when to take profits on a stock

A good rule of investing is to take profits when a stock climbs 20% to 25% from its buy point. But if you bought above the ideal buy price, should you cash out or wait until your shares hit that profit target? That was the question that faced many Arista Networks

(ANET) investors last month.

Full Answer

When to buy stocks and sell for big profits?

When to Take Profits You don't need to hit home runs to win the investing game. Focus on getting base hits. To grow your portfolio substantially, take most gains in the 20%-25% range. Though...

When to take profits on stock and option trades?

 · Taking profits quickly is a key tenet of swing trading. You can either sell into strength while the stock is still rising or sell into weakness as it comes off the top. Both come …

When to buy the best growth stocks?

 · We take profits when the price closes above the small bearish trend (blue line).Profit: $0.16 per share. Since we are out of the market now, we need another price …

When should you buy into the stock market?

 · When you buy a stock, you should put a price target on it. Then you know that when the stock hits that target, you need to sell and move on to the next opportunity. The only …

Is it good to take profit from stocks?

With profit-taking, an investor cashes out some gains in a security that has rallied since the time of purchase. Profit-taking benefits the investor taking the profits, but it can hurt an investor who doesn't sell because it pushes the price of the stock lower (at least in the short term).

When should I take profit and reinvest?

Here's how it works: Take the percentage gain you have in a stock. Divide 72 by that number. The answer tells you how many times you have to compound that gain to double your money. If you get three 24% gains — and re-invest your profits each time — you will nearly double your money.

Can you buy back stock after selling for a gain?

Stock Sold for a Profit The IRS wants the capital gains taxes paid on sold, profitable investments. You can buy the shares back the next day if you want and it will not change the tax consequences of selling the shares. An investor can always sell stocks and buy them back at any time.

Do I have to pay tax on stocks if I sell and reinvest?

Q: Do I have to pay tax on stocks if I sell and reinvest? A: Yes. Selling and reinvesting your funds doesn't make you exempt from tax liability. If you are actively selling and reinvesting, however, you may want to consider long-term investments.

When is it a good time to sell a stock?

Even if there are no negative warning signs , it may be a good idea to sell a stock if it experienced considerable growth. Setting a target price for a stock upon purchase is a good way of keeping track of when it may be best to sell. A stock’s target price represents a realistic future price that, if reached, would present the investor with unrealized gains. Investors often try to buy a stock when it is undervalued, therefore a future price target should represent what an investor believes the stock is worth. If a stock is overvalued in the market, it will eventually correct itself and drop in price. For this reason, many consider it a good time to sell when a stock reaches its target price. Check out some techniques for calculating a target price here.

How to tell when stock price will decrease?

While it is extremely difficult to predict when the price of a stock will decrease, there are a few warning signs that investors should look for. In general, the news tends to be a good predictor of stock trends. If the news reports that a particular industry is struggling, or that a company is about to experience a negative change in its business or executive board, stocks in that industry or company may decline shortly after. Similarly, if a company announces that it is cutting back on or removing dividend payouts, this may signal to investors that the company is struggling financially, which could also cause its stock price to decrease.

How should investors monitor the performance of their investments?

Investors should monitor the performance of their investments by periodically calculating gains and losses.

How to calculate how long it takes to double an investment?

The rule of 72 is a fast formula that uses a rate of return to estimate how many years it will take to double an investment. Simply take the number 72 and divide it by the rate at which an investment is projected to grow. For example, if an investment is projected to grow 6% every year, divide 72 by 6 to get 12 years. Therefore, in this example, it would take 12 years to double an investment that is growing at a rate of 6%. If an investor is looking to make a specific return on an investment before selling it, this is a great way to estimate the timeline.

What is price target?

Price targets can be used to predict a realistic future selling price of a stock.

What does it mean to take profits now?

Taking profits now will also mean selling some stocks and buying some bonds. The nice thing, though, is that you will be selling at all-time highs. If you are like most investors, you’ve let your stock investments ride, taken no action with your portfolio, and largely enjoyed the eight-year climb.

How long would it take for stocks to recover from 2008?

Think about this for a moment. If we experienced another 2008 market, and stocks fell 50%, how worried would you be? Your stocks in bucket three would have 10 years to recover and provide you a decent return before you’d need them to cover your expenses. Hopefully this would provide a great deal of peace of mind knowing that your stocks wouldn’t start to be needed for 10 years.

What happens if you haven't rebalanced your portfolio?

If you haven’t rebalanced your portfolio for several years, your stock allocation is larger than it probably should be. Here are four steps you can take right now:

How long will Bucket 1 be spent?

Bucket one is filled with cash (bank checking, savings, CDs). This money will be spent over the next one to two years. Since you know it will be spent shortly, you shouldn’t put it at risk in the stock or bond markets.

How much of your portfolio should you have before retirement?

I’d suggest not having more than 10% of your portfolio in any one stock before age 55 and no more than 5% in one stock after age 55. The closer you get to retirement the more diversified you want to be.

How many asset classes should I invest in?

I’d suggest you invest your stock portfolio across eight to 10 stock asset classes (large, mid, small, international, growth, value, etc.), and three to four bond asset classes using no-load, no-transaction-fee mutual funds or low-cost exchange traded index funds.

