The stock market is a risky place to invest money. That can be a good thing. Traditional savings accounts are insured by the government and offer little risk. However, the returns on these accounts are also known to be small. Where a good savings account might pay about 2.00% for well-qualified customers, the stock market can be counted on for up to about 7.00% annually in some cases.
However, not all stocks are created equal. Investors can benefit from having some simple rules about when to sell in mind — establishing some guidelines before buying can help people to mitigate their losses and risk over time. Once a person is invested in a stock, it’s possible for them to get over-invested emotionally. Following a hard and fast rule can help take emotion out of the equation and add an element of structure to the process of investing.
The key to finding success in the stock market really comes down to timing. Timing can determine whether an investment is a big success or a failure for a given investor. Sometimes, a stock gets hot and then drops off a little bit before rebounding. How much of a loss should someone be comfortable before unloading a stock that didn’t work out? Many experts say the point to unload a stock is at around about an 8% loss. This level of loss suggests that it was the wrong time to buy.
What about stocks that are successful? If a stock quickly goes up by 20% or more, an investor might feel like it’s time to sell. However, experts say that a quick increase in the first three weeks of ownership can be a sign of even better things to come. They recommend holding onto the stock for at least two months to see what else develops. This is known as the eight-week rule.
Finally, for stocks that have been trending upwards generally, but without that quick start, it’s a good idea to let go at about a 25% increase. This may be the most the stock will ever increase. What’s more, a slow increase of 25% can be the result of a healthy market generally. Cashing out at this level of return is generally a wise move.