Is there ever a good time to sell and lock in ?

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thelateinvestor43
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Is there ever a good time to sell and lock in ?

Post by thelateinvestor43 »

I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?

Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week) you buy up more of the fund(s) at a now low price and hold on while things recover.

Why would you continue to leave your money in for example, if the market continually dropped for say a month or more? Why not pull out and "lock in" and then buy "after" things start to turn around?
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nedsaid
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Re: Is there ever a good time to sell and lock in ?

Post by nedsaid »

A couple of problems here.

First, market timing really does not work. As Jane Bryant Quinn said, "The market timer's Hall of Fame is an empty room." Jack Bogle also said that he didn't know anyone or heard of anyone who market timed successfully. So you have one of the great finance writers of all time and the founder of Vanguard weighing in here. Even if you get the decision to get out of the market correct, how do you know when to get back in?

Second, the market is in many ways counterintuitive. In other words, the way markets work are contrary to what on the surface makes sense. Bull markets are born in pessimism and die in optimism. Or you hear the phrase that markets climb a well of worry. Markets start going up when everyone who was going to sell has sold and markets start going down when everyone who was going to buy has bought. Up markets need a supply of pessimists who at some point will change to optimism. The folks who change their minds from pessimism to optimism are the new buyers who help propel markets higher. So when things feel good, it is time to start worrying, it is a sign that the markets are starting to run out of buyers.

Third, the trends of optimism or pessimism can last longer than anyone would expect. No one rings a bell at market tops or market bottoms. It is the old being right too early problem, or even worse, being right way too early.

A good remedy to this is the old fashioned concept of rebalancing your portfolio. If your Target Asset Allocation is 60% stocks and 40% bonds and you have a rebalancing band of 5%, once your stocks hit 65% of your portfolio, you sell enough stocks and buy enough bonds to bring you back to your target 60/40 allocation. Conversely, if stocks drop to 55% of your portfolio, you sell enough bonds and buy enough stocks to get you back to 60/40. It is a form of buying low and selling high. Problem is, this likely won't improve your investment returns, it is more about controlling risk. Big reason is the upward trend in the stock market, stocks are up more often than they are down, the long term trend has been upwards.
Last edited by nedsaid on Sun Dec 22, 2019 12:48 am, edited 1 time in total.
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whodidntante
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Re: Is there ever a good time to sell and lock in ?

Post by whodidntante »

I think there are a lot of smart people doing smart people things. I also think most of them would be better off staying invested.
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HomerJ
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Re: Is there ever a good time to sell and lock in ?

Post by HomerJ »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?
There's always talk of something happening.

What if the S&P 500 takes a nose dive, and you sell, and then it goes back up instead of dropping more? I can show you a hundred examples of the market dropping for a bit, then heading back up again.

And there's no expert out there that can tell you what's going to happen.
Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week) you buy up more of the fund(s) at a now low price and hold on while things recover.
There is no magic bell that rings when "things are getting better".

There will ALWAYS be people who say "things are getting better" AND people who say "things are getting worse". At the same time. None of them really know.

I suggest you read some of the books on the suggested reading list.

A Random Walk Down Wall Street is a good one. Read the Bogleheads Guide to Investing. The 4 Pillars of Investing is another great book.
Last edited by HomerJ on Sun Dec 22, 2019 12:46 am, edited 1 time in total.
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FiveK
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Re: Is there ever a good time to sell and lock in ?

Post by FiveK »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am Why would you continue to leave your money in for example, if the market continually dropped for say a month or more? Why not pull out and "lock in" and then buy "after" things start to turn around?
Because if you pull out after the market drops then buy back in after it has risen, that doesn't work out so well.

Of course, if you pull out just before the market drops a bunch, then buy back in just before it rebounds, ....
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Re: Is there ever a good time to sell and lock in ?

Post by puc_ytpme »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am
Why would you continue to leave your money in for example, if the market continually dropped for say a month or more? Why not pull out and "lock in" and then buy "after" things start to turn around?
I would like to introduce you to Bob. The worlds worst market timer.

At the end of the article, check out the lesson’s from Bob’s journey

https://awealthofcommonsense.com/2014/0 ... ket-timer/
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thelateinvestor43
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Re: Is there ever a good time to sell and lock in ?

