Have you ever thought about investing in stocks as a profitable way to build wealth?
Many have already climbed up the wealth scale and gained valuable experience along the way. Others however, who are just starting to dip their toes into the world of investing, are often faced with an interesting dilemma: what are some good reasons to sell a stock?
While most advice you read about how to start investing is geared towards how to buy and how to spot a bargain, knowing when to sell is often one of the greatest investment mysteries.
Many experienced investors will tell you to buy low and sell high. Ideally, this is the perfect strategy to make money with investments, but of course, you can’t always foresee whether a company will thrive or go bankrupt in the future.
‘Smelling’ the right time to sell a stock is key to building wealth.
However, not everyone knows when to buy or when to sell so often times, confusion leads to money loss. In return, this leads to believing that investments are just a number’s game. Like gambling.
That’s not the case with stock investments and, with that being said, here are 3 good reasons to sell a stock.
Quick rise in value
Logic dictates there is profit to be made if you buy stocks when they are low and sell them when they rise in value.
According to this wise investing principle, among the main good reasons to sell a stock, there’s the quick value increase.
Investing in company shares comes with many uncertainties. While there are indeed stock market predictions to take into consideration, a sudden price rise in shares you’ve recently bought is always a reason to celebrate.
A good reason to sell ASAP is when your shares are clearly at a peak.
It’s a great chance to make a profit and either reinvest the money or use it as you best see fit.
What’s important to keep in mind is that the best investors don’t let emotions stand in their way. If your stocks are doing great, don’t wait too long to see if they could perform even better.
Sell, rinse and repeat.
New bargains could wait just around the corner. Reinvesting the profit for an even bigger gain is the smart thing to do.
Free up your ace in the hole
Another good reason to sell your stocks is spending money with a purpose.
Everyone starts investing with a clear goal in mind: building wealth. Naturally, no one chases after the right stocks out of pure boredom.
With that being said, a perfectly pertinent reason to sell is needing the money for a big expense.
A down payment on a home, funding a new business or paying for college are all examples of ‘good debt’.
However, why apply for loans if you can free up some capital by selling your shares?
There will be fees and taxes to be paid, but even so, selling stocks is a better alternative to getting into debt.
Avoid years of monthly installments and high interest if you have the opportunity to use cash.
Company’s stocks keep going downhill
Investing in stocks comes with opportunities, as well as risks. While there is money to be made, unfortunately sometimes you just need to cut your losses and move on.
When a company’s stock value starts going downhill, selling might be worth considering.
For instance, predicting the way some tech stocks will perform is often unsubstantiated. Sometimes predictions lead to big money gains, other times buying tech shares is a risky idea.
When a hot tech share significantly drops in value, instead of performing as initially predicted, selling might be the right thing to do, in order to avoid even bigger losses.
Selling at a loss is never pleasant, but knowing when to let go and move on to smarter investments is best.
Of course, this isn’t a reason to sell all your bad performing company shares.
In certain situations, companies can go through temporary business setbacks, but bounce right back shortly after. Selling a stock, in this case, is obviously an emotional decision.
The stock market is often unpredictable. Buying and selling stock, however, should both be backed up by rational analysis and, of course, taking company valuation into account and thoroughly researching of the stock market.