September 15, 2006
I was asked in our Bob Brinker Discussion Forum by a reader if now was a good time to take profits. The following was my answer that I feel is worth sharing with everyone.
In response to Total Stock Market at All Time Highs posted by Moonlight:
- You wrote: I got out of the market jan 11, 2000 and into GNMA and made 19% then Mar of 3000 S&P a little higher than 800 got back in with VTSMX. (Vanguard's Total Stock Market Index Fund) Oh yes I too bit on the QQQ's thing (Brinker's recommendation to buy QQQQ in Oct 2000 in the $80's).
Congratulations!
You should sell your timing services as well as choice of what to buy to Brinker because your choices were exceptional and you significantly out performed all of his portfolios! I'd be curious why you chose to buy GNMAs in 2000 when Brinker said to put the cash into money funds because he thought interest rates would continue to go up.
- You wrote: Question, would now be a good time to take maybe half the profits, that's $41500 or sell half of my shares.
I don't recommend anyone try to time the markets. Taking profits never hurt anyone so selling some now to lock in gains is better than later, if the market goes down. The risk you take is the market keeps going up, you suddenly decide you have less allocated to stocks than you "really want" so you buy back in at higher levels. Once you start to do that you risk joining the large group of people who under perform the markets.
Make sure you read "Winning on the zigs, losing on the zags" explains how the average investor made 2.6%, roughly 1/5th the return of the S&P500 between 1984 and 2002.
- You wrote: My tolerance for loosing isn't very good. Not at my age.
People with low risk tolerance should not have more than 50% in the market and they should be well diversified. I tend to like 120% in the market less your age as a maximum. The equities are there for inflation protection so any money in TIPS or Ibonds can further reduce this. Someone 70 yrs old could be 30% equities, 10% TIPS, 10% Ibonds and 50% Total Bond (or GNMA) and have a wonderful portfolio as far as I am concerned. If you want to put 6% into my newsletter Explore Portfolio to try and increase your return, then you could be 28% equities (in my core index funds), 9% TIPS, 9% I Bonds, 48% Total Bond and 6% in my explore portfolio (which has some overlap in all the categories which is why I took a bit out of each.)
- You wrote: I've taken profits on Cacs and gotten back in to do it again,several times, thanks to you
Good job and congratulations on having what it takes to buy low and sell high.
It is amazing how well we've done on CACS trading the volatility to get even more gains this year than the 30% it is up YTD!
Boo yaaaa!
Free Charts and Other Stuff
Since beating the market is hard for most to do, I recommend a "Core and Explore" approach to investing. Core means place 80 to 99% of your money into a CORE, buy-and-hold, no load, mutual fund portfolio and then EXPLORE with the remainder. To build your core portfolio, I suggest a diversified basket of index funds.
I welcome more questions and suggestions for future articles at Kirk's Market Thoughts.
Kirk Lindstrom:
DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice.
Kirk Lindstrom - With my writing, I hope to help you too reach AND MAINTAIN critical mass where your investments earn enough money that you don't have to ...
