Whether one of your stock purchases is flying high or plummeting downward, it can be tricky to decide when to sell a stock. Is your high riser about to implode? Should you stick with your spiraling stock in the hopes that it will rebound? Here are six signs that it’s time to cut the cord and sell your stock:
1. The price of a stock with a large loss isn’t moving
Investors hate selling a stock at a loss, often holding on until they at least break even. However, just because the stock’s price was much higher in the past doesn’t mean it will hit that price anytime soon. Don’t lose even more due to stubbornness. You may want to sell and reinvest in another stock with better prospects.
2. The stock has hit your target sell price
When you purchase a stock, set both high and low target sales prices. While you don’t have to sell when the stock hits those prices, you should at least review it at that time. (You put those targets in place for a reason.) You might want to set rigid rules for selling a stock when it declines by a certain percentage of your purchase price to ensure you don’t incur substantial losses. Keep in mind that capital gains and an excess of $3,000 can be deducted against ordinary income. Any remaining capital losses can be carried forward indefinitely. (Pro Tip: To take the emotion out of these transactions, which may result in you holding onto a stock too long, consider putting in place automated high and low sell parameters.)
3. Your stock’s performance is lagging the market or its industry
Compare your stock’s performance to that of other stocks in the same industry and to the overall market. Is your stock lagging behind? That may imply that the company you chose is losing ground to its competitors or simply isn’t being managed as effectively as possible. It might be time to jump ship. Keep in mind that your stock’s performance will vary over time, so don’t make quick decisions based on short-term data.
4. The stock’s fundamentals have changed
The world is constantly changing, and the market leaders of today may not be the market leaders of tomorrow. Thus, watch your stocks so you can spot when fundamentals are shifting. If a company you’ve invested in falls behind the curve or becomes obsolete, it’s time to get out. (Pro Tip: Set a calendar on assessing your stock portfolio so you don’t forget and let them ride too long. Reviewing your stocks at least twice a year is a good idea.)
5. The stock is subject to negative news stories
You shouldn’t sell a stock at the first sign of trouble, but if bad news breaks and keeps on coming, then it’s time to reevaluate and possibly pull the plug before too many other investors run first. If you have an automated sell system in place, this can help you get out quickly if bad news craters the stock before you have the chance to act.
6. The stock’s price has run up too much, too quickly
It can feel so good when you pick a winner that starts shooting up, but the higher a stock rises the farther it can fall. If your research suggests that a stock is overpriced or simply won’t be able to maintain its momentum, cash out at the peak instead of holding on for the coming slide. (Pro Tip: It is impossible to know when a specific stock will peak. Don’t wait too long, assuming the stock will keep going up. A healthy profit is still a great reward even if you could have made a little more by staying in longer.)
If you have difficulty pressing the sell button, then contact your investment advisor for a second opinion.
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