When to take some profit and how much

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papermario
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When to take some profit and how much

Post by papermario »

Are there different strategies to determine when to take some winnings off the table? I’m struggling to come up with some framework on when and how much profit to take on some small bets from years ago that objectively has made my boggle head AA very much not so. If they all go to 0 I’ll be very sad but will make no impact on my current lifestyle. The only strategy I can think of is very subjective and based on “regret.” Ideas welcome, thank you!

[EDIT] Thanks everyone for your feedback and apologies on lack of details, it's my first post. Some more context: I am a long time believer in low cost index funds/etfs, and they comprised most of my taxable and retirement accounts. This question is in the context of small bets with <1% of my assets (funny money, no new money for a while now) that after 5-10 years have become not low double digit % of my portfolio. They are all in taxable accounts. Whether they go up any further or crash to 0 is of course anyone's guess. I've already cashed out enough to cover my initial investments by 2-3x, but as I'm now trying to do a formal IPS, I'm curious other strategies to consider since on paper my risk level is kind of insane, but obviously I struggle with cashing most of it out is because if it was already kind of insane 3-4 years ago and I cashed out, I would have had much smaller returns. But if I cash out now and invest in VTI for example, I could possibly shave off 3-5 years on my retirement horizon. Just trying to understand all the behavioral pitfalls.
Last edited by papermario on Sun May 09, 2021 3:25 pm, edited 3 times in total.
GregG3
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Re: When to take some profit and how much

Post by GregG3 »

Oops, the wrong board.
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LiveSimple
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Re: When to take some profit and how much

Post by LiveSimple »

Since I am invested in index funds, will take profit when I sell for real life expenses.
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avenger
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Re: When to take some profit and how much

Post by avenger »

cheers ... -Mark | "Our life is frittered away with detail. Simplify. Simplify." -Henry David Thoreau | [VTI, VXUS, VWITX, SV fund]
Exchme
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Re: When to take some profit and how much

Post by Exchme »

Have you developed an Investment Policy Statement for your self? See the Bogleheads Wiki, but the idea is to think through and lay out your financial plan and a part of that would be to set your target asset allocation and a rebalancing plan. For rebalancing, there is no perfect answer, a common rebalancing plan is 5/25 where if a part of the portfolio is 5 absolute percentage points or 25 relative percent above or below target, it's time to rebalance. (So if a 90/10 target is actually 87.5/12.5 it's time to rebalance and similarly if a 50/50 target is actually 55/45, it's time to rebalance)

Unless you hold these assets until you die, you will have to pay capital gains taxes at some point. After retirement, if you sell other things preferentially, your portfolio may become even more risky. While it's annoying to pay taxes, I would rather sell some, pay capital gains taxes and put the profits to work in a lower risk Boglehead portfolio than watch the speculation turn sour and the assets wither away and lose money.

If you still like the original idea behind your bets, some people allow 5% or so of their portfolio to be more speculative items, enough to participate if they continue to soar, but not lose too much money if they crash.
tibbitts
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Re: When to take some profit and how much

Post by tibbitts »

If you have variable income from year to year sufficient to change your capital gains tax rate, you might consider that in terms of "when." You have to decide for yourself if potential capital gains tax policy changes in the future should affect your decision.
DIYtrixie
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Re: When to take some profit and how much

Post by DIYtrixie »

+1 on establishing an IPS that includes how you will handle taking winnings from bets. Here’s one idea:

I have a small Roth IRA account that I use exclusively for small bets on individual stocks. IRA = no tax implications. It’s the only account where I buy single stocks. No new money is added to it, meaning anything I buy has to come from “winnings” from a past bet.

Beyond that, I don’t have a specific %increase sell point. I will sell some when I think the valuation is insane — if I’d rather have the cash than the insanity. If I still like the underlying fundamentals, I’ll probably sell enough to cover my entire original cost a couple times over and keep the rest for pure entertainment value. And of course, if I bought something thinking it was undervalued but the company doesn’t seem to be able to get its act together in a way that leads to increased share price, I’ll sell when I give up on it or when I find something I think is a better choice.

I opened this account in 2008 with $5k. Added more money for a while, until I made the IPS with the “no new $” rule. On average i buy or sell something once every two years.
pkcrafter
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Re: When to take some profit and how much

Post by pkcrafter »

papermario wrote: Sat May 08, 2021 6:31 pm Are there different strategies to determine when to take some winnings off the table? I’m struggling to come up with some framework on when and how much profit to take on some small bets from years ago that objectively has made my boggle head AA very much not so. If they all go to 0 I’ll be very sad but will make no impact on my current lifestyle. The only strategy I can think of is very subjective and based on “regret.” Ideas welcome, thank you!
Are these "small bets" single stocks or mutual funds? If single stocks, Bogleheads generally recommend no more than 5% in a single stock.

