When to take profits?

Alexland

AsifM068 said:

But why can't I take a little profit when the fund is doing well and leave the original investment to do its thing again. If I don't take those gains to my mind they are wasted for they are not reinvested back into the fund if I just sit tight. I understand I will be left with less units if I sell some but is that the only reason to leave the fund alone in good times?

If you really want to take some of the gains (and spend them?) then sure it's your money but if you are investing towards a long term objective then taking money out of the fund means it won't have the opportunity to accumulate towards greater returns through the wonderful process of compounding.

tebbins

AsifM068 said:

But why can't I take a little profit when the fund is doing well and leave the original investment to do its thing again. If I don't take those gains to my mind they are wasted for they are not reinvested back into the fund if I just sit tight. I understand I will be left with less units if I sell some but is that the only reason to leave the fund alone in good times?

...
I think what you're not getting is this. If you put £11,000 into a fund, it goes up a few %, you sell £400 i.e. you take the profit, and then say it doubles over the next 10 years.

By taking £400 profit now, you're missing out on £800 (of an extra £400) in 10 years.

AsifM068

ChesterDog said:

The thing you're missing is that by not taking the profit, you own more units/ shares (OEIC/ETF) than if you did.

In taking the gain out as cash, you'd be selling units and therefore reducing the value of your holding and reducing the potential for future growth in terms of total value.

So when the price goes up, the fund manager buys more units? I can understand that the value / price of each unit goes up but how do the actual number of units go up please?

AsifM068

OK. So in times of growth, I have more units where as I thought the number of units stays the same and the value / NAV per unit increases instead, can someone please clarify?
So the number of units decreases when the fund dips?

Audaxer

AsifM068 said:

eskbanker said:

If you hold this for the long term then its price will fluctuate significantly in both directions over many years, and certainly by more than it has recently, so what makes you think of selling?

I just wanted to cash in a few units as the fund was doing well to my mind. There's about 11K invested under an ISA and it went up by about £400 pounds so was tempted to take that profit and leave the original 11K to do its thing again. Made sense to me at the time. What's wrong in doing that or am I missing a point?

Nothing wrong with doing that if you need the income. If for example you held that fund as part of a retirement portfolio, withdrawing £400 from the £11,400 total value of that fund amounts to a withdrawal percentage of just over 3.5%, so that would be a reasonably safe percentage to withdraw as a year's income from a single fund. 

Linton

AsifM068 said:

OK. So in times of growth, I have more units where as I thought the number of units stays the same and the value / NAV per unit increases instead, can someone please clarify?
So the number of units decreases when the fund dips?

The price per unit decreases when the fund dips and vice versa.  WIih a fund the NAV is the price.  However if you sell you obviously have fewer units.

Thrugelmir

AsifM068 said:

ChesterDog said:

The thing you're missing is that by not taking the profit, you own more units/ shares (OEIC/ETF) than if you did.

In taking the gain out as cash, you'd be selling units and therefore reducing the value of your holding and reducing the potential for future growth in terms of total value.

So when the price goes up, the fund manager buys more units? I can understand that the value / price of each unit goes up but how do the actual number of units go up please?

The fund manager creates units when there's an inflow of money, and cancels them when investors sell their holdings. The unit price is the net value of the entire fund divided by the units in issue at the point in time that the fund is valued. 

ColdIron

AsifM068 said:

am I suppose to just leave the investment alone

Yes      

AsifM068

Linton said:

AsifM068 said:

OK. So in times of growth, I have more units where as I thought the number of units stays the same and the value / NAV per unit increases instead, can someone please clarify?
So the number of units decreases when the fund dips?

The price per unit decreases when the fund dips and vice versa.  WIih a fund the NAV is the price.  However if you sell you obviously have fewer units.

That was my understanding in regards to the NAV price but someone on here has stated that the number of units goes up and down which I didn't know and has confused me unless I misunderstood which is a very real possibility!

AsifM068

The price per unit of an acc index fund increases as follows;

ACC funds do not pay out dividends to the unit holders. Instead the fundholder takes the dividends they receive and uses them to buy more shares for the fund. This causes the value of the units of the fund to increase in value since each unit now represents more shares, and thus the whole return of the fund is reflected by the change in the fund price.

Is this correct please?