Time to Sell Investments (Take the profit)

bowlhead99

Sue58 wrote: »

My risk tolerance hasn't changed because as I mentioned we have a comfortable cash buffer

If your risk tolerance *really* hasn't changed, you would be generally fine with staying invested, as you can handle the losses if they happen and you have a good cash buffer to not need to sell investments at a low point of they should go down a bit (or a lot).

Perhaps if your investments are a higher proportion of your total wealth than they used to be (ie they've grown much more than your cash after a nice run of good years) then you might think it reasonable to partly sell them down to go back to the same ratio of investments to cash that you had before your 'good run'. Although, some would note that there's only a certain amount of cash that someone reasonably needs for emergency savings and general savings with a given lifestyle, and there's no harm in investing the excess... so perhaps having a bigger ratio of investments to cash than you used to, is still fine.

However from what you're saying, you think you have too much in investments -or perhaps that *all* of your investments are in excess of the amount you want to have invested right now - which implies you fear a drop, and in fact your risk tolerance has changed because you don't think you could handle giving back some or all of the gains you made.

Perhaps what has happened is that your risk tolerance hasn't changed: it was always lower than a level that would support this sort of mix of investments, but you didn't notice, because markets were going up, and nobody minds when they invest in something and get luckier than average for quite a long time, but they realise it can't go on at that pace indefinitely.

however, we have had such good returns that surely there comes a time when you 'hedge your bets' and possibly go into cash with a very good profit and see what happens.

You don't need to see what happens because you know what could happen (markets go down before you react, or up before you can react). With the former meaning you lose some money on paper and have to wait for a recovery, and the latter meaning you lost out on the improvement in value of your assets versus those of your neighbours and fellow humans all over the world -who stayed invested in their pension pots and elsewhere and benefitted from the extra growth you didn't get.

To that, you might think well, who cares about keeping up with the Joneses: as long as we have our pot of money and these nice profits we are all set - it's not a race.

But the big picture is that actually it is a race. The prices of goods and services in the future depend among other things on how much money everyone has. If everyone stays invested (as most of the global market does, especially for the average joe public who doesn't think of himself as an investor but has a pot building up in his workplace pension), and you sit on the sidelines for a bit, you end up with X and your 'competitor' consumers of goods and services end up with Y, which can be a bigger number due to your self imposed time on the sidelines seeing what might happen.

If you exclude yourself from the race for a bit, and don't own shares in manufacturers and service providers all over the world, whose revenues and profits become the cost base of everything you buy in the future... and you miss a rise in markets due to your self-exclusion... then at some point down the road you'll be turning up at your corner shop (or online grocery store of choice) and the price of a loaf of bread is £4 based on supply and demand, but you can only spare £3.60odd, because you missed the 10% rise that everyone else got during your two years off. So in your retirement you have to eat smaller loaves.

Whereas if the markets fall, and most people's wealth goes with it, it's perhaps not so much of a big deal, because you can only afford £3 for a loaf, but so can the competition.

I totally understand we could lose future potential profits or may have to pay higher prices if we re-enter the market but imho the market just cannot go up, up and up?

We each have to do what we are comfortable with and that is different from person to person, so nobody can tell you that you're definitively 'wrong' to take some time off and hope that cash outperforms investments for a while. We know that cash won't outperform investments over the long long term but anything *might* happen in the short term. So maybe you'll get away with having some time off.

But you would then have to work out at what point investments will outperform cash over the short term again, which is always tricky, because you know in your gut that in the long term, investments are always better than cash anyway; so you will be sitting there knowing you *should* invest but wanting to be convinced that they are best in the short term as well as the long term and it will perhaps take several years of markets going up to convince you that now's the time to get back in.

If the market went up in a nice straight line, every single day would be the highest it had ever been, yet every day would be the best chance you'll ever have to invest in the markets and you should do so without delay. Despite having great one-way gains for many years.

Of course, markets don't go up in a nice straight line they wibble and wobble and you don't really know what will happen next. If you did know what will happen next, you could dive in and out, but you don't. The best we can say is that returns from investments are quite unlikely to deliver the same annualised percentage gain over the next ten years as they did over the last. And that there *might* be a chance to get in lower than today's value, just like there probably will be a chance to get out higher than today's value. Neither of those things mean you should expect investments to be worse than cash over a reasonably long timescale, so diving into cash with your 'profit' is not necessarily as wise as you think.

But if the main driver of you wanting to cash in your chips for a bit is fear of losses, then by all means, cash them in, and re evaluate what sort of things it's sensible to hold. Maybe some of the things your currently hold, but a lower total amount. Maybe lower risk things. Or more broadly diversified things.

Sue58 wrote: »

As an example one of our pensions was worth £103,000 in December 2014 and it is now valued at £155,000 so that is good enough for us. Our other pension and isa!!!8217;s have delivered similar returns hence why we think it may be time to take the profits and sit it out.

50% up in three and a half years is not bad going. Assuming no new cash introduced in that time and it's pure growth. If it went back to where it was, that would be a loss of a third. Perhaps you could move into investment classes that are less likely to lose a third in the same timescale as the ones that could lose a third in six months to a year.

Keeping the money inside the pension you'll struggle to get anywhere near the same return on cash as you could get outside of a pension in bank accounts. So losing more to inflation than you might expect. If you're old enough you could cash in part of the pension to free up the cash to put it in bank accounts at the top rates you can find, but accessing pension before you had naturally planned to do so could have unwelcome tax consequences.

