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Your Investments Are Up: When To Sell And Take A Profit

Buy low, sell high. When to sell a winning stock is arguably more important than knowing when to buy. The golden rules for selling stocks at a profit.

How to sell investments for profit as part of a long-term investment strategy.Everyone loves a winner. Success in the stock market draws a crowd like a celebrity spotted out shopping — and it’s all the more exciting when you’re the one that made the discovery.

When a stock or mutual fund you own is up, the last thing that’s likely to be on your mind is selling it. You want to see how much higher it will go. You worked so hard to find the right investment and it’s paying off, why would you ever consider getting rid of it?

There’s a common saying on Wall Street, “bulls make money, bears make money, and pigs get slaughtered.”

Basically, don’t be too greedy. Sound advice, but it’s much easier to say than to do in real life.

Paper gains won’t pay the bills

It’s hard to walk away when things are going well. The stocks you want to sell are your losers, cutting losses and reinvesting them back into your winners.

Here’s the catch: profits are only real once you realize them.

A profit on paper doesn’t mean anything if you never actually sell the stock or fund. Even if you end up selling early and the stock or fund continues to rise, you will still have a gain. Nobody can lose money by selling a stock at a price that’s more than the price at which they bought.

I’m not saying you need to sell the moment you turn a profit. If the same reasons you bought the investment to begin with are still true and you would buy it even after you’ve made money, then you shouldn’t sell.

One of the hardest parts of investing isn’t knowing when to buy; it’s knowing when to sell.

The warning signs you should sell an investment

When you buy a stock, you should put a price target on it. Then you know that when the stock hits that target, you need to sell and move on to the next opportunity. The only exception to that is when the stock still looks like a bargain even after you’ve made a profit.

Most stocks will become more expensive as the price rises. Once they become pricier than other stocks on your radar, you may want to sell your stock and put that money to work in a new stock that hasn’t yet realized its potential.

The world isn’t perfect. Sometimes you need to sell before you hit the price target you’ve determined. That may be the case if overall market conditions start to change. If you start seeing negative reports and overall declines, you may want to cash out early and wait on the sidelines until you see bargains emerge again.

It’s important to monitor your investments or they could misbehave and get into trouble without you realizing what’s going on until all your gains have been wiped out and you end up (literally) seeing red. Markets are dynamic, and news can come out that a certain sector is performing worse than expected or that a top executive is leaving under dubious circumstances. All such concerns can be a warning sign to sell and get out with whatever gains you have intact.

The golden rules of selling stocks for profit

Successful investing comes down to one thing: buy low and sell high.

Fortunately, anyone investing for the long-run (10 years or longer) can be confident that their portfolio will appreciate given a long enough period of time.

If you’re a more aggressive investor, however, you’ll want to sell profitable investments in one of two situations:

  1. The investment is no longer sound or has become too expensive (exceeded your price target)
  2. You want to liquidate the investment to invest elsewhere, rebalance your portfolio, or use the cash

The key is to not become blinded by paper gains and forget to cash in your winnings when it makes sense to. And if an investment has done so well that it’s become a significant percentage of your portfolio, it’s definitely time to sell and move your money into other areas to reclaim proper diversification and asset allocation.

Need 1-on-1 advice? Learn how to find pre-screened financial advisor in your area here.

Published or updated on May 21, 2014

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About Daniel Cross

Daniel Cross has been in the industry as an investment writer and financial advisor since 2005. He holds the Chartered Financial Consultant designation (ChFC) as well as Series 7 and Series 66 licenses, and has embarked on the arduous journey of obtaining the coveted CFA designation. Daniel lives in Florida with his wife, daughter, and pet Tortoise ironically named Turbo.


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  1. Mark Ross says:

    Great points. I always aim to think for the long-term, but selling a stock when the price is right, and investing on other stocks is never a bad idea too.

  2. Chinmay says:

    What are your views about selling out an investment in fund. I do not invest in individual stocks, but I do it in some Vanguard funds and some good low cost No Load funds. I am in for the long game, but as I have never sold a fund before, I would like to understand when should I jump ship (if at all I have to) ? There is no clear indication like in stock, cause there are many companies and sometimes different countries involved. Your opinion would be highly appreciated!

  3. Michael says:

    Buying and selling stocks frequently is a dangerous business to get into. Most of the time even the experts don’t have enough information to predict what the market will do. Research says that experts have little better chance of beating the market than an untrained monkey. Buying and selling frequently can also affect the fees and taxes you pay, which can significantly affect your return. Opting for low cost, passive investments and holding them long term will provide a similar (maybe even better) return with less effort and headache.

    • Michael,

      I Could not agree more. Mr. Buffet recommends exactly what you are saying. “Our favorite holding period is forever” Mr Buffet. He also has written a letter to his estate recommending that they follow your advice with his money once he passes away. I would go a step further and say that you will out perform the professionals by following your advice and when you add the tax benefits of not selling you will double your performance very easily.

      Robert Wastle

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