Contrary to popular belief, investing in stocks isn’t something you do on a whim to make an enormous passive income.
Of course, investing can and does allow for traders to make extra income, but if you want to be able to maximize the returns you see on your investments, you’ll need to learn the delicate art of holding and selling stocks.
One of the biggest questions new investors have regarding holding stocks is ‘how long should I hold stocks?’ This is a great question with an answer that relies on multiple factors, so let’s get into it.
Deciding How Long To Hold Stock
Deciding how long to hold stocks for isn’t something you should decide based on a set number of months or years given to you by any source, expert or not.
While we will be giving you an average for how long you should probably aim to hold stocks based on statistics later in this article, you need to decide for yourself how long to hold onto your stocks based on the following factors:
Your Risk Tolerance
Everyone’s risk tolerance is different when it comes to investing, and it’s often tied to how much money you can afford to lose.
If you have plenty of disposable income to invest as you please, you may be prepared to hold stock for longer despite signs of depreciation.
Conversely, those who can’t afford to lose money may engage in something called the ‘sunk cost fallacy’ and hold onto stock on the slim chance that it might start performing better.
It’s important to be self-aware regarding whether or not your level of risk tolerance helps or hinders your chances of success.
Ultimately, though, one investor may hold stocks for longer or shorter periods than another based on how much risk they are prepared to accept, and given that everyone’s financial situation is different, this makes perfect sense.
Personal Time Horizon
You should also bear in mind your personal time horizon (which you should establish before you start investing) when deciding how long to hold stocks.
If you have a long-term time horizon, you will likely want to hold your stocks for longer because you can probably weather downturns and market corrections.
On the other hand, if you’re working with a short-term time horizon (for instance, if you need returns on your investment within a couple of years), you’ll obviously need to sell your stock before then.
This all comes down to your financial goals and the stage of life you’re in. Younger investors can often afford to hold their stocks for years, while older investors who may be approaching retirement will usually sell sooner.
The buy and hold strategy is one of the most popular strategies in investing.
It’s basically what it sounds like: buying stocks and holding them for extended periods of time in order to make passive income from dividends (see also ‘What Are Income Stocks?‘) and allow for appreciation over time.
Although the buy and hold strategy works for a lot of people, many investors have valid reasons for choosing a different, more short-term strategy.
For example, as we discussed earlier, if you need cash as soon as possible, your strategy is unlikely to involve holding onto stocks for years and waiting for them to appreciate.
Instead, you’d probably be better off selling your stocks the moment they make capital gains.
Even if your investment strategy is based around the buy and hold method, there may be times when you need to sell earlier than anticipated.
Unexpected market fluctuations are one of the main reasons for this, so while you might have a number of months or years in mind for holding your stocks, you should always be prepared to be flexible.
How Long Should You Hold Stock
We stand by what we said earlier about holding time for stocks being a personal decision based on various factors.
However, if you’re looking for concrete advice, most experts recommend holding stock for a minimum of 1 year, up to 1.5 years if possible.
This is the timeframe statistically associated with the greatest returns, but again, many factors can impact this, so make sure to consider whether a 1-year investment timeframe actually works for you.
Reasons To Stop Holding Stock
You might have decided that you want to hold your stock for as long as you can, but how do you know when it’s time to stop holding and sell?
If you notice that the company’s fundamentals have taken a downturn, this is a good indicator that it’s time to sell, especially if your research shows that the situation is likely to get worse and not better.
Technical charting and analysis can also tell you a lot about price movements, which are crucial in deciding whether to hold or sell.
You should also pay attention to any changes in ownership or merges with other companies (see also ‘What Happens To Stocks When Companies Merge?‘) since these events can cause stock prices to soar, which is typically an opportune moment to sell.
We always recommend that investors remain open to adjusting their portfolio or selling stocks to invest in better opportunities if necessary.
If you feel that you should diversify your portfolio or that another company can offer you better returns, you might want to stop holding.
Finally, if your life circumstances mean you need to free up some capital, selling rather than holding might be the best decision for you.
It can be difficult to determine how long you should hold stocks for. The average recommended period of time to hold stocks is between 1 year and 1.5 years, but this strategy may not work for everyone.
You should decide how long to hold your stocks based on your financial situation, risk tolerance, and your overall investment strategy.
You should also remain open to selling your stock if your life circumstances, the company’s fundamentals, or company ownership change.
Additionally, shifts in your investment and portfolio goals should factor into your decision.