Post by thelateinvestor43 »

nedsaid wrote: Sun Dec 22, 2019 12:32 am A couple of problems here.

First, market timing really does not work. As Jane Bryant Quinn said, "The market timer's Hall of Fame is an empty room." Jack Bogle also said that he didn't know anyone or heard of anyone who market timed successfully. So you have one of the great finance writers of all time and the founder of Vanguard weighing in here. Even if you get the decision to get out of the market correct, how do you know when to get back in?

Second, the market is in many ways counterintuitive. In other words, the way markets work are contrary to what on the surface makes sense. Bull markets are born in pessimism and die in optimism. Or you hear the phrase that markets climb a well of worry. Markets start going up when everyone who was going to sell has sold and markets start going down when everyone who was going to buy has bought. Up markets need a supply of pessimists who at some point will change to optimism. The folks who change their minds from pessimism to optimism are the new buyers who help propel markets higher. So when things feel good, it is time to start worrying, it is a sign that the markets are starting to run out of buyers.

Third, the trends of optimism or pessimism can last longer than anyone would expect. No one rings a bell at market tops or market bottoms. It is the old being right too early problem, or even worse, being right way too early.

A good remedy to this is the old fashioned concept of rebalancing your portfolio. If your Target Asset Allocation is 60% stocks and 40% bonds and you have a rebalancing band of 5%, once your stocks hit 65% of your portfolio, you sell enough stocks and buy enough bonds to bring you back to your target 60/40 allocation. Conversely, if stocks drop to 55% of your portfolio, you sell enough bonds and buy enough stocks to get you back to 60/40. It is a form of buying low and selling high. Problem is, this likely won't improve your investment returns, it is more about controlling risk. Big reason is the upward trend in the stock market, stocks are up more often than they are down, the long term trend has been upwards.
I've got $20k across my 2 Fidelity accounts with 100% equity, so what would I "re-balance"? They told me not to have any bonds or anything until I get to at least $50k or preferably $100k.
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Re: Is there ever a good time to sell and lock in ?

Post by sperry8 »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?

Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week) you buy up more of the fund(s) at a now low price and hold on while things recover.

Why would you continue to leave your money in for example, if the market continually dropped for say a month or more? Why not pull out and "lock in" and then buy "after" things start to turn around?
Because these people who are saying things... have absolutely no idea what they are talking about. For example, check out the bogleheads contest... it shows how stock pickers/winners each year differ every year. Pundits and bogleheaders alike simply have no idea what is going to happen. Set your AA that is appropriate for your time horizon and risk tolerance and stay the course.

Want another example, check out the graph in #3 here: https://bpsandpieces.com/2019/12/17/the ... -playbook/

Notice how not ONE forecaster got the direction of the 10 year yield right. So who are these people you're going to listen to? It's a train wreck waiting to happen :oops:
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Re: Is there ever a good time to sell and lock in ?

Post by Ferdinand2014 »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?

Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week) you buy up more of the fund(s) at a now low price and hold on while things recover.

Why would you continue to leave your money in for example, if the market continually dropped for say a month or more? Why not pull out and "lock in" and then buy "after" things start to turn around?
The only time I would sell is when I need cash. Market timing doesn’t work. It can’t because if what you say is true, everybody would do it and if everybody does it, there would be no buyers when people want to sell and no sellers when people want to buy. Nobody can predict the future.
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Re: Is there ever a good time to sell and lock in ?

Post by JoMoney »

There is a lot of money out there trying to do essentially what you suggest.
The idea of it sounds easier than it is in practice. There's no reliable indicators that tell people when to get out and when to get back in. Furthermore, for every seller, there has to be a buyer.... so in aggregate, it would be impossible for a majority of the money invested to beat each other out of the market and then back in at a better price.
I don't have any special information or superior position in the market to even think I have an advantage in playing a zero-sum game like that, where for every extra dollar one portfolio manages to eek out, an equivalent dollar is lost in another.
A better strategy I think, for most people, is to average your purchases (and eventual sales) across a very long period of time, such that the price you're buying or selling at is effectively an 'average' across the time period, not trying to garner something extra 'buying low' and 'selling high' but simply through the intrinsic earnings growth and dividends payed out from being an owner of the businesses.
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Re: Is there ever a good time to sell and lock in ?

