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I take profits when my asset allocation is at the top of its range. Likewise, I buy when my allocation is at the bottom of its range. This is not market timing.
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.
The copyright of the article Should I Sell Today? in Investment is owned by Kirk Lindstrom. Permission to republish Should I Sell Today? in print or online must be granted by the author in writing.
Comments
Sep 22, 2006 9:36 AM
Moonlight :
I did some asset allocation selling 9/19/06 I bot in March of 03, total
stock market a large amount, then added twice smaller amounts. . I just
reduced total stock market 66% . Taking back original purchase with profits
of 20% per year. S and P up to 1330 something from 800 when I bot. Even
if it goes up from here I feel good staching away some in my sock.
Sep 22, 2006 10:03 AM
allancoleman :
it's never bad to take profits . as Warren Buffett says , " never lose
money " in his Rule number one . and repeats in his Rule number two
when he says , " don't forget Rule number one " . :)
Sep 22, 2006 6:56 PM
Moonlight :
Kirk,
23 years with HP stock, guess that qualifies as long term.Is
the tax rate 5% like I heard it was for stocks held 5 years?
Wow I
think we have a similiar comfort zone, I didn't do European market, lost
out there. What a world we live in, making money without sweating like we
used to. I am so grateful to be in such uplifting helpful, generous with
there time group of people and with courtesy and respect.23 years with HP
stock, remarkable.
Sep 22, 2006 8:43 PM
allancoleman :
I believe you are talking about the " Qualified 5 - Year Gain Rate
" , Moonlight . Beginning in 2001 , taxpayers who would normally have
had to pay a 10% capital gains rate were allowed to pay a lower 8% rate for
a capital asset HELD FOR FIVE YEARS . Similarily , taxpayers who would
normally pay a 20% capital gains rate were allowed to pay an 18% rate on
capital assets HELD FOR FIVE YEARS , BUT with the limitation that the asset
HAD to be purchased in 2001 OR LATER . The new lower capital gains rates
override this rule .
I believe there may also be a special
formula to calculate your capital gains using this FIVE year rule even for
stocks purchased BEFORE 2001 , BUT , PLEASE see your own tax advisor for
further details .
There is a 5% capital gains rate for those in
the 15% Tax Bracket or Below . And for the 2008 Tax year ONLY , this
capital gains rate is ZERO ( NO typo ) for those in the 15% Tax Bracket
or Below . That's why i intend to sell my ESOP stock i converted to common
stock and sell it in 2008 and keep myself UNDER that 15% Tax Bracket for
that calendar tax year . This ensures maximum profit on the sale of my
company stock .
This is the essence of long term tax planning .
And why it's so darn critical for each individual investor and taxpayer to
learn . Not many planners have as much personal interest in your own
personal circumstances as you do and know for yourself . After all , it's
your money . :)
Sep 23, 2006 7:54 AM
Moonlight :
Allan,
You sent such important info on taxes. I try to keep up
because some times a day, just one calander day can make such a diffenence
in the tax rate you pay. I'll keep 2008 clearly in my mind, unless of
coarse taking profits is more important. while there are profits. I learn
so much here, It is a joy. Thank you so much
Sep 23, 2006 8:16 AM
allancoleman :
No problem , Moonlight . And , of course , you're right about profits in a
particular stock being more important than the tax considerations . However
, it is also important to know that in a perticular tax year that there is
going to be a ' loop hole ' for that tax year ONLY that may benefit one's
own circumstances . I'll be watching as we get closer to 2008 to see if the
government is going to close this tax loop hole for that year . ? ?
In my own case , with my own company stock , waiting another year
isn't likely to change my particular companies' fortune so this tax loop
hole will definite benefit me . The other complication is that there are
alot of different capital gains rates now depending on your particular tax
bracket , wehether you held for a certain period of time . Wehther it's a
dividend and if that means certain guidelines . Taxfrees have their own
guidelines . The capital gains rate paid on " depreciation recapture
" was 25% for a certain period of time .
And you're right
, sometimes one day matters . Roth conversions versus Roth contributions is
like that : Roth contributions are dated for April 15th of the following
tax year and Roth conversions are dated by calendar year's end . So , for
example , folks who want a Roth conversion for 2006 have to get them done
by December 31st of this year and folks who want to start or contribute to
a Roth have until April 15th of next year to get that task done . Generally
when it comes to IRS regulations i don't like to run my day counts too
close to their limits . RMD are like that . If one takes advantage of the
IRS April 15th of the year AFTER one is 70 and 1/2 , you may be subject to
TWO distributions in the same calendar tax year . And if you're not happy
with one RMD , you're certainly not going to be happy if you have to take
TWO in the same calendar tax year because you waited too long . I've also
heard / read stories of custodians giving taxpayers the WRONG RMD and the
penality for that error is 50% . :(
Sep 23, 2006 12:06 PM
axolotl :
.........and urge more complexity and twists in the income tax. More
complexity is more headaches and lost productivity and requires more IRS
employees. A whole army of CPAs and tax attorneys is good too. Never urge
replacing this monstrosity with a flat tax or VAT tax. :-)
Sep 23, 2006 12:27 PM
hickfish :
Ax, I nominate your post for the best of forum.
