Personal Reasons for Selling Stocks
Deciding on the right time to buy a stock is as difficult as deciding on the right time to sell it. Many investors lack the ability to judge when the time has come to say goodbye to their stocks and as a result lose money.
Many reasons can guide the investor's decision for selling a stock, some of which are solely personal. Among the personal reasons for selling a stock you can find:
Risk Tolerance Limit Reached
When deciding on the investment in a particular stock, every investor should do it with respect to his/her risk tolerance level. There are many cases in which a particular stock represented a good investment in terms of risk level. However, the company issuing the stock may undergo changes, which highly increase the risk level of the stock. In such a case it is better to sell the stock.
Emergency Situations
No one is insured against emergency situations that require money to be solved. In such a case if you don't have an emergency fund, it is better to sell one of the stocks that is not performing so well. However, the selling of a stock is recommended only if you don't have other money to cover for the emergency. It is always better to use other sources of money since by selling the stock you may deprive yourself from the future potential gains.
Irreconcilable Company Conflicts
If you firmly hold to certain ethical considerations that the company from which you have stocks no longer supports, it may be better to sell the stock. There are many cases in which the activities and practices of the company may confront your value system. If you feel uncomfortable about this, it is better to sell the stock and purchase such that conform to your moral norms.
Better Returns
Another reason to sell a stock is the greater returns that are offered by another stock. This means that the stock you hold now does not generate as much as another stock. However, the selling of this stock for the purpose of purchasing another stock may lead to costs and taxes. This in turn may decrease your profits. So, you should think carefully before embarking on active trading.
To make adjustment in the balance of your portfolio
When you establish your investment portfolio, a certain percentage of it consists of stocks, another percentage of bonds and the rest of cash, for example. However, the percentage of stocks in your portfolio has increased due to their good performance. In order to keep the balance in your portfolio by keeping up to the initial proportion, you should sell some of your stocks.
In order to minimize the taxes you should pay, try to select stocks that you have hold more than one year. This is required so that the capital gains fall in the long-term category. Additionally, you should be careful when selecting the stocks to sell so that the diversification in your portfolio is not destroyed.
Financial Goals Achievement
Another reason for selling a stock is the achievement of your financial goals. Now that you have reached your retirement or educational goals it is time to move the stock from your investment portfolio and make the necessary adjustments to meet your new lifestyle. In order to minimize the taxes you are liable to when selling the stock you should check whether you have owned the stock for more than one year. This will classify your capital gains as long-term which are treated more beneficially with regards to taxes.
These are only a few of the personal reasons for selling a stock. Remember that there is nothing wrong in admitting that a particular stock no longer serves its purposes. So, whenever you feel this it is better to sell and move to another investment.
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