Post by beyou »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:22 am I've got $20k across my 2 Fidelity accounts with 100% equity, so what would I "re-balance"? They told me not to have any bonds or anything until I get to at least $50k or preferably $100k.
From your username, can we guess you started investing around 43 (and that is recent) ?

If your age and risk tolerance say 100% stocks, then do nothing. I would guess from this post that your risk tolerance is not so high, but your need to take risk for reward is high. I suggest forget the perceived need and focus on your tolerance. If you can sleep better with 60/40 then do that and rebalance. People argue bonds are overvalued too, but the downside is less anyway.

Regarding need, focus on adding/saving as much as you can. Spend effort focusing on personal expense reduction and increasing non investment income. If you save aggressively it actually benefits you to see a decline (but I wont be so happy about that ;-)

You will have regret and 2nd guessing no matter what you do. Focus as above, on a plan and stick to it.
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Re: Is there ever a good time to sell and lock in ?

Post by thelateinvestor43 »

What I mean is that if the S&P continued to tank for 2 weeks straight and then you get out and lock in a wait and watch. Tomorrow, for example, you see it go down again and again the next day. You're already locked in and you see 2 days of it starting to go back up and buy all your fund back, but you get a little more shares because now the price is 2 weeks worth of declining prices cheaper?

or a better example would be it nose-dived for a whole month every single day and so you decide to get out after a month a wait and then it goes down for another month and then you wait and see that it goes back up for 5 days straight and get back in with more shares now and things get better and better and you now own more shares and make more money.

I heard that a lot of people lock in if things look bad.
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thelateinvestor43
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Re: Is there ever a good time to sell and lock in ?

Post by thelateinvestor43 »

beyou wrote: Sun Dec 22, 2019 1:49 am
thelateinvestor43 wrote: Sun Dec 22, 2019 1:22 am I've got $20k across my 2 Fidelity accounts with 100% equity, so what would I "re-balance"? They told me not to have any bonds or anything until I get to at least $50k or preferably $100k.
From your username, can we guess you started investing around 43 (and that is recent) ?

If your age and risk tolerance say 100% stocks, then do nothing. I would guess from this post that your risk tolerance is not so high, but your need to take risk for reward is high. I suggest forget the perceived need and focus on your tolerance. If you can sleep better with 60/40 then do that and rebalance. People argue bonds are overvalued too, but the downside is less anyway.

Regarding need, focus on adding/saving as much as you can. Spend effort focusing on personal expense reduction and increasing non investment income. If you save aggressively it actually benefits you to see a decline (but I wont be so happy about that ;-)

You will have regret and 2nd guessing no matter what you do. Focus as above, on a plan and stick to it.
Nope. I started investing at 46 a month or so ago. I woke up very late in life and feel stupid for it, but I've come to terms with it now. I plan on working until I cant anymore or die trying. Most likely I'll work till I'm dead or get sick. I don't have or want expensive toys and live very simply, but have a decent car and small house my mother is leaving me.
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Re: Is there ever a good time to sell and lock in ?

Post by mortfree »

What if you:

Bought shares at $100 and then the market started to tank for two weeks and the price was $90. Would you sell then?

Or you:
Bought shares at $90, the price climbed to $100 then went back down for two weeks to $90. Would you sell at $90 (same price you bought) or would you have already sold when the stock was at $100? I mean it climbed ten bucks, surely you are a genius and the stock will only go higher.

Using this buy/sell strategy is not really considered to be investing the boglehead way.
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Re: Is there ever a good time to sell and lock in ?

Post by HomeStretch »

Jumping in and out of the market In reaction to market performance or what people are saying as you hypothetically described does not sound like a great investment strategy.
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Re: Is there ever a good time to sell and lock in ?

Post by sperry8 »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:53 am What I mean is that if the S&P continued to tank for 2 weeks straight and then you get out and lock in a wait and watch. Tomorrow, for example, you see it go down again and again the next day. You're already locked in and you see 2 days of it starting to go back up and buy all your fund back, but you get a little more shares because now the price is 2 weeks worth of declining prices cheaper?

or a better example would be it nose-dived for a whole month every single day and so you decide to get out after a month a wait and then it goes down for another month and then you wait and see that it goes back up for 5 days straight and get back in with more shares now and things get better and better and you now own more shares and make more money.

