Is a bird in the hand worth two in the bush?
Whether you’re an experienced investor, a newcomer to shares and trading or somewhere in between, you are going to be faced with the question of “when do I sell my shares?”
It’s the fundamental question that all traders, investor, bankers and shareholders think about but a clear-cut answer is not always obvious. No matter how much research you do, no matter who you talk to, the advice is vague at best and conflicting at worst.
So, how do you know when to sell shares?
How to Know When to Sell Shares
Selling shares is an important financial decision. The volatile nature of the stock market sees many industry experts avoid offering generic advice on when to sell shares (usually from the fear of being held accountable if they’re wrong). This is, in part, why it can be difficult to find clear and specific advice on when you should be selling your shares.
At Sell My Shares, we have developed some basic principles to help you consider when to sell your shares:
Remember why you bought them: Try to recall why you decided to invest in shares in the first place. Were you planning for long-term growth? Did you want to have an income stream in the form of dividend payments? Remembering your original goal can make it easier to know when it is time to sell. For example, if you purchased shares 25 years ago and the value has now risen significantly, then it is safe to say you have achieved the goal of long-term growth. Or if the company is no longer paying dividends, you could argue the goal is not being achieved by holding on to the shares. But what if you inherited the shares? In this case, remember that there was no initial outlay to acquire the shares – so selling them will produce immediate gains, regardless of whether the share price has recently risen or fallen.
Don’t be afraid of the taxman: Many shareholders refrain from selling their shares because they are afraid of paying Capital Gains Tax (CGT). When you have held shares for less than 12 months, you will be charged 50% CGT on any profit you make from selling your shares. After the first year, this amount will reduce to 25%. For this reason, it may make sense to wait at least a year before you decide to sell your shares. But holding off on selling shares indefinitely to avoid CGT is not always the wisest decision either. You’ll only pay CGT on a profit; waiting out your profit may not be the best move.
For example, in 2011, the share price for BHP stocks rose to $45. For a person who purchased 500 BHP shares in 2009 (when the price was closer to $26), this represented a total increase in value of $9,500. The CGT on this profit would have been $2,375 (25% of the profit). This leaves a total profit after CGT of $7,125. But if a fear of CGT caused the shareholder to wait until 2015 to sell (when the share price was around $30), they would have only made $2,000 profit from the sale of the shares. While the CGT was significantly lower (only $500), the total profit after CGT was also significantly lower – only $1,500.
Try not to be swayed by emotion: If you’re deciding when to sell shares, it can be difficult not to get caught up in the emotion. Fear, regret, guilt or excitement can cause a person to act impulsively when it comes to selling shares – something that often doesn’t work out the way they had hoped. So, try to keep a cool head where you can and make a rational assessment of what the shares initially cost you, whether you have achieved your initial objectives and whether there is a financial incentive to holding on to the shares any longer. It’s also a good idea to set a pre-determined exit point, for example, that you will sell your shares if the value drops below 20% (to prevent you from losing the total value).
If you’ve decided that it’s time to sell your shares, then Sell My Shares can help you complete the process in just 4 simple steps. With an online platform that is secure and easy-to-use, Sell My Shares is the ideal choice for selling your shares.