
You can also know when to sell your stock depending on whether newer opportunities for acquiring a more valuable stock arise. For instance, you may have stocks in a fast-moving consumer goods company whose growth has leveled.
In the event that opportunities for buying arise in a new company with a revolutionary technological innovation, it may be time to sell your stock in the Fast-Moving Consumer Goods (FMCG) company and acquire stock in the technology company as it will have a high earning potential.
d) When your stock reaches price targets
Successful stock trading requires meticulous and elaborate planning. Therefore, before or when investing in a stock or ETF, you may have already set a price target at which you would consider selling your stock for profit.
Therefore, if the company has consistent growth and the share price eventually reaches that target, you may sell your stock or ETF and either free up your capital or re-invest it elsewhere.
e) When the company begins underperforming
The financial performance of a company is usually a crucial factor when it comes to determining how long you should hold an investment or when to sell the stock. This is because share prices are—to a significant extent— proportional to the company’s performance.
Therefore, if a company begins underperforming significantly before or after your share price targets are reached, you may want to consider selling your stock. However, note that this should be in accordance to your financial goals.
For instance, if you intended the stock to be a long term investment (5+ years), it would be wiser to hold the stock or investment and wait until prices appreciate backup. However, if the stock was a short-term investment, you may want to sell it off and turn a profit before things worsen.
Conclusion
It is vital for you to understand that there is no universal time for when you should sell your stock or for how long you should hold it. Rather, you must always make the decision based on prevailing market conditions and your personal financial goals.
Therefore, if a company’s performance is likely to continue improving, it is wise to hold the stock up until it reaches its peak.
However, if it begins underperforming and your financial goals do not allow you to wait until prices come back up, you can always sell.
(i) Disclaimer
The Content is for informational purposes only, you should not consider any such information or other material as investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by Alinea Invest or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction. When investing your capital is at risk.
