How do I Know When to Pull Money From the Stock Market?

The stock market is all about timing. Everyone knows that optimizing the timing of purchases and sell-offs can increase earnings, but how do you know when you should take your money out of the stock market? Knowing when to take money out of the market can be especially important when it helps you avoid an otherwise massive loss.

The truth, however, is that no investor has a foolproof method for knowing when to pull money out of the market. Instead, investors rely on a variety of factors to decide if they want to sell or hold on to a specific stock.

Tracking the stocks you own and the company to which they belong can help you spot major problems before they develop. If the company takes a big ownership, makes a merger or is subject to a public controversy, that may cause the stock to drop. Knowing about this company news can help you make the decision to stay or sell before the stock drops.

Using a stop order can help make sure you don't end up with heavily devalued stock, even if you're not closely keeping track of each individual stock you own. A stop order works by essentially functioning as an automatic sell-off command when the stock reaches a certain price. For example, if you set a stop order for when a specific stock reaches $5.00 per share, you would keep the stock until it reached $5.00 and then automatically offer the stock for sale, limiting your losses.

Some of the biggest losses happen when investors panic about a drop in a single stock and pull out of the market entirely. The best way to grow your money over a long period of time is to leave it in the market and ride the highs and lows, knowing that the market will, in all likelihood, drastically improve before you plan to withdraw your long-term investments. Keeping your money in the market even through downturns may give you your best shot at a large return on your investment.

If you are reaching the end of your long-term investment plan or have shorter-term goals, it may be time to consider pulling money out of the market. If you know you are pulling money out of the market, begin by selling riskier stocks first, as those are the most volatile and most likely to fluctuate quickly. Additionally, planning your sell-off ahead of time and spreading it out over several days, weeks or months allows you to avoid daily dips in the market and sell when the price is right.