I heard that a lot of people lock in if things look bad.
The smartest guys in the room managing billions in investment dollars with the best computers possible can't make market timing work. If it was as simple as you say... then they'd be doing it and it'd be the strategy to do. But it isn't, because it doesn't work. No one can time the market with skill. I suggest you read a lot more here on BH and via the books they suggest here before attempting market timing strategies like the one you describe. Please. You're apt to lose a bundle if you try to do what you describe.
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Re: Is there ever a good time to sell and lock in ?

Post by firebirdparts »

Don’t do it. If you try it, you’ll quickly find out why it’s a bad idea.
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Re: Is there ever a good time to sell and lock in ?

Post by livesoft »

I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?
In the first 3 weeks of December 2018, the Vanguard Total Stock Market Index fund dropped 16% as shown in this chart:
Image

So was it a good "time to sell the majority of your fund(s) and lock in your money"?
Does anybody know what happened beyond the right edge of the above chart?
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Re: Is there ever a good time to sell and lock in ?

Post by GoldenFinch »

What you are describing is classic market timing. Market timing is what Bogleheads by definition do not do. The only way it would work would be if you could see the future. I understand why it appears logical and is tempting, but it is gambling. Just like gambling, you are bound to lose money. You are new here. This site is a great place to learn how to manage money for the long run. Spend a lot of time reading here. Search “why market timing is a bad idea” or “behavioral mistakes” and read, read, read. You will learn a lot. Good luck!
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Re: Is there ever a good time to sell and lock in ?

Post by happyisland »

The only thing I can think of to add to the great replies above is that many of us came to Bogleheads after trying all of the market timing tactics you described (and many others). So we know first-hand that they don't work. Learn from our mistakes, and use this forum for financial advice as much as you can. It is a stroke of luck that you found this group of generous, wise indviduals. :happy
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Re: Is there ever a good time to sell and lock in ?

Post by RickBoglehead »

"I've heard"
"They say"
"2 weeks"

None of these have any validity. OP, read The Bogleheads Guide to Investing second edition.
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Re: Is there ever a good time to sell and lock in ?

Post by JoeRetire »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:53 am What I mean is that if the S&P continued to tank for 2 weeks straight and then you get out and lock in a wait and watch. Tomorrow, for example, you see it go down again and again the next day. You're already locked in and you see 2 days of it starting to go back up and buy all your fund back, but you get a little more shares because now the price is 2 weeks worth of declining prices cheaper?

or a better example would be it nose-dived for a whole month every single day and so you decide to get out after a month a wait and then it goes down for another month and then you wait and see that it goes back up for 5 days straight and get back in with more shares now and things get better and better and you now own more shares and make more money.
So basically you would be trying to sell immediately after two straight weeks of losses, then buy back in immediately after 2 days of gains.

Or sell after a month of nose-diving and buy back in after 5 days of gains.

I suppose it could work if you are very, very lucky. But it almost certainly won't.
I heard that a lot of people lock in if things look bad.
A lot of people do a lot of things based on how things "look". Most of them don't work out well.
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Re: Is there ever a good time to sell and lock in ?

Post by RubyTuesday »

livesoft wrote: Sun Dec 22, 2019 7:05 am
I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?
In the first 3 weeks of December 2018, the Vanguard Total Stock Market Index fund dropped 16% as shown in this chart:
Image

So was it a good "time to sell the majority of your fund(s) and lock in your money"?
Does anybody know what happened beyond the right edge of the above chart?
Livesoft, I too was thinking of this exact example.

OP, please don’t compound your mistake of waiting until 45 to “wake up” with the mistake of thinking you can out trade all of the PhDs in math, finance, economics, physics, behavioral economics, et al, who have massive super computers and real time data.

Surely these guys have tried and already discarded your great timing idea.
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Re: Is there ever a good time to sell and lock in ?

Post by tvubpwcisla »

Forget trying to time the market. One who even watches the market is making a big mistake. Buy low-cost index funds through thick and thin and go enjoy life.
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Re: Is there ever a good time to sell and lock in ?

Post by retiredjg »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:22 am They told me not to have any bonds or anything until I get to at least $50k or preferably $100k.
No "they" didn't. Somebody, told you that. Maybe even a few. Others told you to hold some bonds.

You need some bonds in your portfolio. Being "late" does not change that. It only means you need to save more.
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Re: Is there ever a good time to sell and lock in ?