Anyway good luck etc.

kidmugsy

@ OP, you could always reject the quasi-religious rule that market timing is wicked, and contemplate the critical question "if you don't need the return why take the risk?"

Your first problem will be in knowing what to do with the money. In late 1999, for example, any hard headed soul who got out of equities had the option of buying gilts, which then looked decent value. (And, hindsight reveals, thereafter went on to give a fine return). After a decade of QE and ZIRP I find it hard to see anything that's good value. But that needn't stop you holding cash for a while if you want. Or some gold, or some commodities, or property, or ... Heavens, buy some broadleaf woodland and sleep under its boughs in this hot summer.

Just remember that every six or twelve months you might want to ask yourself whether you'd like to buy more equities again.

Audaxer

Sue58 wrote: »

As an example one of our pensions was worth £103,000 in December 2014 and it is now valued at £155,000 so that is good enough for us. Our other pension and isa’s have delivered similar returns hence why we think it may be time to take the profits and sit it out.

If you didn't sell and there was an equity crash and the value dropped to just over £100k you would obviously wish you had sold. But if you did sell now and there was a fall, when would you buy back? If it fell by 20% you might decide that is the time to buy back, but it could fall further.

It is a difficult decision but I think in your position I would be tempted to take some of the profit to rebalance back to my original percentages. If there was then a big fall and the value dropped by an amount that put you well under your preferred equity percentage, you could then buy back sufficient equity to get back to your preferred percentage. So I think that would be better than cashing it all in, or just letting it continue grow unchecked.

kidmugsy

Audaxer wrote: »

It is a difficult decision but I think in your position I would be tempted to take some of the profit

It was purportedly a Rothschild who said you should always leave the next fellow 10%.

bostonerimus

Audaxer wrote: »

If you didn't sell and there was an equity crash and the value dropped to just over £100k you would obviously wish you had sold. But if you did sell now and there was a fall, when would you buy back? If it fell by 20% you might decide that is the time to buy back, but it could fall further.

It is a difficult decision but I think in your position I would be tempted to take some of the profit to rebalance back to my original percentages. If there was then a big fall and the value dropped by an amount that put you well under your preferred equity percentage, you could then buy back sufficient equity to get back to your preferred percentage. So I think that would be better than cashing it all in, or just letting it continue grow unchecked.

You have made some sensible suggestions, but we don't know how the OP is invested or if there is any understanding of risk and the asset allocation appropriate for the situation. If the OP is in 100% equity and wants to go to a slightly less risky allocation because retirement is approaching then increasing the allocation to cash and high quality bonds and gilts might be appropriate. However, I'm not sure the OP knows exactly how the pensions and ISAs are invested as no information on that has been give,

bostonerimus

kidmugsy wrote: »

@ OP, you could always reject the quasi-religious rule that market timing is wicked, and contemplate the critical question "if you don't need the return why take the risk?"

Rebalancing or strategically adjusting your asset allocation as your circumstances change is basic portfolio management. Tactical selling on a gut feeling or because some P/E ratio or interest rate has peaked is best left to the professionals as they are sensible enough not to risk their own money.

Tom99

Sell half and keep half, that way you will hedge your bets.

LobsterMemory

One thing this thread shows is that one should decide a set criteria for selling investments when you buy them.

The possibly cliched one is "Never"

Mine is when the investment no longer meets my buying criteria

Others might be "When my objective has been reached" or " After it's doubled" etc

Takes a whole lot of worrying off the table

Sea_Shell

What we're looking to do, is once we are in full retirement, each year, take the profit (or some of the profit) from investments but that would be to live on, not to reinvest in the future. Keeping the rest invested.

We are looking to keep 5 years costs in cash and start to use that 'if' the market goes into decline. If that lasts long enough for the cash pot to be used up, then we'd have to sell investments in a dropping market.

Linton

kidmugsy wrote: »

@ OP, you could always reject the quasi-religious rule that market timing is wicked, and contemplate the critical question "if you don't need the return why take the risk?"

Your first problem will be in knowing what to do with the money. In late 1999, for example, any hard headed soul who got out of equities had the option of buying gilts, which then looked decent value. (And, hindsight reveals, thereafter went on to give a fine return). After a decade of QE and ZIRP I find it hard to see anything that's good value. But that needn't stop you holding cash for a while if you want. Or some gold, or some commodities, or property, or ... Heavens, buy some broadleaf woodland and sleep under its boughs in this hot summer.

Just remember that every six or twelve months you might want to ask yourself whether you'd like to buy more equities again.

Market timing isnt wicked. The problem with it is that it is not very successful as people are not much good at predicting the future. Predicting the future incorrectly is expensive. In general the gains from ones successful predictions are less than the costs of ones failures.

So what does one do? The best answer for me is to invest as widely as possible keeping the equity allocation sufficiently high to meet my objectives and sufficiently low so that a major fall would not be disastrous.

It is essential that one is intellectually satisfied with ones allocation as it should not be a source of stress leading to repeated hasty and expensive changes. Changes should happen over time as ones objectives change over time. But they will normally be gradual and are unlikely to include selling all ones investments in an asset and then buying them back later.

Of course you can completely change your investment allocations every few months if you want. Perhaps you may decide to buy an endangered ancient woodland one day, get bored and sell it a year later. Fine, but you need to realise that pandering to your whims is costing you money.