When Should You Sell a Stock?

Knowing when to sell a stock is a challenge for most investors. The decision-making process may be further complicated by emotion, especially if the stock was a gift or part of an inheritance.

The next time you find yourself trying to decide whether to keep or sell a stock, consider these tips:

• Forget your purchase price. The decision you make needs to be based on today’s market environment, which may be vastly different from the market conditions when you purchased the stock. Focusing on the initial price of your investment only hinders your ability to make a sound decision. Instead, ask yourself whether you would purchase the stock at today’s price. If you would, then it may be wise to keep it. If you wouldn’t, it may be wise to sell.
• Reassess the company. Most things change over time and companies are no exception. Since you purchased the stock, consumer buying habits may have shifted, the company may have gone through mergers and/or acquisitions, or the direction and/or staffing of its leadership team may have changed. Don’t evaluate the stock based on the company’s position when you bought it. Instead, base it on how competitively the company is positioned today.
• Re-evaluate your portfolio. The reasons the stock was initially a good fit for your portfolio may no longer apply. Now is a good time to ask yourself whether the stock is a good choice based on your current investment objectives and risk tolerance. Keep in mind that maintaining a well-diversified portfolio is essential to helping to minimize the impact of market fluctuations.
• Plan ahead. Setting up a stop order, which instructs your broker to sell the stock if the value drops to a predetermined level, can help take the emotion out of investing. If you set the stop order at a price in which you lock in most of your gains, you’ll get to keep most of your profits even if the value of the stock starts to drop.

For more help determining whether to buy or sell a stock, or its role in your overall financial strategy, consult a financial professional. He or she can help you make buying or selling decisions that align with your financial goals and objectives.