When to sell stocks

The decision on what stocks to buy and when to buy can sometimes be easier than when to sell. Should you always wait for your investments to turn a decent profit, or is it ever a good idea to sell a stock that’s lost money? We explore some good – and bad – reasons to sell stocks.

When should I sell my stocks?

This question is easy to answer in principle and not quite as straightforward to action in practice. We all know that the idea behind dealing stocks is to make a profit. So, the ideal is to sell when you’ve made as much profit as possible.

And there’s the rub. Let’s say the stocks you bought a year ago are on the ascent, and selling now would net you a healthy profit. Unless you’ve got your hands on an uncannily accurate crystal ball, there’s no way of knowing if they’ll continue to rise…or commence a slow tumble (or even a rapid one). So, in a positive scenario, it’ll be a case of deciding to sell when you’ve made a profit that is “good enough”.

And, of course, there’s no iron-clad guarantee that those painstakingly-selected stocks will rise in value at all. That’s simply the risk with investing. So, there may also be times when the best option is to cut your losses.

While there’s no way of predicting the future with absolute certainty, there are indicators to look out for to assess whether you should sell at a loss (or, indeed, get out while the going’s good). We’ll further explain this in our tips on good and bad reasons to sell a stock.

When is the best time to sell stocks?

Sorry, but this is one that there’s no clear-cut answer to. Like any investment, stock values are subject to a huge number of factors. Some are linked directly to the company you’ve bought stock in. For example, if it announces the launch of an exciting new product, that’s bound to be a surefire hit. Others are wider market or economic factors. Nobody could have predicted the coronavirus pandemic and its negative impact on the hospitality industry (and positive, albeit temporary, impact on the tech industry). Big fluctuations can happen even within a single day.

So, unfortunately, there’s no optimum timeframe between buying and selling stocks or “best” time of day for selling. As with most investment decisions, it’s a case of monitoring your investments closely and making informed decisions about the best time to sell. Or paying a professional financial adviser to help you make those decisions.

Why should I sell my stocks?

Let’s start by noting that there are plenty of good reasons to sell stocks, some influenced by external factors and some by personal circumstances. But there are also occasions when selling your stocks might be a poor idea. Here’s a quick round-up of some of the motivations that can arise and whether they’re a good or bad reason.

What are good reasons to sell a stock?

• You reach the point where you’d planned to sell your investments. Let’s say that you invested in stocks with a view to using the returns to help fund your retirement or buy a house. If the time has come that you need the money for your intended purposes, then it’s likely time to start selling off your assets.
• The stock has reached your target value, in line with your investment strategy. It can help when you buy stocks to have a figure in mind where you’d be happy to sell. If the stock reaches this value, you can consider your investment a success.
• Your investment strategy changes. Perhaps your original investment strategy involved buying shares that would grow in value. But now there might be factors which have made you prioritise income more. In this case, you might want to sell some high-growth stocks and exchange them for those that will generate dividend income.
• You identify a better opportunity. If, after careful analysis, you have identified that buying shares in another company would be more in line with your goals – but you need to free up cash to do so – then you may need to sell some existing stocks to take advantage of the new opportunity.
• There are long-term problems with the company you hold shares in. In theory, you should be keeping a close eye on the performance of all companies you’ve invested in. Every company endures ups and downs. It’s par for the course. But if you feel that something fundamentally wrong with the company will affect its long-term success, then it could be time to get out – even if it means making a bit of a loss.
• If a stock dramatically outperforms expectations. This may or may not be a good reason to sell stocks, as it depends on the reason for the rise. In some cases, the company may be doing just as well as its performance indicates, in which case you may want to hold onto your stocks for longer. But it’s also possible that speculation, or rumours of a takeover, are temporarily inflating the share price. If you can ascertain the reason, you may want to consider selling the stock to take advantage of the high price before a potential drop.

What are bad reasons to sell a stock?

• The stock takes a short-term dip in value. Every company goes through ups and downs, whether for internal or external reasons. It’s in the nature of investments to fluctuate. Consistent underperformance should certainly be investigated, and you should be ready to sell if you identify fundamental problems with the company. But panic-selling because of what may be a temporary drop could see you lose money unnecessarily. And you’ll kick yourself if the company then recovers and goes on to do well.
• Someone tells you to. Be very cautious about taking stock selling (or indeed buying) tips from friends, family or so-called online “influencers”. At best, this could see you making decisions that aren’t in your best interests. At worst, some “advice” could be a scam. Decisions on if and when to sell a stock should always be based on your own robust research and analysis or regulated advice from a professional financial adviser.

