How to know when to take a profit

[CatinKS]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

 

[NW-Bound]

I sell something to realize a gain if I think it has become overvalued. There are many metrics to help determine this, and none is infallible. A stock may be overvalued, and can stay overvalued for quite some time. Or it may look overvalued, but its price is justified by its prospects. Any investor will tell the story of a stock that keeps on going after he sells. Sometimes you are right, other times you are wrong.

In the case of the OP, an MF doubling in 10 years is not an excessive gain. In fact, it trails the S&P significantly, as the latter went up to 4.5x its value in 10 years. If the above is true, the question to ask is why the MF performance has been so poor.

PS. Perhaps the MF performance is better than that, if you take into account the dividend it has been paying all along.

 

[MichaelB]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

Is this in a taxable account or retirement / tax deferred?

 

[chassis]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

Sell when the prospects of the investment have changed, or the position no longer fits your goals or strategy.

Have the prospects of the investment changed? Does the investment no longer fit your goals or strategy?

Have you assessed the prospects of the investment?

 

[Montecfo]

Sell when you find a better investment.

And as always Stay Fully Invested.

 

[SevenUp]

...in the back of my mind think it is time.

If you wouldn't buy it today, sell it and buy something you would buy to maintain your desired asset allocation.

 

[travelover]

Sell it just before it drops in value.

 

[REWahoo]

Sell it just before it drops in value.

+1

Then buy it again once it reaches bottom, just before it starts back up.

 

[tmm99]

I have no idea how to decide when to sell either. VG Total Stock Market VTSAX I hold in my after-tax account is 3 times the value now...

I've only been withdrawing money from my 401K since I retired because my 401K requires me to take a distribution from each fund equally, which means I don't have to decide what to sell to take the distribution like I would with IRAs.

 

[SecondAttempt]

+1

Then buy it again once it reaches bottom, just before it starts back up.

You guys are doing it wrong. Buy when it is 10% above its bottom and sell when it hits 90% of the top. Anything else is just being greedy!

 

[SecondAttempt]

The OP has not responded to the question about whether it is in a taxable account but I'd like to push that a bit. How much does having to pay a CG tax influence your decision to sell a stock or fund that has appreciated a lot?

Personally I would say it affects me a lot. I tend to try not to sell winners anyway and the fact that I'd be locking in a tax bill usually makes an even stronger case to hold unless I see major problems ahead.

Case in point, I bought a Spanish bank just before the pandemic. It was quickly in a loss position but I held on because the reasons were obvious - the pandemic.

I bought because I liked the fundamentals. Earlier this year I soured on the fundamentals and decided to sell. At the time I had a loss that I knew would be useful to offset some mutual fund gains so I planned to wait until the end of this year to sell.

But lately it has roared back to life and I am sitting on a 40% gain. If I sell I will pay a tax bill and miss out on any ongoing growth. My loss peaked at about 10% so I am now thinking that just holding on is a better plan. The upside seems more likely than a big downside.

Having to pay taxes is also a deterrent to sellng now.

 

[donheff]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

OP, I see folks are poking fun at the market timing aspects of this question but I will take a shot at an answer given the little info you posted. You say this is a mutual fund, not an individual stock. If it is an index fund or other broad based mutual fund like many of us here espouse, there is no general reason to sell it just because it has raised in value. Look at a chart of the S&P 500. It raises and falls unpredictably but just continues an upward trend over long periods of time. If it has doubled in value since you bought it, it will double again given enough time.

If, on the other hand, this is a fund you no longer trust and want to get rid of, sell immediately and invest in an index if it is in a tax deferred account. If it is in taxable, you need to give some thought to your exit plan. You will be paying capital gains on half of the sale. Is the fund bad enough that it is worth the hit to sell? What do you plan to do with the proceeds?

 

[CatinKS]

It is an traditional IRA, specifically Vanguard Pacific Stock Index Fund Admiral Shares. I'm not in a position where I need these funds for several more years. As mention above, I feel that perhaps I can buy it back cheaper in the near future.

 

[street]

It is an traditional IRA, specifically Vanguard Pacific Stock Index Fund Admiral Shares. I'm not in a position where I need these funds for several more years. As mention above, I feel that perhaps I can buy it back cheaper in the near future.

You can sell and have a wad of money now. The trick is when do you buy back?

If you sell invest it right away someplace else and stay in the market is my advise. If you sell and hold cash in CD's or what ever you are losing in my way of handling investments. The time you are out is not beneficial to you, stay in the markets one way or another.

