How to Know When to Sell Your Stocks

by Brian Mcgregor - Date: 2007-03-20 - Word Count: 526 Share This!

Most investors put substantial time and research into selecting the best stocks in which to place their money. However, it is not unusual to find those same investors haven't spent a similar amount of time in determining when to sell or pull out. This can be especially true of the first time investor.

The good news is that if you have chosen the stocks to purchase carefully and wisely, you hopefully won't need to pull out for a very long time. Maybe even as far in the future as when you are ready to retire.

But there will inevitably be specific instances when you will need to consider selling your stocks before you have reached your financial goals.

You may think that the time to sell is when the stock value is about to drop, and it could be your broker has advised you to do this. However, this isn't necessarily the right course of action.

Stocks go up and down all the time, depending on the economy and other factors. And the economy itself has a relationship with the perceived value of the stock market. This is why it can be hard to determine whether you should sell your stock or not. Stocks go down, but they also tend to go back up.

The best advice is to do more research, and understand the stability and performance of the companies in which you invest. Certain changes in corporations have a profound impact on the value of the stock. For instance, a new CEO can affect the value of stock. A plummet in the industry can affect a stock. A prospective take-over bid can affect the price of the stock. Many things, all combined, affect the value of stock. But there are really only three good reasons to sell a stock.

The first reason is having reached your financial goals. For example, 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. This is a common practice for those who have invested for the purpose of financing their retirement.

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.

If the value of the stock spikes, this is the third reason you may want to sell. If your stock is valued at $100 per share today, but rises suddenly to $200 per share next week, it could be a great time to sell. This would be especially true, if you feel the outlook is that the value will drop back down. In this instance, hopefully you're able to sell when the stock was worth $200 per share.

If you are new to trading, you should definitely consult with your broker or a financial advisor before buying or selling stocks. Making the right decisions at both ends of your transaction can be the difference between profit and loss in your investments.

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