Planning for retirement is extremely important. It helps save you from financial difficulty once you retire. A retirement strategy allows you to live a stress-free life. When developing a retirement strategy, the top two things that you need to decide is when to buy and when to sell.
Although buying is crucial, selling is equally important. When you have saved for your retirement, you need to invest it if you want it to grow. If you want to maximize your return on investment, you will find this post to be very helpful.
Learning about when to buy stock and when to sell will allow you to generate the highest income possible and contribute towards your wealth.
Related: How to Sell a Business
When to Buy Stock?
There are certain situations where buying stock is the best way forward. If you are unsure of the market, you may ask consultants in your area. For example, if you are living in Houston, you may ask Business Consultant Houston TX, to help you buy stock.
Here are a few tips to help you determine the right time to purchase stock as an investment:
1. When Stocks Go On Sale
One of the best times to buy the stock is during a sale. The Christmas Season, Cyber Monday, and Black Friday are excellent examples of when stock prices hit rock bottom. However, investors tend to be cautious when stocks are on sale.
If you follow a herd mentality and avoid low-priced stocks, you will regret it later. Although the year 2008 was a time of pessimism, it also offered plenty of opportunity to investors who were positive of stock prices regaining their former prices.
To stock up for your retirement strategy, you need to purchase stock once prices go down. Besides, they are only likely to go up from there. This does not mean that you should have a single stock-price target. Instead, you should purchase a reasonable stock.
To determine if the stock price is perfect, you should read analyst reports. Gaining insight from a financial analyst will help you determine which stock to purchase.
2. When Stocks Are Undervalued
Another great time to buy the stock is when it is undervalued. To establish whether the stock is undervalued or not, you will need to read a lot of information. A great way to estimate undervaluation is by determining the future prospects for profits and growth of the company.
Prospective or current retirees can use a discounted cash flow (DCF) analysis for considering the future projected cash flows of the company and discounting them with a reasonable risk factor. This vital valuation technique will help you calculate an estimated stock price for comparison.
Related: How to Value a Business
If the estimated stock price is greater than the actual price, it would mean that the stock is undervalued. In such a case, you will be better off purchasing the stock. You can also look into the dividend growth of the company to compare its price-earnings.
3. When You Have Conducted Research
Sometimes, you need to put in more effort to determine the right time and right type of stock to purchase. This requires some research. For starters, you can read financial newsletters and analysis. However, you will need to do your homework to learn more about a specific stock.
To begin your research, you can study the annual report of the company, its latest news releases, and online presence. It should be that difficult to access all this information in the world of today as most of it would be easily available online.
When to Sell Stock?
Once you have accumulated some stock, you need to know when the best time to sell is. Generally, investors are interested in offsetting gains while ensuring that they benefit from a lower tax bracket.
Related: Stock Sale Agreement Template
Keep in mind that when earning in your prime, your investment income would be taxed heavily as compared to when you retire. There are three situations when you should sell the stock. Otherwise, it would be to hold it.
1. When Prices Rise Significantly
A cheap stock may become expensive, very fast. This is why you should sell the stock as soon as prices reach the highest threshold. They are only likely to fall again from there. You must monitor stock prices regularly as you never know when stock prices might rise significantly.
Some of the best investors are those who are humble. If there is a fast rise, it does not mean that prices will continue to rise. Therefore, you should sell the stock to generate a good return on your retirement investment.
If you notice the stock price dropping, you should make your gain and get moving. Cheap stock tends to experience an increase in price due to various reasons, such as speculation. Utilize such an opportunity to make money for your retirement savings. You will thank yourself for it later.
2. Sell Stock to Company During Valuation
Another great time to sell the stock is when the company conducts a valuation and decides to buy the stock back. In such a situation, the company will pay a higher price than the market average to get a hold of the stock. This is why you should capitalize on this opportunity to make some extra money.
Before you decide to give your stock away, you should calculate the actual value of the stock.
If the company is paying on par or slightly less than the actual value, you should have no trouble selling the stock. However, if the company is paying a lot less than what you should be getting, you should look the other way.
Always remember that valuation carries a degree of imprecision as the future remains uncertain. It is due to this reason that investors focus on the concept of margin of safety. Another way to determine whether you should sell your stock is when the company is offering more than its competitors.
Investors can also review the P/E ratio of the company to decide if they should sell the stock or not. Knowledge of the company’s revenue and profitability will help you make the right decision.
3. Sell Stock for Financial Needs
Finally, if you do not have any other option to get money, you will need to sell the stock. Although this is not a good reason to sell the stock, many people end up selling their stock because of financial loss or needs. Since stocks are an asset, when the going gets tough, you might need to sell them for cash.
Even when you are selling the stock for financial needs, you need to do your homework to get the most out of your stock. Never settle for the lowest price, and look around before agreeing to sell your stock. It will help you earn a bit extra for your retirement.
When in need of cash, you should also consider other options, such as taking up a loan or asking for some help from a friend or loved one. It will help ensure that you only sell your stock to adjust your portfolio.
The Bottom Line
Buying a stock is similar to selling them. You have to manage your retirement goals effectively to save up for a better future. Make sure to do your due diligence as it goes a long way in steering you in the right direction.
Once you have established a sound retirement strategy based on when to buy and when to sell, the next thing you need to do is learn to minimize taxes.