tracker up 30% - when to withdraw?

theoretica

tafelmoneysaver wrote: »

or withdraw to cash and realise the profits and start again?

If you had this money in cash what would you do with it now? There is no point in withdrawing to cash and then buying the same investment!

bowlhead99

Equity investments can deliver, say, 6-7% annual return including dividends and capital growth. Some years are much higher, others are negative. But for the sake of a mathematical example I don't think anyone would say that's wildly unreasonable as a long term average. Compounded over 10 years (start value x 1.07 x 1.07 x 1.07 etc) that is 97%. Over 20 years it is 287%. 30 years is 661%. The investor does not need the money for any short term objectives and intends to put it away for growth over the long term and can therefore achieve the results above.

The movement is not smooth it is lumpy. You don't know whether the next move will be up or down. If you are trying to achieve the 287% or the 661% you should not stop when you hit 30% because 'a profit is a profit'.

Stopping when you're up 30% is a good thing to do at a casino when you expect to lose money over the long term - if you're up on your game of roulette or cards or dice, bank the profits and call it quits for a while. But on the other side of the table, the casino would not call it quits and shut up shop when they were up. They expect to be up, and are looking to hold on and get their 287% return on the investment they made in a nice shiny building, ample-bosomed croupiers and "free drinks for everyone!" by playing for longer.

gkerr4 wrote: »

a 30% profit is not to be ignored because there "could be a further 50% to be made".

Unless you have a sixth sense which enables you to know how to time the market, it is to be ignored. As explained above.

Of course, that assumes the only investment option is to buy this one FTSE tracker. In reality there are lots of different investment options which will perform relatively better or worse over different periods - for example shares versus bonds, shares versus property, UK shares vs US shares vs Europe shares, developed world shares vs emerging markets shares.

UK shares have 'had a good run' recently. If you were putting 50% into 'pot 1', a FTSE Allshare tracker and 50% into 'pot 2', bonds and real estate funds - you may find over the last 6 months you have more value in your FTSE pot than in your other one. If it was significantly more and you still thought a 50:50 split was sensible, you would sell some of the FTSE and 'rebalance' by buying more of the other asset class. Or at least you would divert more of your monthly contribution to the other one until it had caught up.

If you only want to invest in one fund, your options are more limited. You either stop investing or you carry on.

If your fund is a portfolio fund with lots of underlying types of investment, spread around the world, you should carry on, and the fund manager will decide what to do with all the existing assets and the new money coming in. It is quite easy. But if your fund does not have any variety in the assets it holds, and only buys FTSE shares in fixed proportions, which we know can shoot up and drop down in value quite rapidly, you have quite an emotionally difficult choice - stop investing and give up on getting the 287% or 661%, or carry on investing and perhaps lose 50% in the next six months.

That in a nutshell is why a typical investor should not buy a FTSE tracker fund on its own. Even though 'the FTSE' is mentioned daily on breakfast TV, a single country large-company share tracker is a small niche out of all the investment choices on the planet.

So either invest in 10 such 'specialist' funds and keep rebalancing them, or invest in one or two portfolio funds and keep rebalancing them. Don't just hold one specialist fund.

CLAPTON

tafelmoneysaver wrote: »

Sorry, I was trying to keep it simple but perhaps I excluded too much information.

Based on other responses I will research potential avenues for further diversification

Many thanks,

5,000 is not a lot to diversify

although the allshare index tracks UK companies, many of them are international companies with profits coming from all over the world.

and many stock market are high at the moment, so although you may sell on a 30% high you will probably be buying other funds/companies on a 30% high too.

gkerr4

bowlhead99 wrote: »

Unless you have a sixth sense which enables you to know how to time the market, it is to be ignored. As explained above.

so your sixth sense says its going to go higher?

can you tell me the lottery numbers for this saturday please

grey_gym_sock

i think you're misreading bowlhead ... he was saying he doesn't know which way the market is going next ... and the reason to stay in the market is that it's likely to do well over 10/20/30 years.

bowlhead99

gkerr4 wrote: »

so your sixth sense says its going to go higher?

can you tell me the lottery numbers for this saturday please?

what terrible advice.

I don't have a sixth sense. But I'll happily bet you £5000 that the FTSE allshare total return will exceed the average returns from cash or lottery over 30 years from today.

My post was to suggest that unless someone is psychic they should not try to "bank" mini profits on the way to the 600%+ return. Unless you are a professional, and lucky, you will find it difficult to equal or beat the market by jumping in and out of it. I fail to see why this is terrible advice.

I also suggested the OP consider using a sensible asset allocation strategy, by using a better diversified fund or by investing in other funds alongside, or instead of, the current one. So to me a sensible strategy would include asking themselves whether they should still be buying UK equities if all they have in their portfolio is UK equities and those equities are at a high of the last few years.

This is perhaps similar to your advice to consider whether they would be a buyer at this level.

You can say I'm giving terrible advice. But it seems it has similar elements to yours while at the same time being more comprehensive and insightful?

In fact, the OP was asking for thoughts on whether they should keep investing or cash out. Your suggestion was they should ask themselves if they would still be a buyer at this level and if they would they should buy and if they would not they should sell out.

OP: should I buy or sell?
GKerr: ask yourself, should I buy? If not, sell.

I do know what you're getting at. But not convinced yours was a particularly helpful piece of advice. Certainly it didn't seem so awesomely useful as to make mine appear terrible by comparison.

Bottom line none of our comments on a forum like this is "advice". All we can do is bash around ideas which may serve to educate and help others think through their issues.

gkerr4

yes - i can't help thinking we are on the same lines! - but my point was that 30% was too good to just assume that you should stay in for more.

I guess it shows the difference in out approach - i'm rarely in a share for longer than about 10 months. A couple of exceptions in the portfolio, but generally speaking.

gkerr4

fair enough bowlhead - we are just from different points of view - i;m sorry for my previous comment and will edit.

bowlhead99

gkerr4 wrote: »

I guess it shows the difference in out approach - i'm rarely in a share for longer than about 10 months. A couple of exceptions in the portfolio, but generally speaking.

I used to be a bit like that, as generally I'm impatient. And you're not likely to find a huge amount of well known stocks that remain undervalued for a year or more. So I would cut my profits once they approached fair value or after a period of outperformance, which led to short holding periods.

The problem with that approach was that some of my picks were "undervalued"by the market because of some risk factor(s) that I thought were being given too much weighting - but then they would indeed turn out to be a problem and the shares fell further. Cheap stocks are often cheap for a reason.

What I realised was there is no shame in holding both undervalued stocks and fairly valued stocks because properly valued stocks can still have plenty of growth and income potential. So I would be less keen to sell out so quickly to jump on the next bandwagon. And in fact "overvalued" stocks can still make a return for you as they revert to fair value over the long term while still delivering nice results - I have had some investment trusts bought at a premium to NAV and they gave me much better results than not getting into the market at all.

Translating this to current markets: despite recent performance spikes, typical FTSE stocks are not currently at crazy valuations when you consider price-earnings ratios etc. Some of them do seem high given global economic conditions and the likely removal of govt stimulus at some point. But many bonds etc are expensive too and so are certain other countries' equities especially with recent fx movements. So no need to sell all my UK equities or funds with that exposure after the last 6 months of them doing well.

But of course I'm not necessarily keeping all of them either... balance is key, which is different for everyone - that much, I'm sure we agree on!