Profit

Mark2016

Hi everyone. If I have a number of funds in my Isa or Sipp, and pay a fixed amount into the funds each month and after a period of time discover that each fund is showing a profit with some funds showing exceptional profit, do people in such cicrumstances take some of the profits from those funds? Obviously if the profit is taken, the holding in the fund or funds decreases while the fixed monthly amount continues as before building up the fund again. Please excuse my ignorance, but is this common practice? Are there drawbacks in doing this often? Thanks

dunstonh

o people in such cicrumstances take some of the profits from those funds?

It is normal to rebalance a portfolio to bring it back in line with your chosen investment strategy. e.g. if your model allocations have 5% for emerging markets but after 12 months it is 6.1%, then bringing it back to 5% is what you should be doing.

If your fund selection is random and your allocations are random then it doesnt really matter what you hold in each fund/sector as the whole thing has no structure. So, adjusting something that is unbalanced to something else unbalanced doesn't really achieve much.

jimjames

Why would you take a profit if the money is there for long term growth? Drawing money out means you'll have less there to grow and you also then need to find another home for the money you draw out. If it's just to move money from funds performing well to ones that have not done so well then that's possible but probably not worth doing more than once a year or so

Morphoton

There are some very good articles on "Rebalancing a Portfolio" on the Monevator website:
http://monevator.com/rebalancing-asset-allocations/

BrockStoker

What do you define as an "exceptional profit"?

Linton

BrockStoker wrote: »

What do you define as an "exceptional profit"?

Better in my view to rebalance on a regular basis- say once a year and get everything back to your plan. You want to rebalance frequently enough to react to major trends but not so frequently that you are moving funds around backwards and forwards every time the markets twitch. Once a year or possibly every 6 months is sufficient.

cjking

If you are regularly adding money, there's no need to take money out of any fund, just change your ongoing contributions to bring things back into balance. Increase the amounts going into the funds that have been left behind and decrease the amount going into funds that have grown.

bostonerimus

I didn't rebalance according to a schedule, I rebalanced outside a +/-5% deviation band from my target allocation.

Mark2016

Thanks everyone. I appreciate your input

LittleJo

Hi
Do not do what one of my friends did who made a big mistake
He took the profit out of the ISA and spent it.
Very annoyed to be told that he had lost the ISA benefit of the money
Jo

Eco_Miser

LittleJo wrote: »

Hi
Do not do what one of my friends did who made a big mistake
He took the profit out of the ISA and spent it.
Very annoyed to be told that he had lost the ISA benefit of the money

Since he no longer had the money, why was he surprised he no longer had the ISA benefit?
He did not lose the benefits on all the gains and dividends he got up to the moment he took the money out of the ISA.