I'm not sure why you are on the board, but if you are considering a Boglehead strategy, here is some information:

https://www.bogleheads.org/wiki/Boglehe ... philosophy

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Actin
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Re: When to take some profit and how much

Post by Actin »

This quote is my favorite

When do you buy? When you have the money
When do you sell? When you need the money.
Marseille07
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Re: When to take some profit and how much

Post by Marseille07 »

papermario wrote: Sat May 08, 2021 6:31 pm Are there different strategies to determine when to take some winnings off the table? I’m struggling to come up with some framework on when and how much profit to take on some small bets from years ago that objectively has made my boggle head AA very much not so. If they all go to 0 I’ll be very sad but will make no impact on my current lifestyle. The only strategy I can think of is very subjective and based on “regret.” Ideas welcome, thank you!
It's up to you, but I wouldn't rebalance in/out of "funny money." Assuming you're controlling the "seed" of funny money tightly, that's the most you lose if you ignore the gains.

For example, say you have 1M and 5% is FM; then that's 50K of seed money. If you triple FM at 150K, then we're looking at 1.1M total and 55K of FM seed. Even if you blow up the 150K, your downside is still capped at 55K if you ignore the gains up to that point.
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Mullins
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Re: When to take some profit and how much

Post by Mullins »

papermario wrote: Sat May 08, 2021 6:31 pm Are there different strategies to determine when to take some winnings off the table?
The proper strategy would come from the desired goal. So the question becomes, what are you looking to achieve?

I would look at my holdings and ask if they're worth holding onto, if they still meet my criteria. If they still have merit then I'd have no reason to sell them. To lock in profits? Why, if the money's not needed and I believe the stock still has upside potential? I'd have to replace it with another stock that'll I think will fare at least as well, so why bother... But if I believe the stock no longer meets my criteria, then I'd sell and place the funds where I think they'd fare better.
Last edited by Mullins on Sun May 09, 2021 11:19 am, edited 1 time in total.
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nedsaid
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Re: When to take some profit and how much

Post by nedsaid »

papermario wrote: Sat May 08, 2021 6:31 pm Are there different strategies to determine when to take some winnings off the table? I’m struggling to come up with some framework on when and how much profit to take on some small bets from years ago that objectively has made my boggle head AA very much not so. If they all go to 0 I’ll be very sad but will make no impact on my current lifestyle. The only strategy I can think of is very subjective and based on “regret.” Ideas welcome, thank you!
Having a Target Asset Allocation and disciplined rebalancing will take care of a lot of this.
A fool and his money are good for business.
retiredjg
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Re: When to take some profit and how much

Post by retiredjg »

Welcome to the forum. :happy

Sounds like your little bets have run amuck, but made you money. It also sounds like you might want to get back closer to your Boglehead AA. I don't see a problem with either of those things.

I have some little bets too. After they make money, I "give them a haircut" back to an amount I decided on awhile back. When they languish, I just leave them alone. That's my strategy. These are all in Roth IRA so I don't have to worry about the tax consequences.

If you are ready for your portfolio to look different, the only thing to do is sell and buy or give it away to charity which will also accomplish your goal and not cost you in tax.
Marseille07
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Re: When to take some profit and how much

Post by Marseille07 »

The problem with slashing funny money doing well is you're punishing good performances. There's no point taking massive risks with funny money trades if they don't move the needle. Might as well stick with index funds at that point.
Marseille07
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Re: When to take some profit and how much

Post by Marseille07 »

papermario wrote: Sat May 08, 2021 6:31 pm [EDIT] Thanks everyone for your feedback and apologies on lack of details, it's my first post. Some more context: I am a long time believer in low cost index funds/etfs, and they comprised most of my taxable and retirement accounts. This question is in the context of small bets with <1% of my assets (funny money, no new money for a while now) that after 5-10 years have become significant % of portfolio. They are all in taxable accounts. Whether they go up any further or crash to 0 is of course anyone's guess. I've already cashed out enough to cover my initial investments by 2-3x, but as I'm now trying to do a formal IPS, I'm curious other strategies to consider since on paper my risk level is kind of insane, but obviously I struggle with cashing most of it in because if it was already kind of insane 3-4 years ago given the good luck of those bets, and in the end it is just funny money. Just trying to understand all the behavioral pitfalls.
It's up to you but if I were you I'd keep going without cashing out.

If it is 1% of your NW then there are no issues really, since we're talking about 10K on 1M here. Let's say it is a 10-bagger now at 100K and you lose it all, you essentially lost 10K only.
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