Author: Marissa Hayden
Reasons to sell stocks
Rebalancing your portfolio
Rebalancing your portfolio is the process of selling and buying assets to ensure you are matching your ideal asset allocation. Effectively, rebalancing locks in some of your profits and allows you to purchase more of your investments that haven’t done as well.
As a hypothetical, consider a portfolio with two investments that are split 50% each. Company A’s share price goes up and Company B’s remains constant. The asset allocation changes to 60% of Company A and 40% of Company B rather than 50/50. In order to rebalance the portfolio, the investor would sell some of Company A and purchase some more of Company B until the is split 50/50 again.
Your investment no longer matches your risk tolerance
Your risk tolerance can change over the years, especially with changing financial circumstances. So, if an investment you’ve made is keeping you up at night, or perhaps has become more volatile than before, it likely no longer suits your tolerance for risk, and is a good reason to sell.
→Related article: What To Do When the Stock Market Goes Down
Your investment has changed
When you invest in a company you should have a clear understanding of how they make their money and their plans for future growth. It’s a good idea to keep up-to-date with the company’s future plans and its current financial situation. If the company makes a fundamental change and it no longer represents why you invested in the first place, you may want to consider selling.
These changes could be a sudden change of direction, being acquired by another company, or branching into another industry, etc.
You have reached your investment goal
When you invest, it’s a good idea to set an investment goal, which should inform your overall investment strategy. For example, you may have a short-term goal, like establishing funds for a house deposit, or perhaps a long-term goal to create a nest egg for retirement.
Market movements are often difficult to predict, you can never be sure if a downturn is around the corner. So, if you’ve reached your goals, it might be a good idea to de-risk your portfolio by exiting the market and moving to a less risky investment option, like fixed interest or cash.
When should you sell a stock for profit?
The famous saying goes: buy low and sell high. But, there’s always the risk of cashing out early and missing out on future growth, and without a crystal ball, deciding when to sell purely for profit can be tricky.
One thing you can do is to set a profit goal for each investment. For example, you might say that when Stock A’s value reaches $20, or when it doubles in value, it’s time to sell. This can be a simple way to manage your trading decisions.
Although, keep in mind that any trading decision you make should be informed by your overall investment strategy that should take into consideration your overarching investment goals.
About the reviewer of this page
This report was reviewed by Canstar Content Producer, Andrew Broadley. Andrew is an experienced writer with a wide range of industry experience. Starting out, he cut his teeth working as a writer for print and online magazines, and he has worked in both journalism and editorial roles. His content has covered lifestyle and culture, marketing and, more recently, finance for Canstar.