Post by Stinky »

Many great replies above about how market timing doesn't work. I agree with those responses.

The title of the original post was "Is there ever a good time to sell and lock in?" There is a "good time to sell equities". That is the time when you are changing your asset allocation to be more conservative; that is, more bonds and fewer equities. Many Bogleheads (myself included) have had relatively high percentages of their assets in equities during their younger years, and "sell" some of those equities by increasing their bond percentage as they get older.

So the answer to your question is "Yes". But it's not market timing.
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Re: Is there ever a good time to sell and lock in ?

Post by retiredjg »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:53 am What I mean is that if the S&P continued to tank for 2 weeks straight and then you get out and lock in a wait and watch. Tomorrow, for example, you see it go down again and again the next day. You're already locked in and you see 2 days of it starting to go back up and buy all your fund back, but you get a little more shares because now the price is 2 weeks worth of declining prices cheaper?

or a better example would be it nose-dived for a whole month every single day and so you decide to get out after a month a wait and then it goes down for another month and then you wait and see that it goes back up for 5 days straight and get back in with more shares now and things get better and better and you now own more shares and make more money.

I heard that a lot of people lock in if things look bad.
Look carefully at what you have said. First, you are going to see that the market has gone down and then you sell. What you have actually done is sold your shares for less than you paid. In other words, you have lost money.

Second, you are going to watch the market go up and then buy when it gets safe again. Here you have two choices. You can take your reduced amount of money and buy again at the same price as you originally bought....or you can wait a few days just to be sure...and buy again for more than you paid in the first place. Either way, you have lost money.

The result is your $20k became $15k and you use the $15k to buy back but only have 75 shares instead of the 100 shares you originally had. In other words, you have lost money by selling low and buying high.

If you had stayed in your position, when the prices go back up, you still have 100 shares and they are eventually worth more than you bought them for. In other words, you will have made money by not selling.

Read that over and over until it makes sense.


We all know where you are coming from. We all know what you are talking about. The difference is that we know that what you are thinking simply does not work. And most learned it the hard way and are trying to help you learn it the easy way.

You are not a teenager anymore. Somewhere in your adult brain you know that sometimes you just have to ignore your own thoughts and listen to people who have been there before and who have no reason to mislead you.
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Re: Is there ever a good time to sell and lock in ?

Post by 2 bits »

It seems to me that I have seen on this site and likely in other places that the rebound we hope for is often sudden and dramatic. I am sure others can be more specific but history shows that some years the bulk of the years market rise happens on just a few specific days.
Dang, I would hate to miss those days waiting for my latest indicator of a rising market.
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Re: Is there ever a good time to sell and lock in ?

Post by retiredjg »

RubyTuesday wrote: Sun Dec 22, 2019 7:35 am Livesoft, I too was thinking of this exact example.
I was also thinking of this exact example.

My goodness, that was a year ago today. :D
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Re: Is there ever a good time to sell and lock in ?

Post by RubyTuesday »

retiredjg wrote: Sun Dec 22, 2019 8:13 am
RubyTuesday wrote: Sun Dec 22, 2019 7:35 am Livesoft, I too was thinking of this exact example.
I was also thinking of this exact example.

My goodness, that was a year ago today. :D
I know. I was asleep at the wheel and missed a rare tax loss harvest opportunity. Oh well.
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Re: Is there ever a good time to sell and lock in ?

Post by Jags4186 »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?

Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week) you buy up more of the fund(s) at a now low price and hold on while things recover.

Why would you continue to leave your money in for example, if the market continually dropped for say a month or more? Why not pull out and "lock in" and then buy "after" things start to turn around?
It sounds great but unfortunately, it doesn't work out great.

The worst thing that can happen to an investor is to try something that is known to be a bad stategy and simply by luck have it work out. It will give you confidence in a poor strategy.

I highly recommend you do not attempt this as it will almost certainly lead to you having less money longterm.
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thelateinvestor43
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Re: Is there ever a good time to sell and lock in ?

Post by thelateinvestor43 »

Thanks everyone I think I get the idea. It was just a thought, but I trust you all know a lot better than I do.
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Re: Is there ever a good time to sell and lock in ?

