You can take a profit without selling
Seven points: Selling stocks the right way
Lana Iliev, November 5th, 2020
Even a security-oriented investor with a long-term investment strategy should sell securities from time to time and reallocate his portfolio. There are a few things to consider when selling stocks, however. The most important questions are answered below.
What should I watch out for when selling stocks?
In order to sell stocks well, timing is crucial. In addition, as a shareholder you should also know how the sales process works and be familiar with order additions. There are also costs and taxes that you should not ignore. And in the end, it continues immediately afterwards, because in the best case scenario, it is important to reinvest the profits.
When do I sell my shares?
When it comes to selling stocks, nothing is more important than the right moment, because timing determines the profit margin. The general rule when selling shares is: Better too early than too late - i.e. it is better not to wait for the maximum profit than to end up in the red.
This applies in particular to shareholders with a short and medium-term investment horizon. But long-term oriented investors can also experience nasty surprises if, for example, there are long-term industry crises, such as in the German energy sector due to the exit from nuclear energy. In some cases, RWE and E.ON are still a long way from their previous share prices.
When selling stocks, just a few days can make a big difference. If the share price has risen constantly in the last few days, it can make sense to wait a little longer and continue to observe the development. If there is an end to the positive development, you sell. If, on the other hand, the share has lost steadily in the last few days, it is important to weigh up the short-term chances of a continuation of the negative development or a turning into positive territory. If the negative trend continues, you can limit the losses through the sale. If, on the other hand, a positive development is imminent, waiting can be a sensible strategy. The following explains how you can technically limit losses and set your profit target.
To avoid losses, you can work with limits. Because there is always the risk of giving in to greed for more, i.e. if the share price rises, wait and see, because the price could rise even further and you tend to want to catch the "peak" with the best possible result. Forget it - even experienced investors won't catch it!
It is better to define a target, e.g. if the price rises by 20%, 30% or what value seems realistic to you, you sell the share again. This applies to investors as well as speculators. While speculators are particularly susceptible to greed, i.e. they may wait too long to sell the stock in question, the reverse is true for security-minded shareholders - they prefer not to sell at all. Both can be wrong and lead to losses. In a broadly diversified portfolio, however, a long investment horizon is often more promising than short to medium-term trading in stocks.
At the same time, it is also important to set a loss limit and not speculate on the fact that stock trends will change in the short term. By setting a loss percentage on the sale of stocks, you protect yourself from taking too much risk. Such a limit can also be used automatically via order additions. By placing a stop order, stocks are automatically sold when the price exceeds a certain value.
The fear of losses that is widespread among many shareholders should not be underestimated. This psychological phenomenon can be observed again and again when there is massive panic selling of securities.
Experience has shown that it is worthwhile as an investor to keep a cool head and not allow yourself to be infected by panic. Selling panic among shareholders often turns out to be a good buying opportunity, since the stock market lows caused by panic are often followed by price increases.
Equity crowdfunding as an alternative to the stock market
How do you sell stocks?
Stocks can be sold through a broker or a bank. The sales order can be submitted in person, by telephone or online. The actual sales process is then carried out on the stock exchange (e.g. Berlin, Stuttgart, Frankfurt, Tradegate or Xetra) or, in exceptional cases, outside the stock exchange (e.g. with penny stocks). How the order is carried out can be regulated from the outset using order additions. You determine when and where the shares are sold.
What order additions are there when selling stocks?
When trading stocks, forex or CFDs, the executing brokers or banks are notified of order supplements that define certain conditions for the sales process. Two sets of orders are of particular importance:
|Limit order, limited order||Since the sale of shares is not carried out immediately, the price of the share may continue to fall between the time the order is placed and its execution. Therefore it is important to set a limit for which you want to sell the stock at least. If the price of the share falls below this specified limit, the sale is automatically stopped and incalculable losses are prevented.|
Limits can also be set when buying shares: if the share price rises above a certain value, the purchase order is not carried out. So you don't buy anything more expensive than you would like.
|Market order, unlimited order, "cheapest" or "best"||With a market order, however, there is no limit. It's all about selling or buying the stock as quickly as possible. Share sales can be provided with the order additions “cheapest” and “best”. However, that does not mean that the share will then be the cheapest or best sold. The only thing that matters is the speed of the sale, regardless of the possible losses.|
Experience has shown that it makes sense to set a limit for the sale of shares in order to protect yourself against incalculable losses and risks.
Equity crowdfunding as an alternative to the stock market
What are the costs of selling shares?
First, there are order fees that have to be paid to the broker or bank through which the transaction is carried out. The amount of these fees differs from provider to provider and it is worthwhile to regularly compare the fees with different providers. In addition, taxes are due that must be paid on investment income.
How is the sale of shares taxed?
If income is generated from the sale of shares, the withholding tax is due. This is different in every country. The final withholding tax applies in Germany. This means investment income above the annual tax allowance of € 801 per person (€ 1,602 for married couples) is taxed at 25%. There is also the solidarity surcharge and, if applicable, the church tax. Normally, the withholding tax is collected and paid directly by the broker or the bank. However, if the broker or bank is based abroad, the investor must pay the tax himself.
As with income tax, there are also tax reliefs and exceptions for the withholding tax.
How do I reinvest profits from the sale of shares?
If the shares are sold and you can look forward to profits as a (former) shareholder, the question of reinvestment arises immediately. Here, too, there are a few things to consider.
Keep an eye on liquidity
A common misconception is to assume that “money has to work for me all the time”. Since practically no more interest income can be achieved, one is inclined to have the money constantly invested in tangible assets such as stocks. However, make sure you always have enough liquidity. Not only to be able to cushion losses, but also to be able to take advantage of buying opportunities that suddenly arise.
Why not reinvest directly in the stock market
You should be careful not to fall under the widespread pressure to reinvest your money right away. The stock exchanges may be in the middle of a bull market, meaning you may have made a nice profit, but if you invest now you are most likely buying too expensive. We'll show you some alternatives below.
Alternative: newcomers to the stock exchange
Something different may apply if you invest part of your stock portfolio in newcomers to the stock market. Provided that you have researched sufficiently in advance whether the young stock really has a realistic potential for growth. If possible, do not reinvest the full amount, i.e. the full sales proceeds, but only a portion, e.g. 50%. This gives you the chance that your wealth will grow steadily, even if you suffer losses in between (and unfortunately that does not happen!).
Alternative: reinvest outside the stock exchange
If the stock exchanges are in a bull market after the sale and there are no promising newcomers in sight, it makes sense to reinvest outside the stock exchange. Crowdinvesting in real estate is a good option here. Fixed interest rates between 5.0% and 7.0% p.a. are agreed here. Crowdinvesting projects are offered and traded on their own websites or special crowdinvesting platforms, for which no fee-based custody account opening is required. One of these platforms is BERGFÜRST.
You can trade shares in real estate projects on BERGFÜRST. Trading via the crowdinvesting platform offers the investor a particular advantage over stock trading: Since investors trade their units personally, there are no intermediaries such as brokers or banks. This allows shares to be bought or sold immediately. The risk of price fluctuations between the decision and the actual purchase or sale is thus eliminated.
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