When’s the Right Time to Buy and Sell Stocks?

When to Buy Stocks

Here are some scenarios when it may be a good time to consider buying stocks to include in your investment portfolio.

You Have a Long Investment Timeline

The longer you're invested, the more time you have to benefit from compound interest or, more specifically with investments like stocks and mutual funds, compound earnings. This allows you to earn returns on your initial investment plus the gains you've already earned. You can use this to your advantage when investing for a long-term financial goal like retirement.

Let's say you start putting 10% of your income into a 401(k). You're 35 years old, and your salary is $100,000. After 30 years, you would have contributed roughly $406,000, but your balance would be over $1 million, assuming 2% annual salary growth and a 6% rate of return. That's the power of compounding.

There's a Stock That's Undervalued

Buying individual stocks can be risky because there's no guarantee they'll perform the way you hope. The idea is to buy stocks when they're undervalued, then sell them when they're eventually worth more. There are two popular ways to measure the value of a stock:

• Relative valuation: This looks at how a stock is performing compared to its competitors. You find the price-to-earnings (PE) ratio by dividing the current stock price by its per-share earnings. A company with a lower PE ratio than its competitors may be undervalued.
• Absolute valuation: This method looks at a company's overall financial health to determine the true stock value. That includes its balance sheet, cash flow, assets and other relevant information.

You Believe in a Company's Values

Many investors devote some or all of their portfolios to ESG investing. This is when you intentionally invest in companies that share your values—organizations that may prioritize environmental sustainability, social justice causes or diversity, equity and inclusion efforts. If all goes well, these companies will succeed, and you'll net investment returns in the process.

You Want to Position Yourself for Growth

Low-risk investments like bonds, certificates of deposit (CDs) and money market accounts typically provide stable returns, but your portfolio may struggle to keep up with inflation over time.

Stocks can help fuel growth and secure better returns over the long haul. Investment risk is higher, but staying diversified can help offset losses. That means buying a mix of securities across different asset classes and risk levels.

Learn more: Diversification in Investing: What It Is and How to Do It

When to Sell Stocks

You may think about selling your stocks under certain conditions, including the following scenarios.

You've Reached Your Goal

Investing can help you reach long-term goals like retiring or paying for your kids' college education. You might choose to offload some stocks once you cross the finish line. In retirement, for example, one rule of thumb is to go lighter on stocks and heavier on bonds.

Other investors set financial targets for individual stocks. That might mean selling a stock once its value hits a certain point. You can even place what's called a limit order so this happens automatically.

You're Rebalancing Your Portfolio

Your asset allocation refers to how your portfolio is organized. For example, a 60/40 portfolio holds 60% stocks and 40% bonds. The best asset allocation for you will depend on your age, goals and risk tolerance.

Even if your holdings feel just right, you'll likely need to rebalance your portfolio at some point. Stock values change over time, and that can throw things out of alignment. Rebalancing involves selling high-performing assets and redirecting the returns to restore your desired asset allocation. It's a good idea to do this every six to 12 months.

Learn more: Steps to Choosing the Right Asset Allocation Mix

There Are Changes Within a Company

There may be times when owning stock in a certain company no longer feels like the right fit. If revenue is steadily declining or the company is making decisions that go against your values, you may feel inclined to part ways.

You might also consider selling if the company is being acquired by a larger organization. Stock prices tend to increase soon after that information goes public.

You Need to Liquidate

If you encounter a financial emergency and don't have funds on hand to cover it, selling stocks could free up cash. However, there's no guarantee you'll net a profit or recoup your initial investment.

You can easily pull money from a brokerage account, but withdrawing funds from a 401(k) or traditional individual retirement account (IRA) will likely trigger a 10% early withdrawal penalty and a tax bill.

When Is the Best Time of Day to Buy Stocks?

There's no single best time of day to buy stocks that works for every investor. That said, certain windows tend to see more trading activity than others, and that affects prices.

