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When should you sell your shares?

It’s often said that buying is a lot easier than selling when it comes to shares. You could do as much (or little) research as you like to justify your buy, but it’s much harder to know when to sell.

There is no simple answer.

The phrase “time in the market beats timing the market” could be worth applying to the sell question. It’s impossible to guess when the next market crash is going to happen, so it’s not worth trying to. It may not be worth ever selling an index like Vanguard MSCI Index International Shares ETF (ASX: VGS).

But, that doesn’t mean you should hold all of your shares forever, either.

Here are some reasons why you could consider selling:

  • You need the money. Sometimes it might be necessary to access your capital for personal reasons. Perhaps you need to sell a small portion to fund the next year of retirement. Maybe there’s a big medical bill or you need a new car because the current one was written off. Perhaps you’re selling to fund your house deposit.
  • The share is substantially overvalued. Some people make a fair point saying that it might be better to never sell. Management of our shares are trying to increase profit, so in time the profit may reach the valuation. However, I think it’s reasonable to want to take some profits offer the table if a share is substantially overvalued in your opinion.
  • There’s a much better opportunity. Sadly, we do not have unlimited wealth to throw at all of our ideas all the time. We may need to take money from one idea and allocate to another idea. However, be careful of doing this because it will come with brokerage and perhaps capital gains tax. The new idea must be worth the switch including those costs.
  • You think the business is in terminal decline. There’s no point holding a business that is going to become worth less and less, perhaps even going bust. Getting something is better than $0. Just ask Dick Smith Electronics shareholders!

Foolish takeaway

I generally believe that holding usually turns out best. Several studies have shown, including by US Motley Fool, that holding would likely turn out okay. If there is substantial disruption on the horizon then I can understand wanting to get out, but brokerage and potential taxes are guaranteed with a switch whilst a new investment could also go wrong.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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