When to Sell Stocks and Take Your Profits
Knowing when to sell a winning stock is just as important as knowing when to buy. After all, you only make a profit once you realize your gains. A profit on paper does not mean anything. But how do you know when it is time to sell?
It can be difficult because the stock can keep rising, but even if you end up selling early, you still made money since you sold the stock at a price more than you purchased it. This is not to say immediately sell the moment you turn a profit. The point is – don’t be greedy.
Signs it is time to sell
Assign a target price to every stock you buy. The moment it hits that mark, sell and move to the next opportunity. There are many other stocks out there waiting to hit their full potential. The only exception is when the stock you have still looks like a bargain even after you already profited.
However, there are situations when you must sell below the target price. Market conditions change and if there is an overall decline, it may be wiser to cash out early and wait until the bargains re-emerge. You will only see these trends if you regularly monitor your investments though. Markets are dynamic so keep an eye on its behavior to time your selling well.
Successful investing is not impossible
Even if you are lacking a financial degree, you can still find success investing in stocks. The main rule is incredibly simple anyway: buy low and sell high.
If you are investing for the long run, there is the added benefit that your portfolio is sure to grow wherever you put your money on given the long period of time. But if you want to be more aggressive, sell your stocks when the investment has exceeded your price target and has become too expensive. Also, you should definitely sell when you want to liquidate the investment to invest elsewhere, rebalance your portfolio, or use the cash.
Spend some time looking at the market and cash in your winnings when it makes sense to. At the simplest, sell your stock when it has earned a significant percentage of your portfolio. Use the money to invest in other stocks to reclaim proper diversification and asset allocation. This way you enjoy your profit and keep the money working hard for you.