This is the age-old question for all stock market investors…
When is the best time to sell my stocks?
As we all know, the answer is never just as simple as “Buy low. Sell high.” It’s not always easy to know when stocks are at their lowest or their highest. You have to study the market trends carefully and make educated decisions. You need to work with an investment advisor who can provide you with objective guidance. You want to mitigate risks while taking advantage of opportunities.
That last statement is the most important. It’s also the hardest to do because there are always so many factors to take into consideration with each and every stock you own.
The current situation with COVID-19 has many investors flustered. It has been a real roller coaster ride since March and we all know there will be plenty more turbulence before this crazy year is through. The market always has a way of self-correcting and recovering. Sometimes it happens quickly, like we’ve seen recently. Sometimes it takes awhile to really steady out.
Stocks have rallied quite a bit. They have risen far. They have risen fast. A lot of investors panicked a few months ago during the bear market and are now regretting it. Others rebalanced their portfolios and bought the stocks near their lows for the year, knowing the market would eventually recover. Now, they are faced with the difficult decision of figuring out when it’s the right time to sell. Some are hedging their bets and selling because the of the potential for another drop (which is always the case). Others are holding their investments understanding the long-term rewards that come from patience.
When to sell your stock positions may be impacted by your age or overall financial situation. Those nearing retirement are more likely to sell their equities investments, both when the market is high and low due to the need to live off those assets. They are not in a position to take major risks and they want to make sure they keep as much money as they can in their retirement accounts. Someone who is younger or can withstand a major loss may be willing to take more risks.
The first step in building any strong investment portfolio is to find balance amongst different assets classes that perform differently in different economic environments. Long-term success is all about diversification. Some investments may be very stable while others are more volatile. A well-balanced investment portfolio will be able to survive any major market drops. This helps you avoid the panic of a down market, where too many investors dump everything out of fear. It also keeps you from getting too eager to sell during a bull market.
Your overall portfolio should be built for the long-term, but you still have to make important short-term decisions along the way. If an investment position is out-performing and becoming an outsized position in your portfolio, that may signal the time to sell, take profits and reduce your position. Waiting until the exact right moment when an investment is at its peak value is almost impossible. Any smart investor knows you can never dwell on the “what ifs.”
Past, Present and Future
Smart investors know you have to look at the past, present and future of any given stock, as well as the market as a whole. Studying past trends will help you understand how it may perform in the future. Having a sense of what the future of the asset class may be will help you make better decisions in the present.
In a nutshell, you have to diversify your portfolio and determine how much risk you are willing to take in any given stock situation. Don’t worry about what everyone else is doing. Develop a long-term investment plan and stick to it. When you do this, you will be able to make better buying and selling decisions along the way as you keep expanding your portfolio and growing your wealth.
For all your financial guidance and investment advisement needs, contact Illumination Wealth. We’ll be glad to set up a free, no-obligation 30-minute consultation with one of our top advisors, so you can decide if our financial services are right for you.