Post by MotoTrojan »

thelateinvestor43 wrote: Sun Dec 22, 2019 8:46 am Thanks everyone I think I get the idea. It was just a thought, but I trust you all know a lot better than I do.
I’ve mentioned this to you before but I think you should be in target retirement funds. As their equities go to they automatically rebalance by selling the equity to buy bonds. That is the only kind of locking in you should care about, maintaining risk.
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Re: Is there ever a good time to sell and lock in ?

Post by dbr »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening and the S&P starts taking a nose dive for 2 weeks in a row or whatever if in a case like that it's time to sell the majority of your fund(s) and lock in your money and then watch the day to day market to see if it keeps going down for another month or more ?

Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week) you buy up more of the fund(s) at a now low price and hold on while things recover.
I would add that what you suggest is not "locking in" your money any more than flipping on the lock on your door and turning around ten seconds later and unlocking it is locking your door.

The answer to the "locking in" question is that people can and do lock in their gains all the time. That happens whenever anyone shifts their allocation to less in stocks, including not holding stocks anymore. Bernstein calls that quitting the game when you have won.
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Re: Is there ever a good time to sell and lock in ?

Post by HomerJ »

Why would you want to lock in losses?

That's all you are doing if you sell after two weeks of the stock market going down... You locked in those losses.

Now maybe it will keep going down, and you can buy back in later at a lower price.

Or maybe it will go back up, and you'll never recover those losses you "locked in".

Read the books I suggested earlier in this thread... Seriously.
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Re: Is there ever a good time to sell and lock in ?

Post by nisiprius »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening ... Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week)...
A big problem here is "if say there's talk" and "when you start hearing people say." At all times, there are many people saying it is the best of times and the stock market is going direct to heaven, and many people saying it is the worst of times and the stock market is going direct the other way.* And those people almost all sound totally confident. And the people saying it include you friends, and your financial advisor if you have one, and talking heads on CNBC, and distinguished economists, and whatever people you think are the best authorities.

What you hear always depends on what you are listening for. If you think "everyone" is saying that the stock market is going to crash, it's because you think so and are noticing the people who feed your "confirmation bias."

The Bogleheads philosophy is "stay the course." And if you feel so jittery about the stock market that you don't think you can bear to do that, it is a sign that you have too high a stock allocation--but having cut it back, preferably before there is a crash, you should leave it there.

What can happen is that greed pushes you toward holding too much in stocks, and then fear prompts you to dump them, and oscillations between fear and greed lead you to trade in and out... and the evidence is that this is a bad thing for most investors. Warren Buffett famously said "Be fearful when others are greedy and greedy when others are fearful." I say that it is hard to be a successful "contrarian." For most of us, the best thing is not to be too greedy or too fearful, but stick to something in between. Then we can at least be less greedy when others are greedy, and less fearful when others are fearful.

*Yes, intentional echo of "A Tale of Two Cities."
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Re: Is there ever a good time to sell and lock in ?

Post by Triple digit golfer »

MotoTrojan wrote: Sun Dec 22, 2019 9:52 am
thelateinvestor43 wrote: Sun Dec 22, 2019 8:46 am Thanks everyone I think I get the idea. It was just a thought, but I trust you all know a lot better than I do.
I’ve mentioned this to you before but I think you should be in target retirement funds. As their equities go to they automatically rebalance by selling the equity to buy bonds. That is the only kind of locking in you should care about, maintaining risk.
+1,000.

I've been saying the same thing. He seems to be a tinkerer, which I totally understand. It's not dangerous IF you recognize it and STOP. The easiest way is to use a target date fund. All you do is invest. You can't screw it up. There are no questions about when to get in or out, which funds to use, when to rebalance. Just contribute.

OP, please use a target date fund and resist the urge to tinker.
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Re: Is there ever a good time to sell and lock in ?

Post by nedsaid »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:22 am
nedsaid wrote: Sun Dec 22, 2019 12:32 am A couple of problems here.

First, market timing really does not work. As Jane Bryant Quinn said, "The market timer's Hall of Fame is an empty room." Jack Bogle also said that he didn't know anyone or heard of anyone who market timed successfully. So you have one of the great finance writers of all time and the founder of Vanguard weighing in here. Even if you get the decision to get out of the market correct, how do you know when to get back in?

