How Long Should You Hold a Stock

How Long Should You Hold a Stock?

9 min read

How long should you hold a stock? That all depends on your trading style. Each strategy differs in whether you want today, swing trade, or invest. As a result, you need to decide what’s best for you. How long do you want to hold stock for?

It is a debate among investors as old as the stock market itself. How long should you hold stocks? The answer you receive will depend on the type of trader you are talking to.

Some will say a few minutes or days, and others will say forever. This will completely depend on your investing style and approach to the stock market. If only we could buy stocks and hold them forever.

I’m sure we would. But different people have different circumstances and different reasons for investing in the first place. 

So, is there a correct answer? Unfortunately not. If we could all predict the market and time our trades at the most profitable moment, we would all be millionaires.

We have all missed out on gains because we sold a stock too soon. I am sure we have all also missed taking profits by holding a stock for too long. Buying and selling stocks is a fine balancing act if you are an active investor who manages your portfolio.

To tackle this question, we must analyze multiple factors surrounding the trade. Let’s take a look at what some of those are. What factors impact how long you hold a stock?

How Long Should You Hold a Stock

Investing Style

There is just a small percentage of traders that would fit into a single investing style. Most of us are passive investors who will jump into a trade if the opportunity arises. There are those on either extreme of this, though; for those traders, their style and philosophy will dictate how long they hold a stock. Investing style covers a wide spectrum, so don’t worry if you do not have a hard and fast rule about how long you hold onto a stock.

You may also have different rules for different stocks. Most traders would agree that holding onto an S&P 500 ETF forever is a good investment. Others might be more aggressive and trade the ups and downs of growth stocks. Whatever the case, investing style usually plays a large part in determining when you sell a position.

Investing Horizon

This is a nicer way of saying, how much longer do you have to invest? If you are lucky enough to start investing in your twenties, your investing horizon is decades. For some traders, they started to invest later on in life, so they will not have the benefit of decades of compounding. Many people hold their positions until they retire and then live off the proceeds of selling stocks from their portfolio.

Your age and investing style are usually correlated. When you let your portfolio compound over time, it has been historically proven that you will attain steady growth. If you don’t have that kind of time, you might be looking to buy and sell positions a little more frequently to maximize profits. 

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You Need the Money

Sometimes, life happens, and you must sell some stock to pay for an unexpected expense. It is why we invest in the first place, right?

Have you ever heard the saying, ‘Money is made to be spent’? Well, money is also made by investing, but at the end of the day, it’s still just money.

You should never feel bad if you must sell stock to pay for something. There could be an upcoming vacation or home repair, or maybe your family needs a new car.

Needing the money in your investment portfolio is nothing to be ashamed of. If you need to liquidate some stocks for quick cash, it’s understandable! 

We all come to a point in time when we need money. As a result, trading and investing is a great tool you can use to make extra cash.

The Investment Thesis Changes

Here’s an important one that many traders overlook: the investment thesis of stock changes. For some reason, people seem to think that companies do not change over time. The reason why you bought stock in a company years ago may have changed significantly now. Think about a company like Facebook (NASDAQ: FB). You invested in a growing social media giant if you bought stock years ago at its IPO. If you buy stock on Facebook today, you are investing in the future of the Metaverse. It’s the same company, but the focus of it has completely changed. If a company’s performance declines and you no longer feel as confident in the stock, it’s perfectly fine to sell it. 

A Company Catalyst

This goes hand in hand with the last point, but I wanted to highlight this as a reasonable way of selling a stock. Company catalysts happen all the time. The clearest example happens four times per year in the quarterly earnings report.

I advise against trading around earnings calls as it is usually a volatile time, and it is hard to predict the movement of a stock. There are other catalysts, though, depending on the industry the stock is in. Electric vehicle companies provide monthly delivery numbers every month. In a more infrequent example, biotech companies have things like FDA approvals and clinical studies. If the stock you hold suddenly surges off a company catalyst, there is never anything wrong with taking some profits on your trade!

What Types of Traders Hold Stocks?

There are so many different trading styles that it is difficult to fall into one category. As I mentioned before, most traders are fluid. Sticking to hard and fast rules can often be detrimental, although something is to be said about discipline. Let’s go over the three types of trading styles and just realize that these can often overlap. 

1. Day Traders

Day traders can probably be categorized as the most aggressive form of trading. These traders trade a stock once or several times in the same session. It is a more advanced form of trading and usually utilizes some form of technical analysis. There is also a lot of ‘feeling out’ of the market, which comes with experience. Day trading can be a volatile way of investing. As soon as you see some profits, you take those and live to see another day. Day trading has little to do with how the stock or company will perform in the long run and depends entirely on how the market views the stock today. 

2. Swing Traders

Swing traders are slightly less aggressive, although they can occasionally be day traders themselves. Instead of focusing on buying and selling a stock over a single session, swing traders hold the stock for a short period. Swing traders can also use technical analysis but rely on factors that aren’t as quantified. These can include social sentiment, momentum, and company catalysts. A typical swing trade lasts anywhere from a few days to a few weeks, although extreme cases can last for several months or even quarters. Swing trading is generally considered to be less volatile than day trading. 

3. Long-term Investors

Most investors fall into this latter category, with some swing trading mixed in when it is convenient. Long-term investors are the typical buy-and-hold people who want to use compounding. They will often buy a position in a stock and hold it for years if not decades. Long-term investors rarely care about the day-to-day volatility of a stock and are more invested in the company’s long-term success. This is the fundamental way of investing: buy shares of good companies and hold them forever. Does it work? Most of the time, it does. The short-term gains are less spectacular than day trading or swing trading, and the long-term compounding takes years. Regarding the stock market, this is the most predictable and steady source of long-term income from your investments. 

Final Thoughts: How Long Should You Hold a Stock?

The conclusion is that there is no right answer. It may seem like taking the easy way out, but it is true. As I outlined, the duration of time you should hold stocks depends on several different factors. Most of them are personal, and investing is a very personal thing. There is no set timeline for selling a stock. Honestly, you will probably never be able to time the highs or lows of any stock. For 99% of us, long-term investing is the easiest way to compound our money over time. Considering the short period, the gains can be outrageous if you have the stomach for day trading or swing trading. But if not, you will rarely be steered wrong by buying stock of good companies and holding them forever. 

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