How do I sell stocks?

1. Sense check your decision to sell. Make sure you’re selling the right stocks and for the right reasons before going ahead.
2. View your portfolio online and find the stocks you want to sell. Most UK investment platforms allow you to sell shares online using their website or app. Just fill in the details you’re asked for (how many shares you want to sell, for example). Some also offer a phone-based service. There are likely to be higher fees for this.
3. Review the sale. You’ll be able to see how much you’ll receive for your shares. When you’re ready, hit the sell button.

Depending on your platform, you may be charged transaction fees every time you sell stock.

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Can I sell a stock on the same day I bought it?

Technically, yes. And if you’ve bought a stock and rapidly realised it was a mistake, then you may wish to rectify that mistake quickly. But remember that, for most people, investing for the long term is the best strategy, and every trade you make is likely to incur costs. So unless you’re an experienced investor who’s taking a high-risk day trading approach, you should keep same-day buy and sells to a minimum.

How long does it take to receive the proceeds after selling a stock?

Once you’ve hit the sell button, you’ll typically need to wait 2 to 3 business days before the funds are available in your account to withdraw or re-invest.

When should you sell a stock that has lost money?

Finder insurance expert Danny Butler answers

We’d love to give you a categorical answer on when you should sell a stock that’s lost money. But while some experts cite specific percentage figures for when you should sell a “losing position”, we reckon it’s a bit more nuanced than that.

It’s usually a poor idea to sell stocks purely because they’ve lost money. That’s because it’s not just about how much a stock has declined in value but also the reasons for it – and whether those reasons suggest the stock is likely to recover in the future. For example, the whole market may be struggling due to external factors that are likely to be temporary in nature. The coronavirus pandemic, for example. Or a period of political turbulence that will (hopefully) settle down. But if a company’s performance is struggling due to, for example, poor sales that look unlikely to recover, or there are rumours of a hostile takeover, selling may be the right option.

We’re not saying don’t sell a stock that’s lost money. After all, it’s better to get out before a bad situation worsens. Just don’t sell in a panic, and if you’re uncertain and the sale could mean a substantial loss, consider professional financial advice.

Bottom line

The idea of investing is to make money on your contributions. So – in an ideal world – you would always buy low and sell high. Sadly, reality doesn’t always pan out that way, and there may be occasions when you need to sell at a loss. Regardless of whether you’re selling low or selling high, always research the company’s fundamentals before doing so. And question your motivations so that you always sell for the right reasons.

Frequently asked questions

• How long should you hold your stocks?

  The general rule of thumb with investing is that you should only put in money you can afford to tie up for at least 5 years – ideally longer. That’s because the longer you stay invested, the greater the chance that your investments will ride out any market volatility and give you decent returns.

  That doesn’t necessarily mean you must hold onto the same stocks that long. You may want to switch some assets for others in line with your investment strategy or market factors. But unless you have a good reason to sell stocks, holding onto them for longer is likely to leave you better off. It can also keep transaction fees to a minimum.

• Is it better to sell stock when it's low?

  There may be circumstances where you need to sell at a lower price than you paid. But if this can be avoided, so much the better.

  You should usually only sell low if you need the money urgently or if your research and analysis into a company’s performance suggest the only way is down. In the latter case, selling on a small loss could avoid bigger losses later if you hang on to the stocks.

• How long should I wait to sell a stock that's rising in value?

  That’s the million-dollar question. If a stock’s value is steadily rising, it can be tempting to hold on to it for as long as possible to maximise your returns. But remember that past performance is not necessarily an indicator of future success.

  A stock that has shot up in value over a short period could turn out to be a volatile flash in the pan that crashes and burns equally quickly. Often, the best approach is to have a target in mind that you’d be happy to sell at and sell when the stock reaches that point. Sure, you may miss out on even bigger returns, but you also avoid any losses. And, sometimes, there’s a strong argument for a bird in the hand when it comes to investing.

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.