 

[Lawrencewendall]

I've sold when the position was a larger % of my portfolio than I was comfortable with. So far, I have 2 that I sold off my initial contribution and am playing with house money. 0.00 cost basis.

 

[finnski1]

I sell something to realize a gain if I think it has become overvalued. There are many metrics to help determine this, and none is infallible. A stock may be overvalued, and can stay overvalued for quite some time. Or it may look overvalued, but its price is justified by its prospects. Any investor will tell the story of a stock that keeps on going after he sells. Sometimes you are right, other times you are wrong.

In the case of the OP, an MF doubling in 10 years is not an excessive gain. In fact, it trails the S&P significantly, as the latter went up to 4.5x its value in 10 years. If the above is true, the question to ask is why the MF performance has been so poor.

PS. Perhaps the MF performance is better than that, if you take into account the dividend it has been paying all along.

+1 That MF appears to be seriously lagging a low cost index fund and may have higher fees to boot.
The real question to ask oneself is why am I in this one and not an index fund? what are the objectives. A doubling in 10 years is a decent 7% annual gain which normally would look fine but not in the past 10 years. Why not just take some withdrawals out of it and not lthe whole thing or perhaps just get in a low cost index fund.

 

[NW-Bound]

This fund, VPADX or Vanguard Pacific Index, is actually not doing that great. When the OP said it has doubled, perhaps he was counting from the low point in March 2020, when the Covid news broke out across the entire world and it felt like an apocalypse.

But if you count from that low point, then the S&P has done even better. And just because something has doubled does not mean it cannot go higher.

Looking back 10 years, this fund trails the S&P significantly. But then, if you look at Vanguard All-World ex-US VEU, the latter fund VEU has done even worse. This is something we talk about often. That is, the US market has been leading the rest of the world. And in fact, the Pacific countries have been doing better than other international countries, as shown by the OP's VPADX doing better than VEU.

In short, if you want to sell this fund, it has to be for a different reason than because you think the fund has outperformed. It has not. Will it go back to underperforming worse than before? Or will international stocks make amend, and will do better than the US market in the near future, like some posters talk about in another thread?

Ah, we don't know the answer to any of these questions, do we?

 

[CatinKS]

Thanks for everyone's input. I exchanged Pacific Index for a Energy Fund.

 

[Chuckanut]

Sell it just before it drops in value.

And if it doesn't drop in value, don't sell it.

Seriously, I have been known to take some profit off the table from time to time especially when I will need the money in a year or two.

For example, at the end of a year if the market is at or near highs (like this year) I might take in a lump sum the funds I will need to supplement my pension and SS checks next year. Buy low, sell high. Right now the market is high.

OTOH, bailing out too early is supposed to be a short coming of many investors. That's why I take the profit I think I will need in the near future. Not everything.

No magic answer. Just a strategy to do the best I can.

 

[Animorph]

I've always had target percentage allocations for each mutual fund, with a trigger point for trimming or adding to a position. That eliminates most of the temptation to sell just because it is too high or too low. With a bond fund in the portfolio it also provides an opportunity to move from stocks to bonds and back in a deterministic way.

 

[yakers]

I was never good at selling, I couldn't be a trader, I seem to have a good record on buying but no effective system for selling. I intend to hold 'forever' even may leave assets for inheritances. So when I need money as when we bought a house a few years back I had to figure out what to sell and that is much driven by trying to minimize capital gains taxes. And RMS/QCDs from IRAs are sold off to somewhat balance our asset allocation.

 

[HawaiiShrimp]

I'm not talking about day trading or even any short-term gain, but a stock or mutual fund you have held for 10 years. I have a mutual fund that is about to double, and in the back of my mind think it is time.

Realize might be other threads on this topic in the past. If so, just direct me to those.

I wouldn't know when to take a profit if I've invested in a mutual fund. It's hard to gauge if all the companies in the fund are performing or underperforming...

However, for stocks, it's clear. If the stock is no longer performing according to my expectation, it's time to let it go.

By the way, this is why I don't buy mutual funds.

 

[DrRoy]

I am almost entirely in index funds/ETF's, so I only sell to raise spending cash as needed or to rebalance.

 

[travelover]

........However, for stocks, it's clear. If the stock is no longer performing according to my expectation, it's time to let it go............

Yep, when a stock is performing well, the price is high, when it falters, the price is low. So, I just buy high and sell low.

 

[foxfirev5]

I am almost entirely in index funds/ETF's, so I only sell to raise spending cash as needed or to rebalance.

Exactly. It's not too tough when you have a plan and stick to it. Since I know that the market resets every day and nobody knows nothin' it's simple.