When to Sell Stocks: The ONLY 5 Reasons To Sell (EVER) (2024)

Should I sell my stocks?

It’s possibly one of the most common questions in the stock-trading world.

When to sell stocks or hold them mostly depends on your AGE.

If you’re closer to (or at) retirement age, you’ve likely been investing for a while and can sell your investments to live off of for your retirement.

If you’re younger, though, this isn’t the case. In fact, if you’re in your 20s and 30s, there are only three good reasons to sell your investments:

1. You need money for an emergency
2. You made a terrible investment that’s consistently underperforming
3. You achieved a specific goal

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But what about those who have already invested in their401k,Roth IRA, andindex funds? If you already have your retirement accounts sorted and are now just experimenting with different individual stocks, should you still sell? Or do you keep hold of those stocks for later in life for an even bigger retirement?

That’s what we’re covering in this article, so keep reading to discover whether selling individual stocks is the best move for you (and when it isn’t).

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Knowing whento sell a stock is a million-dollar question.There are usually only five good reasons to sell a stock besides cashing out for retirement.

We all make mistakes, and when it comes to the stock market, you can never be sure what will happen.

If you haveindividual stocksthat appear to be underperforming (consistently), it may be time to cut your losses before those losses stack up even higher.

However, if you believe the market will recover (which it usually does), you may decide to hold onto your stocks and ride out the waves. A lot of people will suggest you do just that, and for the most part, that’s good advice.

If you have index funds, then this is almost certainly what you should do because the market will recover, and if yourindex fundsare down, it means the whole market is down.

But what about the exceptions to the rule? Is there ever a good time to sell a bad investment?

How to decide when to sell an underperforming stock

Let’s say you have a consumer goods stock that has halved in value over the past three years. It’s consistently gone down.

Before panic-selling, take a good look at the wider industry.

If other goods like it are also in decline, then you know it’s the industry, not just your stock. Everything’s doing poorly. This gives you a bit of extra context.

All industries experience declines for a variety of reasons. Maybe the industry is no longer as viable as it once was. Maybe competitors have changed the playing field a bit too much.

But let’s talk about this conceptually to understand when to sell an investment for poor performance. If you pulled up a list of your investments and saw this chart, what would you do?

Slow down. Instead of freaking out and selling your stock faster than you can scream, “SELL! SELL! SELL!” into a phone, look at the context.

Knowing that the example is a consumer-goods stock, how is the rest of the consumer-goods industry doing?

By looking at the stock and the surrounding industry, you see that the entire industry is in decline. It’s not your particular investment. They’re all doing poorly.

Now, this raises questions about the industry, but it also gives you context to explain your stock’s plunging returns. And just because they’re plunging, by the way, doesn’t mean that you should sell immediately.

That’s part of the reason why buying individual stocks can be a bit of a pain. You need to keep a close eye on them and their respective industries to check their performance. Your money is often better off inan index fundwhere it’s spread across multiple companies.

Savvy investors will often set a target price when they buy a stock. This is the figure that they would be happy to sell the stock for.

While a set price may be difficult for even the most experienced investors, having a price range in mind gives you a solid enough target. Once you’ve reached that point, consider selling it and enjoying the gains.

Another good time to sell a stock is when you reach a personal savings goal.

‘Buy and hold’ is a great strategy for ultra-long-term investments, but lots of people invest in stocks to hit short- or medium-term money goals, not just retirement.

For example, “I’m going to invest for a dream vacation to Thailand. I don’t need to take the trip any time soon, so I’ll just put $100/month into my investing account.”

The great thing about this is that the money will compound and grow with a higher interest rate if you invest it in a diversified index like the S&P 500. The average savings account offers 0.06% APY, whereas the S&P 500 returns around 8% each year on average. So for savings goals that are further into the future, there’s nothing wrong with “saving” in an investment account.

Just make sure all your savings aren’t tied up in investments, because you never know which way the market will swing.

Having a separate savings account for the money you need to access fast (e.g., in an emergency) is a much safer bet. That way, you’re not cashing out during a dip and making a loss. If your goal is less than five years away, you should set up a savings goal in your savings account. For more information on that, check out our article on sub-savings accounts.

If you’ve invested money for a longer-term goal and you’ve achieved it, sell and don’t think twice. That’s a great investing success, and you should use the money for whatever your original goal was. You earned it, after all.

The stock market can be unpredictable; just take the madness of GameStop, for instance.

Sometimes the stock market will overvalue the stock and set a market price that doesn’t seem to correspond to the expected earnings of the company.

Similarly, if the earnings expectation of the company dips but the stock price doesn’t, it’s probably a matter of time before the stock decreases too.

In either of these cases, you might want to consider selling and cashing in the profits before the value crashes.

If you’re serious aboutmaking money in the stock market, you should always be on the lookout for new opportunities.

If you spot a stock that you think has a lot of potential but your money is tied up in other investments, you may want to sell your existing stocks.

Even if your stock is performing well enough, if a better opportunity comes along, it can pay to jump on it. Of course, there’s no guarantee either way that this new stock will perform better. But you could be missing out if you play it safe and don’t make that leap.

Whatever you do, make sure it’s a calculated and well-researched move. Don’t do it on impulse!

Sometimes disaster strikes and catches your wallet by surprise. In an ideal world, you’d have a nice, bigcash safety-cushionto pick at in times like these. But sometimes it’s just too hard to prepare or predict.

If you have money in stocks, cashing them out might be inevitable if you have an emergency.

This could involve:

• Medical bills from accidents or illnesses
• Big car repairs
• Home repairs
• Job loss
• Economic crashes

If none of the above applies to you, then, in most cases, you should hold onto them. Yes, even if your stock dips. There is never an easy way to figure out when to sell stocks. Just because your stock has dropped doesn’t mean you should panic-sell. It’s all about context. The next time you see a stock tumble in value, ask yourself:

• Is the wider market seeing similar dips?
• Has something happened in the company or in the news to make it dip?
• Has the company performed this way before and recovered (or not)?
• What does the competition look like? If they haven’t dipped either, find out why that is.

Asking yourself these questions before you rush to sell will save you a lot of headaches in the future.

The last thing you want to do is sell and then see the stock recover soon after. You’ll be left kicking yourself for selling. Stocks will usually recover, even if there are dips, so waiting it out is often your best bet. That is unless you have good reason to believe the stock won’t recover.

The world wants you to be vanilla...

Remember: Don’t just sell because your stock dropped. Look at it in context.

I used to teach a class on finance. One day, I went in front of the classroom and drew a picture of a declining stock on the chalkboard. It looked like this:

Then I turned to the class and asked them, “What should I do?”

Part of the class shouted, “Sell!” and another section said, “Hold it!” while a couple of people in the class muttered, “Buy more.”

None of them were exactly right though. The truth is, you need morecontext.

If a stock like, say, Apple falls a bunch, you have to look at the surrounding context and ask questions like:

• Is the general market falling?
• Are its peers falling?
• Has Apple performed this way before? What happened then?

Answering these questions provides a LOT more context to the situation and can both put your mind at ease and also help you make better judgments.

My suggestion to keep tabs on your stocks would be to just set up alerts through your broker or Google News to be notified of major industry changes.

BUT you need to keep in mind that 99.999999% of the advice you see out there is pure fear-mongering.

Your financial situation is unique to you. That’s why there’s no one-size-fits-all solution for when you should sell your stocks. It’s your money, and it’s up to you to decide at the end of the day.

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