Second, the market is in many ways counterintuitive. In other words, the way markets work are contrary to what on the surface makes sense. Bull markets are born in pessimism and die in optimism. Or you hear the phrase that markets climb a well of worry. Markets start going up when everyone who was going to sell has sold and markets start going down when everyone who was going to buy has bought. Up markets need a supply of pessimists who at some point will change to optimism. The folks who change their minds from pessimism to optimism are the new buyers who help propel markets higher. So when things feel good, it is time to start worrying, it is a sign that the markets are starting to run out of buyers.

Third, the trends of optimism or pessimism can last longer than anyone would expect. No one rings a bell at market tops or market bottoms. It is the old being right too early problem, or even worse, being right way too early.

A good remedy to this is the old fashioned concept of rebalancing your portfolio. If your Target Asset Allocation is 60% stocks and 40% bonds and you have a rebalancing band of 5%, once your stocks hit 65% of your portfolio, you sell enough stocks and buy enough bonds to bring you back to your target 60/40 allocation. Conversely, if stocks drop to 55% of your portfolio, you sell enough bonds and buy enough stocks to get you back to 60/40. It is a form of buying low and selling high. Problem is, this likely won't improve your investment returns, it is more about controlling risk. Big reason is the upward trend in the stock market, stocks are up more often than they are down, the long term trend has been upwards.
I've got $20k across my 2 Fidelity accounts with 100% equity, so what would I "re-balance"? They told me not to have any bonds or anything until I get to at least $50k or preferably $100k.
Who are they? I have Fidelity accounts, their index funds are no-minimum investments. There should be no barrier at all to having bonds in your portfolio. I think you are getting incorrect information.
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Re: Is there ever a good time to sell and lock in ?

Post by Hydromod »

There are strategies for switching in and out that have shown some outperformance in backtesting, especially combined with bonds.

For example, see Buying global stocks at all time highs, which was discussed in thread Only buying global stocks at all-time highs beats buy-and-hold.

I just did a quick check of the strategy of buying into the S&P 500 only near the highs and selling to cash otherwise, assuming no slippage costs on trades and no tax consequences (i.e., in a Roth account), from 1950 on. With low yields, this may be more realistic going forward.

If one is dedicated to checking whether to get in or out very frequently (e.g., once a week), using the criterion of whether the current price is within a few percent of the maximum over the trailing month or so as a buy/sell flag, one might have beaten buy and hold with the raw S&P 500 since the 1950s (excluding costs of trading). With longer periods between buy/sell checks or longer back-check periods to check for the maximum value, one would have lost out to buy and hold, usually quite considerably.

So it really was not a good idea in practice.
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Re: Is there ever a good time to sell and lock in ?

Post by RadAudit »

happyisland wrote: Sun Dec 22, 2019 7:07 am Learn from our mistakes, and use this forum for financial advice as much as you can.
Learning from our mistakes has a higher return than learning from your own mistakes. And, it is quicker. Because there are a lot more of us making mistakes, you don't have to wait as long for the next lesson to be made, reported and learned.
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Re: Is there ever a good time to sell and lock in ?

Post by bertilak »

thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am Is there ever a good time to sell and lock in ?
When you need the money.
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Re: Is there ever a good time to sell and lock in ?

Post by watchnerd »

sperry8 wrote: Sun Dec 22, 2019 1:26 am
Because these people who are saying things... have absolutely no idea what they are talking about.
Or worse.

CNBC / Market Watch is full of guests who are there to make a "prediction" because it's good marketing for the "investment opportunity" they represent.

Or just plain old school pump and dump tactics.
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Re: Is there ever a good time to sell and lock in ?

Post by retiredjg »

nisiprius wrote: Sun Dec 22, 2019 11:58 am
thelateinvestor43 wrote: Sun Dec 22, 2019 12:26 am I was wondering if say there's talk of something happening ... Then when you start hearing people saying that things are getting better and you see the market start to reverse (maybe for a week)...
A big problem here is "if say there's talk" and "when you start hearing people say." At all times, there are many people saying it is the best of times and the stock market is going direct to heaven, and many people saying it is the worst of times and the stock market is going direct the other way.* And those people almost all sound totally confident. And the people saying it include you friends, and your financial advisor if you have one, and talking heads on CNBC, and distinguished economists, and whatever people you think are the best authorities.

