6 Really Good (& 4 Really Bad) Reasons to Sell Your Stocks

·8 min read
when to sell stocks
when to sell stocks

The stock market can be volatile, creating ups and downs that can be impossible to predict. Knowing when to sell stocks can make a big difference in your long-term investment portfolio whether you’re only investing long-term or if you’re looking to trade for quick wins every day. The way that you go about it, though, will be different based on what your investment strategy is so it’s important to understand what factors to consider. If you need help making the best decision for your unique portfolio, don’t hesitate to reach out to a financial advisor.

When to Sell Stocks

When it comes to selling stocks, there are plenty of reasons to make your move. Ultimately, the decision is going to come down to your investment strategy and what is happening with that particular business or the industry the business is in. Most industries can hit difficult times but end up rebounding while some may not rebound at all, or it could take longer than your investment strategy will allow.

Keep in mind that the right time to sell a stock is almost always a time before you end up selling. There is no perfect moment 99% of the time. However, the right time for your portfolio is going to be an entirely personal decision that just depends on a number of factors. While we can give you good scenarios to consider selling, that decision should probably be talked over with a professional advisor.

Here’s a look at six scenarios where it might make sense to sell stocks:

1. You Realize You Made a Mistake 

When evaluating a stock for purchase, you can look at a variety of metrics, but sometimes it’s difficult to accurately estimate the competition or challenges facing the company. If you realize that a stock pick isn’t performing as you had hoped, it might be time to sell in order to either prevent a worse loss than your portfolio can take in the short term or in order to invest in opportunities that can provide a bigger gain.

2. To Access Funds for Spending 

Investing is an important part of a healthy financial future. At some point, you’ll need to sell some of your assets to get access to capital that can cover lifestyle expenses. Although it’s important to have an emergency fund as your first source of funds in these scenarios, your investment portfolio can help you acquire the funds you may need. You don’t want to get into a habit of accessing your investments to cover new spending sprees or to fix something in your house that breaks unexpectedly.

3. You’ve Changed Your Investment Strategy 

Different stocks fit into different investment strategies and the ones you invested in last year might not be a fit if you end up changing from a short-term to a long-term strategy. For example, you might transition your portfolio into a value-based strategy from a growth-based strategy. Or mightA pivot would require selling some stocks to buy others. This can happen as you look to reallocate your investments annually or as a shift in a mindset based on other things that happen, such as inheriting a large sum of money.

4. A New Opportunity Arises

In some cases, the price of the stock far exceeds the underlying value of the business. If you see investors being overly optimistic about a stock you own, it might be time to cash out on your good fortune. Most investment strategies will concede that selling something for more than it is destined to be valued in the future is a good choice. However, your investment strategy should be considered before moving forward with this type of sale.

5. To Harvest Tax Losses

Tax loss harvesting allows you to use your investment losses to offset your tax burdens. If you have a dud in your portfolio, this is an efficient way to eliminate the problem at the end of a tax year without carrying that burden into future years. You’re going to take a financial hit from selling but being able to offset that loss, at least partially, could be the right move if you don’t foresee the stock turning around in the near future.

6. To Rebalance Your Portfolio

Rebalancing is an important part of a long-term investment portfolio. You may need to buy or sell stocks when rebalancing in order to make sure that your preset portfolio rules are met. For example, if you have decided that your strategy requires 60% of the value to be in stocks but it climbs to 67%, then you’ll have to sell some stock to get the portfolio back in line. This helps you reduce risk and build towards your specific financial goals.

When You Shouldn’t Sell Stocks

when to sell stocks
when to sell stocks

Knowing when you shouldn’t sell stocks is just as important because it can prevent you from making a mistake that could negatively impact your portfolio over time. As an investor, you’ll be faced with the choice to sell on a regular basis. But there are plenty of scenarios that you will want to pause to consider whether selling is in your best interests.

Here are four scenarios where selling might not be in your best interest:

1. You Read Bleak Economic Forecasts

If there are economic storm clouds on the horizon, that’s the time to hunker down in your investment strategy. It’s usually not the right time to sell off your stocks because you’ll likely lose a significant amount of value by selling during a downturn in the market. Just because the markets aren’t expected to rebound quickly doesn’t mean that they won’t eventually come back stronger than ever, because they always have.

2. You See That Other Investors Are Selling 

When the stock market is falling, it’s not uncommon for many investors to start offloading their shares. However, this can be a big mistake for their long-term investment outlook. By sticking to your investment strategy during a downturn, you avoid locking in losses and you are still in a position to profit from the turnaround. This isn’t the case if you sell and then try to buy back in at a later date.

3. You Notice the Stock Has Gone Up 

Even if you are sitting on a profit, that’s no reason to sell prematurely. Instead, you can hold onto the stock for the duration of your strategy to fully benefit. Depending on the stock, you might see outlandish returns as an early investor. As long as the stock is in line with the actual value of the business then there is hope that the stock will continue to grow and flourish along with the business. While a stock increasing in value might be a cause to consider selling, it oftentimes is a good reason to hold your investment.

4. You Notice the Stock Prices Are Going Down 

If the stock price is going down, that’s not a good time to sell. In fact, it might be the perfect opportunity to buy more stocks for your long-term investment plan if you believe that the stock is still fairly valued and could make a comeback. The market as a whole typically bounces back so unless there is a reason that your stock is down from the market activity within that industry, then it might be a good idea to keep your investment and let it climb again.

Bottom Line

when to sell stocks
when to sell stocks

Investors with a long-term outlook should carefully consider their reasons for selling before moving forward. There are perfectly legitimate reasons to sell stocks. But it’s essential to make sure that you aren’t straying from an appropriate investment strategy. Consider discussing your options with a financial advisor if you need help deciding when it’s the right time to sell stocks.

Tips for Investing

  • Knowing when to sell stocks isn’t always easy. If you want help managing your investment portfolio, it’s time to work with a financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • When you decide to sell stocks, that choice may involve a capital gain. Capital gains have their own tax rates. Check out SmartAsset’s free capital gains tax calculator to see how much you may owe.

  • The right decision on selling stocks varies based on your investment strategy. Look at SmartAsset’s free asset allocation calculator to see the relationship between risk and portfolio strategies.

©iStock.com/guvendemir, ©iStock.com/Sergey_P, ©iStock.com/dima_sideinikov

The post When to Sell Stocks: Investment Guide appeared first on SmartAsset Blog.