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The decision on what stocks to buy and when to buy them can sometimes be easier than when to sell them. Should you always wait for your investments to turn a decent profit, or is it ever a good idea to sell a stock that’s lost money? We explore some of the good – and bad – reasons to sell stocks.
This is a question that’s easy to answer in principle, and not quite as straightforward to action in practice. We all know that the idea behind dealing stocks is to make a profit. So, the ideal is to sell when you’ve made as much of a profit as possible.
And there’s the rub. Let’s say the stocks you bought a year ago are in the ascent, and selling now would net you a healthy profit. Unless you’ve got your hands on an uncannily accurate crystal ball, there’s no way of knowing for sure if they’ll continue to rise…or commence a slow tumble (or even a rapid one). So, in a positive scenario, it’ll be a case of deciding to sell when you’ve made a profit that is “good enough”.
And, of course, there’s no iron-clad guarantee that those painstakingly-selected stocks will rise in value at all. That’s simply the risk with investing. So there may also be times when the best option is to cut your losses.
While there’s no way of predicting the future with absolute certainty, there are indicators to look out for to assess whether you should sell at a loss (or, indeed, get out while the going’s good). We’ll into this further down in our tips on good and bad reasons to sell a stock.
Sorry, but this is one that there’s no clear-cut answer to. Like any investment, stock values are subject to a huge number of factors. Some are linked directly to the company you’ve bought stock in. For example, if it announces the launch of an exciting new product that’s bound to be a sure-fire hit. Others are wider market or economic factors. Nobody could have predicted the coronavirus pandemic and its negative impact on the hospitality industry (and positive, albeit temporary, impact on the tech industry). Big fluctuations can happen even within a single day.
So, unfortunately, there’s no optimum time-frame between buying stocks and selling them, or “best” time of day for selling. As with most investment decisions, it’s a case of monitoring your investments closely and making informed decisions about the best time to sell. Or, paying a professional financial adviser to help you make those decisions.
Let’s start by noting that there are plenty of good reasons to sell stocks, some influenced by external factors and some by personal circumstances. But there are also occasions when selling your stocks might be a poor idea. Here’s a quick round up of some of the motivations that can arise, and whether they’re a good or bad reason.
Depending on the platform you use, you may be charged transaction fees every time you sell stock.
Technically, yes. And if you’ve bought a stock and rapidly realised it was a mistake, then you may wish to rectify that mistake quickly. But remember that, for most people, investing for the long term is the best strategy, and every trade you make is likely to incur costs. So unless you’re an experienced investor who’s taking a high-risk day trading approach, you should keep same-day buy and sells to a minimum.
Once you’ve hit the sell button, you’ll typically need to wait 2 to 3 business days before the funds are available in your account to withdraw or re-invest.
We’d love to give you a categorical answer on when you should sell a stock that’s lost money. But while some experts cite specific percentage figures for when you should sell a “losing position”, we reckon it’s a bit more nuanced than that.
It’s usually a poor idea to sell stocks purely because they’ve lost money. That’s because it’s not just about how much a stock has declined in value, but also the reasons for it – and whether those reasons suggest the stock is likely to recover in the future. For example, the whole market may be struggling due to external factors that are likely to be temporary in nature. The coronavirus pandemic, for example. Or a period of political turbulence that will (hopefully) settle down. But if a company’s performance is struggling due to, for example, poor sales that look unlikely to recover, or there are rumours of a hostile takeover, selling may be the right option.
We’re not saying don’t sell a stock that’s lost money. After all, it’s better to get out before a bad situation worsens. Just don’t sell in a panic and, if you’re uncertain and the sale could mean a substantial loss, consider professional financial advice.
The idea of investing is to make money on your contributions. So – in an ideal world – you would always buy low and sell high. Sadly reality doesn’t always pan out that way and there may be occasions when you need to sell at a loss. Regardless of whether you’re selling low or selling high, always do your research into the company’s fundamentals before you do so. And question your motivations so that you always sell for the right reasons.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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