What you hear always depends on what you are listening for. If you think "everyone" is saying that the stock market is going to crash, it's because you think so and are noticing the people who feed your "confirmation bias."

The Bogleheads philosophy is "stay the course." And if you feel so jittery about the stock market that you don't think you can bear to do that, it is a sign that you have too high a stock allocation--but having cut it back, preferably before there is a crash, you should leave it there.

What can happen is that greed pushes you toward holding too much in stocks, and then fear prompts you to dump them, and oscillations between fear and greed lead you to trade in and out... and the evidence is that this is a bad thing for most investors. Warren Buffett famously said "Be fearful when others are greedy and greedy when others are fearful." I say that it is hard to be a successful "contrarian." For most of us, the best thing is not to be too greedy or too fearful, but stick to something in between. Then we can at least be less greedy when others are greedy, and less fearful when others are fearful.

*Yes, intentional echo of "A Tale of Two Cities."
Best post of the month!

The best of the best posts often come from nisiprius, so it is not a great surprise. :D
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Re: Is there ever a good time to sell and lock in ?

Post by JoeRetire »

Is there ever a good time to sell and lock in ?
A good time to sell and lock in is the day before a crash. A good time to get back in is the day before a prolonged recovery. Both are easy to determine only after the fact.

A great time to sell and lock in is the day you can happily live with the cash indefinitely and no longer need to be in the market at all. That's one that is more knowable.
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Re: Is there ever a good time to sell and lock in ?

Post by yangtui »

Generally speaking, no.
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Re: Is there ever a good time to sell and lock in ?

Post by bradpevans »

On the way up the the only time you know you *should* have sold is after fact: only after the peak is the pullback (otherwise it keeps climbing)

When it’s sliding down the only way you know you should buy back in is when it reverses and goes back up

So, unless you know IN ADVANCE when these will happen, by definition you only “know” after the direction changes

And, both if these (up and down) can occur over hours, days, months

Stay invested. Then invest more
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Re: Is there ever a good time to sell and lock in ?

Post by FrugalInvestor »

Sure, as long as you know the market will be doing down to a significant degree soon and then know when it will begin to recover to a significant degree. Unfortunately you can't know those things.
Have a plan, stay the course and simplify, but most importantly....Ignore the Noise!
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Re: Is there ever a good time to sell and lock in ?

Post by fortyofforty »

If you believe you can successfully time the market on a macro level, may I suggest you try to implement such a plan with one or two individual stocks? Take a small portion of your money and buy a few shares of a stock you believe will go up. Sell when it does, just before it goes down again. As said above, there is a LOT of of money trying to do exactly what you describe, stock by stock by stock. The aggregate of all these decisions is "the market" with all its moves, gyrations, exuberance, pessimism, bumps, ups and downs.
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Re: Is there ever a good time to sell and lock in ?

Post by dogagility »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:53 am I heard that a lot of people lock in if things look bad.
I've seen people saying this on youtube as well. They are always trying to sell me something.

Market timing doesn't work for anyone, and it won't work for you either.

Invest.

Stay.

The.

Course
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Re: Is there ever a good time to sell and lock in ?

Post by Unladen_Swallow »

thelateinvestor43 wrote: Sun Dec 22, 2019 1:53 am What I mean is that if the S&P continued to tank for 2 weeks straight and then you get out and lock in a wait and watch. Tomorrow, for example, you see it go down again and again the next day. You're already locked in and you see 2 days of it starting to go back up and buy all your fund back, but you get a little more shares because now the price is 2 weeks worth of declining prices cheaper?

or a better example would be it nose-dived for a whole month every single day and so you decide to get out after a month a wait and then it goes down for another month and then you wait and see that it goes back up for 5 days straight and get back in with more shares now and things get better and better and you now own more shares and make more money.

I heard that a lot of people lock in if things look bad.
When you sell after 2 weeks of prices going down, you lock in your losses. You don't lock in any gains. Is this what you're saying below :

You have $1000 in your account, $100 a share, 10 shares. After 2 weeks of S&P going down, they are now worth $70 a share. Total $700. You decided to cash out now. A week or two later, the shares pick back up. They are now $80 a share. You decided to buy back in with your $700. You can now buy only 8.75 shares.

You once had 10 shares, now you have 8.75. How is this a win?

Timing the market is a losing proposition because it seems clever only after the fact. When it is too late.
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