How to Know When to Sell Your Stocks
December 16th, 2009
While quite a bit of time and research goes into selecting stocks, it is often hard to know when to pull out – especially for first time investors. The good news is that if you have chosen your stocks carefully, you won’t need to pull out 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 you have reached your financial goals.
Sometimes, your broker give advise to sell when the stock value is about to drop. 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 and go up.
You must do research again, and you must know about stability of the companies that you invest in. Big impact the value of the stock is when corporations have changes. For instance, a new CEO can affect the value of stock. A plummet in the industry can affect a stock. Many things – all combined – affect the value of stock. But there are really only three good reasons to sell a stock.
Having reached your financial goals is the first reason. Once you’ve reached retirement, you may wish to sell your stocks and put your money in safer financial vehicles, such as a savings account.
For some people who have invested for the purpose of financing their retirement, this is a common practice. 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.
The third reason you want to sell is the value of the stock spikes. 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.
As a beginner, you definitely want to consult with a broker or a financial advisor before buying or selling stocks. They will together with you to make desicion about your financial goals.
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I think that as our population ages, baby-boomers with expendable cash will spend more time trading the markets when they retire. Most will be well versed in the risks/rewards because of participation in a 401k for most of their working career. For way too many that knowledge will be just enough to get them in deep trouble.
My style is to commit a small amount in a trading account that has nothing to do with my retirement account. Then I find beaten-down stocks on life support that have a good chance to double in price. It’s easier said than done but you don’t have to be right every time. You just have to be right more than you are wrong to make money in the markets. Check out my website and shoot me an email if you like. My last two investments have done rather well.