A final word on when to sell a stock
Published:Wednesday | June 1, 2011 | 12:00 AM
Toady we complete our series on when to sell a stock. We grouped the reasons for selling a stock into two categories, personal reasons and market-related reasons, and to date have highlighted four market-related reasons that would be considered good sell signals. This week, we present the personal reasons for selling a stock.
Risk Tolerance Reached
You bought a company that looked like a steady growing concern, but instead it has turned out to be a roller coaster ride. For whatever reason, this stock is just too volatile for your nerves. Dump this firecracker and replace it with a stock that will let you sleep at night.
You Need some Cash
An unexpected major bill can sabotage anyone's budget. Using a stock, especially one that is underperforming, to solve a financial emergency is another reason to sell. However, take a close look at your personal finances. An emergency cash fund that is not tied up in investments is recommended to avoid, except in extreme cases, liquidating stocks to pay bills.
Moral, Ethical Conflicts
More and more investors are becoming concerned about the social, environmental, ethical and moral standards of the companies they own. You may decide that a company you own has practices or products that conflict with your social, religious or moral beliefs. There is no better reason to sell if that is important to you.
The Grass is Greener
This overlaps with market reasons to sell, but there is nothing wrong with dumping an underwhelming stock for a company that offers better returns. The danger here is that active trading can generate significant transaction costs and taxes, both of which eat into any potential gain. Look (and think) before you leap.
You've Reached your Goal
It worked. Your plan to reach that financial goal, whether it was retirement or getting a child to college, is finally here. Now is the time to start systematically liquidating those stocks you've tagged for this goal. If you have been trading, make sure you have owned the stock at least one year before selling so it falls under long-term capital gains tax rules.