Time to Sell Investments (Take the profit)

Sue58

I do know that nobody can time the market, but at the same time our investments (S&S ISA's and Pensions) have delivered good results and I am more than happy with the profits made so far. My husband and I have am emergency cash fund that would last us quite a few years in case of a big correction or crash but I still have a gut feeling that we should be pleased with what we have made.Therefore, I am considering moving my investments into cash for the time being even though we may be losing out on any future gains. Then, in case of the possible said correction/crash we could buy in again. Is this realistic or are we indeed trying to time the market. As I mentioned, we are quite willing to lose out on any possible future gains because we are very happy with the current profit. Thoughts please.

masonic

I don't think this is realistic if you intend to reinvest in the future.

If you miss the worst periods in the market, then your returns will be better than someone who stays invested, but the best periods often occur close to the worst and missing out on those will reduce your returns, probably below someone who stays invested. Your chances of missing out on the worst times, while capturing the best times is close to zero.

Over the long term, capturing both the good times and the bad times will lead to a positive return, The key is to come up with a portfolio that meets your objectives, which could mean reducing your exposure to risk, but not selling out completely - unless you can get a large enough return from cash and don't need to take on risk.

It can be tempting to think that after a period of good returns you can simply sell out and wait for the inevitable crash, then buy back in lower, but the odds are severely against you doing this effectively.

Edit: By way of example, here is an example of someone who thought along the same lines as you at the beginning of March 2016. UK and US markets rose fairly steadily since then and are now over 25% up.
https://forums.moneysavingexpert.com/discussion/comment/70270120#Comment_70270120

LobsterMemory

First, Don't kid yourself, what you're proposing is timing the market.

Second, if you Don't move into cash, what will be your reaction if/when there's a correction? If you're going to resent it or worse still sell off "to protect what you can" then for peace of mind it might be best to sell now.

However, what's likely to happen is what Masonic has stated in his post

darkidoe

Sue58 wrote: »

I do know that nobody can time the market, but at the same time our investments (S&S ISA's and Pensions) have delivered good results and I am more than happy with the profits made so far. My husband and I have am emergency cash fund that would last us quite a few years in case of a big correction or crash but I still have a gut feeling that we should be pleased with what we have made.Therefore, I am considering moving my investments into cash for the time being even though we may be losing out on any future gains. Then, in case of the possible said correction/crash we could buy in again. Is this realistic or are we indeed trying to time the market. As I mentioned, we are quite willing to lose out on any possible future gains because we are very happy with the current profit. Thoughts please.

This is classic falling into the timing the market trap. If you already have a huge emergency cash fund that can last a few years, why is there a need to lock in your gains now?? Theoretically, you should be well positioned to hold onto your investments without running into daily cashflow issues for years, hence be able to ride out any corrections.

If your goal is still long term (eg retirement), locking in the gains now and forgoing future gains makes no sense unless you have decided that your risk tolerance has changed and you will accept that decrease volatility and less risk for less return.

If you are well retired or close to a asset purchase where you will be more reliant on the cash, it might be sensible to lock in the gains and put it in less risky assets. It all depends on what your goals and planning are.

Plan investments around your goals in life. Don't plan investments according to market prices. Take away the 'human factor' to deciding when to buy and sell.

Prism

Why all or nothing? Taking a profit is often associated with taking a bit of your gains off the top to reinvest or store elsewhere. Going all in or all out seems extreme.

Alexland

At the very least you should rebalance your portfolio.

If you are happy with your recent gains then I don't see a problem moving some of your portfolio to cash. Although I am generally staying invested I have recently increased my cash to make my portfolio more conservative.

If you don't believe in Robert Shiller's CAPE ratio then even Jack Bogle of Vanguard fame believes that markets will eventually revert to their norms. It's no time to be a hero.

Alex

bostonerimus

You are timing the market which is a dangerous thing to do. If you had an asset allocation that you trusted and were rebalancing you'd be constantly taking profits and wouldn't be in this common dilemma experienced by investors without a firm plan.

Heedtheadvice

About one year ago I had similar thinking but was proposing to sell a percentage to 'bank' profits.
I took note of comments on this forum (like those above) and decided not to do so......and am I glad I reset my thinking!


I realised, on a smaller scale though, I was trying to time the market too.


Oh I might have some regrets if there was a huge crash but then realistically one could expect a recover within my investment time frame, have made more capital gain over the last year, gained dividends of about 3.5% (could not match that by itself in cash!) and that which I could have additionally invested have held in a selection of higher interest current accounts in the meantime.


There is no right choice until you have the benefit of hindsight but there are choices you should make that make you feel comfortable!!



So very happy for now, have hedged my bets to a small extent,.......and am very glad of the collective opinion of others!

kidmugsy

The doctrine of never timing the market is little better than superstition. It may make sense for people who are still trickling money into investments every month but it makes little sense for people who are investing a large lump sum, or contemplating keeping a large lump sum invested.

It's striking that people who are dead set against market timing are often all for rebalancing, which is just a mild, rebranded form of market timing.

It is not beyond the realms of possibility that investment managers argue against Joe Bloggs retreating to cash because they can't make money off him while he's in cash. Here are a few links of homework for you.

https://www.york.ac.uk/media/economics/documents/discussionpapers/2017/1706.pdf

https://realinvestmentadvice.com/the-myth-of-buy-hold-why-starting-valuations-matter/

https://realinvestmentadvice.com/the-myths-of-stocks-for-the-long-run-part-i/

Audaxer

Sue58 wrote: »

I do know that nobody can time the market, but at the same time our investments (S&S ISA's and Pensions) have delivered good results and I am more than happy with the profits made so far. My husband and I have am emergency cash fund that would last us quite a few years in case of a big correction or crash but I still have a gut feeling that we should be pleased with what we have made.Therefore, I am considering moving my investments into cash for the time being even though we may be losing out on any future gains. Then, in case of the possible said correction/crash we could buy in again. Is this realistic or are we indeed trying to time the market. As I mentioned, we are quite willing to lose out on any possible future gains because we are very happy with the current profit. Thoughts please.

Nothing wrong with taking some profit and rebalancing, especially selling some SMT gains, as I think that is one of the ITs you hold. But selling all your investments seems a bit drastic. If you started with 60% equities and it is now up to say 70% equities, you could/should take enough profit to rebalance back down to 60% equities and 40% cash and bonds, or even down to 50% equities if you want to take a bigger profit and have a slightly lower risk and more defensive portfolio in the meantime

Linton

Selling part of your equity portfolio could well be the right thing to do if the % equity allocation now exceeds your risk tolerance because you have changed, your circumstances have changed, or you got it wrong in the first place. But it is difficult to see how these reasons would cause you to sell everything, especially as you say you could re-enter the market at a later date.


Reducing risk reduces returns. Not only are you taking the risk that prices are higher when you want to re-buy but you would also miss out on dividends.

kidmugsy wrote: »

It's striking that people who are dead set against market timing are often all for rebalancing, which is just a mild, rebranded form of market timing.
...

I dont see this at all. You set up a portfolio with a particular asset allocation. The market moves and the allocation changes. It would seem logical to reset it back to how you wanted it originally. That is why you rebalance, not because you are attempting to predict the future.