Watching an investment grow in value is exciting. It can feel encouraging and validating to have made a good choice as an investor.
But then comes the question: should you sell now and take profit, or hold on for possible long-term growth?
There’s no clear-cut answer, but here are some things to consider when thinking your options through.
1. Reasons you might want to sell
Investment prices can go up, but they don’t stay up forever. They can also come down. People may feel the need to sell to turn “paper profit” into real money that they get to keep.
How do you know if it’s the right time to lock in gains? Here are a few reasons selling might be the way to go:
a. You’ve reached your goal
Did you invest for a specific goal like a home, car, or capital for a business? If you’ve made enough to cover that goal, it might make sense to sell and spend the money the way you intended.
If you’ve met your goal amount but don’t need the money yet, you can consider staying invested or moving money somewhere safer until the time comes to take it out.
b. You need to rebalance your portfolio
If a winning investment makes up a big part of your portfolio, it might be wise to review and reallocate money if you need to.
A portfolio review can help you identify gaps, like a need for liquidity, stability, or better diversification. You may want to sell part of a big investment and put the money in products that can help rebalance or strengthen your portfolio.
2. Reasons you might want to hold on
Some investors believe in letting their winners ride, which means they’ll hold on to an investment after its price starts going up since they believe the upward trend may continue.
There’s no guarantee an investment will keep growing, but here are some signs it can be wise to hold on:
a. You’re seeking long-term growth
If your strategy is to buy and hold an investment, you can continue following your approach if the asset remains fundamentally strong.
Instead of selling right after a price increase, you’ll trust in the investment’s potential to grow over time.
Holding on can save you from higher re-entry costs in case you want to get back into that investment after its price has gone up.
b. Your reason to invest is still valid
You likely chose this investment for a reason, like its growth potential, dividend or income-paying features, or because it helps balance out your portfolio.
If the investment is still serving its purpose, then the best thing to do might be to do nothing at all and keep reaping the benefits.
c. Your desire to sell is driven by emotions
When an investment’s price is climbing fast, you might feel an impulse to sell out of fear of missing out on profits in case a drop follows.
Strong emotions are a sign that you need to pause and think things through. Check whether you have a valid reason to sell or hold on instead of letting fear or greed take over.
Note that you don’t have to go all in or all out. You can partially take money out of your investment to realize some gains while still holding the rest.
Whether you decide to cash out, hold on, or do a bit of both, it’s important to proceed with a clear mind and make decisions that align with your plan.