The first hour after the market opens (9:30 a.m. to 10:30 a.m. Eastern time) is typically the most active period of the trading day. Overnight news and earnings reports get priced in quickly, which creates significant price swings. Experienced traders may look for opportunities in this window, but the volatility can be unpredictable, especially in the first 15 minutes.

Midday tends to be quieter, with lower trading volume and smaller price movements. For newer investors, this calmer environment can make it easier to enter a position without chasing sudden price spikes.

The final hour before the market closes (3 p.m. to 4 p.m. Eastern) often sees a pickup in volume again, as traders and institutional investors adjust their positions before the end of the day. This period—sometimes called power hour—can present opportunities but also carries risk.

For long-term investors, the time of day matters less than the fundamentals behind the investment. Focusing on company health, valuation and your broader financial goals will serve you better than trying to pinpoint the perfect trading minute.

When Is the Best Time of Day to Sell Stocks?

Just as with buying, there's no universally perfect time of day to sell stocks, and the answer depends largely on your strategy.

If you're a short-term trader looking to capture gains, the morning hours and the final hour of trading tend to offer the most liquidity. More shares are changing hands during these windows, which generally means tighter bid-ask spreads and more favorable execution prices.

One thing to keep in mind is that you never know what news might surface after the market closes. If you're holding a profitable position, selling before the closing bell removes your exposure to any after-hours developments that could move the stock lower overnight.

Tip: For long-term investors, what matters more than time of day is whether selling aligns with your goals—whether that's rebalancing your portfolio, locking in gains or responding to a change in the company's fundamentals. Trying to time the market by selling at a specific hour is generally not a reliable strategy.

How to Start Investing in Stocks

Getting started with stock investing doesn't have to be complicated. Here are the basic steps:

1. Define your goals. Decide what you're investing for—retirement, a major purchase or general wealth building—and how long you have to reach that goal. Your timeline will help shape your strategy. For example, making risky investments when you're close to retirement is typically not a good financial move.
2. Assess your risk tolerance. Consider how much volatility you're comfortable with. Younger investors with longer timelines can generally afford more risk, while those closer to their goals may want a more conservative mix.
3. Open a brokerage account. You'll need an account to buy and sell stocks. Many brokerages offer no-commission trading and low or no account minimums. If your employer offers a 401(k) plan, though, focus on getting your employer's matching contribution before other investments.
4. Fund your account. Transfer money from your bank account to your brokerage. Start with an amount you're comfortable investing and consider setting up automatic contributions over time.
5. Choose your investments. Decide whether you want to buy individual stocks, stock funds like exchange-traded funds (ETFs) or mutual funds, or a mix of both. Funds offer built-in diversification, which can reduce risk.
6. Place your trade. Once you've chosen an investment, enter your order through your brokerage platform. A market order executes at the current price, and a limit order lets you set the price you're willing to pay.
7. Monitor and rebalance. Check your portfolio periodically and rebalance as needed to keep your asset allocation on track with your goals.

4 Tips for Investing in Stocks

• Take advantage of employee benefits. If you have a 401(k) at work, start there. It's a simple way to buy stocks, bonds and other securities. Contributions are made through automatic payroll deductions, and the money you put in is tax deductible. If you have an employer match, all the better.
• Leverage stock funds. These are investment vehicles that allow you to buy a wide range of holdings.ETFs and mutual funds provide built-in diversification and are generally seen as less risky than individual stock picking.
• Diversify your portfolio. Spread your investments across different asset classes to mitigate risk. If one part of your portfolio loses value, gains in other areas can help balance things out. You can diversify even further within those categories.
• Work with a financial advisor. They can provide personalized investment guidance. The right financial advisor will also look at your overall financial health and help you plan for the future.

Frequently Asked Questions

Building Wealth Starts With the Basics

Being strategic about how you trade stocks could lead to better returns and a lower tax bill. It's also a key part of managing your overall financial health. Your approach will depend on your investment goals, timeline and appetite for risk.

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