You can withdraw the money you have invested in stock markets anytime as no rules are preventing you from it. However, there are fee, commissions and costs that you have to consider. When stock markets fall, investors feel comfortable withdrawing money and holding cash. While cash gives you a sense of security in the short term, it may not be wise to do so in the long run. It is said, “When the going gets tough, the tough get going.” So when the markets fall, instead of thinking of how to get your money out of the stock market, restructure your short term equity plans to meet your long-term goals.
How to get money out of the stock market?
You can cash out of your stocks in four steps:
Order to sell shares – You need to log on to your brokerage account and choose the stock holding that you would like to sell. Place an order to sell the shares. The brokerage will raise a unique order number for the order placed.
Verify the stocks you trade – Weigh all factors before closing a stock. Check the price trend, news headlines, company announcements and other events that may influence the stock price.
Execute the order – Check the order book for pending orders and the ones already executed. Use the unique order number to track your order. If it has been executed, then it will be moved to the trade book. The trade book tells you the amount with which the stock was purchased and the average.
Reconcile your order – Once the trade has been executed, reconcile the trade summary with the contract note. Check your trade account to see your cash balance. Keep tab of the profit and loss that you make through the stock sale for tax purposes.
If you want to transfer your cash from the trading account to the bank account, make sure the two are linked.
Should you cash out of the stock market?
When the stock market falls, and your funds give you negative returns, it is only a paper loss as you only feel like having lost money, but actually, you have not. However, the moment you convert your stocks to cash, you turn your paper loss into an actual one. Investors know that the markets will rise and fall and cashing out will not give you the chance to benefit from market rebounds. A market turnaround can give you the scope of a break-even if not the opportunity to profit. If you cash out, then there is no hope for recovery.
Inflation also has a devastating effect on cash. It erodes the value of money and reduces its purchasing power. Inflation can also hurt your equity returns. But you can adjust your holdings to more growth-oriented stocks, while you can do nothing with cash.
Holding cash makes you lose out on opportunity cost. Opportunity cost is the cost incurred for not choosing the best alternative. The potential of money against the stock market is negative in the long run as inflation will erode the purchasing power of cash. Hence stock markets are a better option.
When should you sell?
When the market tanks, you tend to sell your stocks at a price lower than your purchasing price. This is a direct contrast to good investing strategy. Selling shares requires you to time the market, and if you fail, you are likely to make huge losses.
Market crashes are nerve-wracking for even seasoned investors. But equity investing should be a long term outlook. Market conditions will change, and you should stay invested to reap the benefits of a rising trend. You can revisit your portfolio and make desired changes to get the best out of the stock market.