Is the sky falling and the market doomed?

I don’t believe the sky is falling and the market is doomed. In fact, economically I think things look good. However, I do think now is a good time for fundamentally sound investment management. A portfolio checkup for many will lead to taking profits, reallocating and becoming a little more conservative.

How long does it take to buy a stock with 3 tranches?

I use a three tranche system to leg in and leg out of a position. The time period for buying or selling can vary from as short as one day to as long as a year. It all depends on my outlook for the company and the industry. Three tranches ensures you do not top tick a stock during purchase or bottom tick the stock during a short sale. You are spreading out your execution risk.

How much of your remaining position should you have to ride the stock higher?

But since you are selling over three tranches, you should have one-third or two-thirds of your remaining position to ride the stock higher. Always remember your losses when you are feeling the greed of not making more money.

What is the easiest way to gain real estate exposure without leverage?

Take a look at Fundrise, my favorite real estate crowdfunding platform. For most people, investing in a eREIT or real estate ETF is the easiest way to gain real estate exposure without leverage.

What are some fallacies in investing?

One of the biggest fallacies investors make is not resetting expectations as the price of the stock moves. Take RENN for example. When I bought at $2.80, it was a left for dead stock with little liquidity and continuous quarterly losses.

How much cash does Facebook have?

Now investors finally recognize the $900 million cash it has on its balance sheet and the upside potential if one of its various business models work, especially after Facebook reported great mobile profits. It’s important to try and understand what new investors are expecting at higher prices. Don’t get stuck thinking in the past.

Why is real estate my favorite asset class?

1) Real estate is my favorite asset class to build wealth. Real estate is less volatile than stocks, produces income, is tangible, and provides shelter. Roughly 40% of my net worth is in real estate because I believe rents and values will continue to increase.

When did Financial Samurai start?

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner, rather than later. Financial Samurai is now one of the largest independently run personal finance sites with 1 million visitors a month.

When buying a stock, should you put a price target on it?

When you buy a stock, you should put a price target on it. Then you know that when the stock hits that target, you need to sell and move on to the next opportunity. The only exception to that is when the stock still looks like a bargain even after you’ve made a profit. Most stocks will become more expensive as the price rises.

What happens when an investment is no longer sound?

The investment is no longer sound or has become too expensive (exceeded your price target) You want to liquidate the investment to invest elsewhere, rebalance your portfolio, or use the cash. The key is to not become blinded by paper gains and forget to cash in your winnings when it makes sense to.

Why is it important to monitor your investments?

It’s important to monitor your investments or they could misbehave and get into trouble without you realizing what’s going on until all your gains have been wiped out and you end up (literally) seeing red . Markets are dynamic, and news can come out that a certain sector is performing worse than expected or that a top executive is leaving under dubious circumstances. All such concerns can be a warning sign to sell and get out with whatever gains you have intact.

Do you have to sell before hitting the price target?

Sometimes you need to sell before you hit the price target you’ve determined. That may be the case if overall market conditions start to change. If you start seeing negative reports and overall declines, you may want to cash out early and wait on the sidelines until you see bargains emerge again.

Can you lose money by selling a stock?

Nobody can lose money by selling a stock at a price that’s more than the price at which they bought. I’m not saying you need to sell the moment you turn a profit. If the same reasons you bought the investment to begin with are still true and you would buy it even after you’ve made money, then you shouldn’t sell.

Do bulls make money?

There’s a common saying on Wall Street, “bulls make money, bears make money, and pigs get slaughtered.”. Basically, don’t be too greedy. Sound advice, but it’s much easier to say than to do in real life.

Is it hard to walk away from a stock?

It’s hard to walk away when things are going well. The stocks you want to sell are your losers, cutting losses and reinvesting them back into your winners .

I checked Jack's math and I'm a little riled up about the results

Mr. Bogle says that over 50 years a 2 percent per year fee on an account earning 7 percent per year will erode almost two thirds of the ending balance. That didn't sound right to me so I checked the math using an online calculator and confirmed the results.

A Boglehead counterpoint to buying the current dip

Every day the market goes down the past week or two, I see more and more people saying "I'm buying the dip!" and "stocks are on sale!"

How much income per month would make you satisfied to retire today?

I would love to hear everyone's opinion on how much monthly income they would want in order to retire. Please give a realistic answer, don't try to show off with a high dollar amount.

Who said bailing on top performing stocks is the same thing as a baseball manager benching his best players?

The opposite perspective comes from MarketSmith’s Scott O’Neil, who says bailing on top-performing stocks is the same thing as a baseball manager benching his best players.

Is "let your winners run" a good investment strategy?

Most professional money managers, like Icahn, will tell you that a blanket “let your winners run” philosophy is no kind of investment strategy. The general argument is that prudent investing requires a price target and the discipline to hit eject (or at least pull out profits) when a stock reaches that figure.

Did Icahn cut his Netflix stock?

Icahn revealed last week that he slashed his Netflix holdings by more than half – over the objections of the two money managers who prompted the initial investment, son Brett Icahn and David Schechter – even though he still believes the stock could go higher.