When to Sell Stocks: How to Know When to Get Out of an Investment

When to Sell A Stock

 

It’s never been easier to invest. But after GameStop played both micro-investors and Wall Street elites alike, you might be wondering, “Should I sell my stocks now?” We outline five signs it’s time to sell stocks.

1. The Stock Hits Your Target Price

Planning ahead is an investor’s best friend. If you haven’t bought into a company for the long haul, consider setting a target sale price to ensure you come out on top. Then reevaluate once you hit this number. If earnings are still steady, sell half your holdings and then set a new target price.

2. Your Growth Funds Aren’t Growing Enough

Growth funds are higher-risk stock portfolios with above-average growth. These trendy mutual funds have enjoyed huge success in today’s bull market. But if their performance isn’t up to par, is it worth the risk? It may be time to rebalance your portfolio and perhaps take a value investing approach. In this strategy, investors choose discounted stocks that they believe will pay off in the long run.

3. The Company’s Profit Margins Are Declining

Let’s do some detective (and math) work. It’s not always about a stock’s performance; we can be prescient by looking at the company’s cash flow. If you’re heavily invested in a company, turn to its earnings statements to determine its trending profit margins. To calculate net profit margin — essentially the organization’s bottom line — divide its net income by its revenue, then multiply that by 100. If this number has been steadily slipping, it may be time to sell.

4. The Company’s Price-to-earnings (P/E) Ratio Is Higher Than its Peers

Remember value investing? It’s the quintessential “buy low, sell high” strategy. Your stock’s P/E ratio is one way to measure that. To calculate, divide the price per share by its earnings per share. If you purchased your stock in a valley and now it’s peaking relative to its competitors, consider selling. This can be especially true when the company is getting immensely positive media coverage.

5. The Stock Doesn’t Fit Your Portfolio Risk

We all have our individual risk tolerance. But in general, the longer you have until retirement, the more risk you can afford to take on. If you’re approaching 65 and ready to start cashing out, you probably don’t want to jeopardize your nest egg with volatile investments.

Still Not Sure?

Do these indicators of when to sell stocks seem complicated? Well, that’s because they are! Before you make any big money moves, talk to your Farm Bureau financial advisor. Together, we can evaluate your strategy and ensure your investment portfolio is set up to meet all your financial goals.