The most difficult thing about investing is knowing when to sell your investments. Let’s face it, if you knew exactly when you should sell beforehand then you’d have all the money in the world.
The problem is that we can’t tell the future. We know when we buy shares of a stock or mutual fund and we know how much it is worth when we are buying. Then we wait and figure out the best time to sell.
While there are no absolute rules about selling your investments, there are a few things to think about.
Would You Buy it Today?
The most important thing to consider when reviewing your investments is whether or not you would buy your stock today. If you think it’s overpriced then it might be time to sell.
It doesn’t matter if you bought your stock at $100 a share and it’s currently at $70. If something about the company or industry has changed since your initial purchase that makes you think it’s only worth $50 then it’s time to sell while you’re still getting more than you think it’s worth.
On the other side of that coin you might think the stock is undervalued. In that case you want to hold what you have and you might consider buying more.
Brokerage Fee Savings
If you are investing tens of thousands of dollars at a time then a $10 or $20 trading fee should not even register as a blip on your radar.
However if you are only investing a few hundred dollars at a time then a $10 or $20 trade is a significant percentage. If your brokerage is offering a promotional discount on the trading fees when you are trading shares of stocks or mutual funds, it might be a good time to think, “Would I buy it today?” and then consider selling.
Another thing that can have a substantial impact on your profits or losses is the tax implications of holding or selling.
In America there is a difference between a short term capital gain (an investment held for less than one year) or a long term capital gain (held longer than one year).
If you are looking to sell around the 1 year mark, it’s better to sell at a profit as a long term investment, and it’s better to sell at a loss as a short term investment.