Classic! Of
course, be careful with VAT or we'll get that along with present income
taxes. I see it all over the world.
Sep 23, 2006 12:28 PM
allancoleman :
Boy , I sure agree with your post , axolot1 .
Unfortunately
there are too many special interest groups and politicians who want to give
special tax deductions to the disadvantaged for numerous different reasons
that I don't think it'll ever be likely . for myself , i figure i can do as
well with any tax system because i'm willing to spend the time necessary to
fully understand the tax code , no matter what it is , to take the best
advantage of it for my own personal circumstances . Most aren't willing to
do that , much less keep themselves educated on the changes .
Sep 23, 2006 12:33 PM
allancoleman :
I agree with your feelings about VAT too , hickfish . Some countries in
Europe really struggle with the VAT tax structure . And it's probably one
of the many reasons that European countries don't seem to be able to match
US growth .
Sep 23, 2006 12:42 PM
hickfish :
Thanks Allan. You can chalk up Australia and some Asian countries as well
that are burdened by VAT.
Amen on trying to stay one step ahead
of the tax man.
Sep 23, 2006 1:01 PM
allancoleman :
I'm just aware of European VAT tax countries . Thanks for bring the rest of
the world to my knowledge base on tax structures .
I figure
that knowledge and planning on taxes gives me an edge in getting and
maintaining critical mass . And this all started the first time and every
single time i look at my income tax return and wonder where the heck all MY
money went . ? :) ?
Sep 23, 2006 5:49 PM
permabear :
Tax reform is always a popular campaign theme. But in practice, it is
always a lot more difficult to actually produce something that works. How
many times have taxes been reformed or simplified over the years, only to
see new deductions tacked on with just about every bill that comes down the
line? Over time the tax system gets more complicated than it was before
the previous reform.
If you really want to simplify the tax
system, you have to take away the goodies that people just won't give up
such as the mortgage interest deduction. And how many corporations are
going to go along with taking away all of their deductions? The way I
handle my taxes is by just hiring a professional (accountant) and let them
worry about the details.
Sep 23, 2006 7:16 PM
allancoleman :
Certainly the easiest way to do one's taxes , permabear . No fuss , no muss
, just a quick glance at the finished return . :)
You're right
about the goodies . That's why not much has been done to overhaul the
present system . And every time reform is attempted , we end up with
another deduction added by some other special interest group for another
disadvantaged party . And you're right that our system works . At least i
understand it for the most part . :)
Sep 24, 2006 6:52 AM
peter norwest :
And it's probably one of the many reasons that European countries don't
seem to be able to match US growth .
I am struggling with this.
Sep 24, 2006 7:43 AM
allancoleman :
Hello pete ,
Just my feeling , but VAT usually taxes on each
production step for a particular product or service and can be confiscatory
. I think it can limit growth in that country . I think the US business
model and tax system , although probably too complicated , is the best in
the world . All that having been said , i've noticed that countries that
have a ' flat rate ' tax system seem to do very well . And i would like to
see us move in that direction , but doult it's likely for the reasons i
posted .
Sep 24, 2006 8:17 AM
allancoleman :
Agree that Congress will probably have to raise taxes in the future to pay
for past mistakes . And also agree that the ' capital gains ' tax will
probably be the first targeted for the reason you stated . Glad you are
converting some of your assets to Roths cause i feel that over the longer
term as the government has to look to other sources of revenue , a taxfree
Roth gives us more options in the future .
Sep 24, 2006 9:07 AM
James Joseph Kenney :
Kirk you say "my guess is Congress will raise taxes on those with the
least power to hurt them which will probably be capital gains tax rates
where a large majority don’t have any to be taxed." Certainly Congress
(with the Vetoless proesidents complicity) have gotten this country into a
fine fiscal mess as you point out. However, I would disagree with your
assessment that raising the capital gains rate is least likely to hurt them
(politically as most Congressmen and a few Congresswomen) because they
themselves often get a lot of capital gains income (and/or their families
do). If you look at the changes in the tax code over the last two decades
it always seems the changes disproportionately hurt the middle class but
benefit the rich and very rich. For example, the reduction in capital gains
taxes and the lowering of income tax brackets proportioantely lowered the
tax rates of the rich more than those in vast middleclass. The main tax
increase over the past 20 years has been the social security tax, which
obviously disproportionately hits those earning about $45 to $90K. It hits
two income families much harder than single income families with far more
in the middle class forced to be two income families. By contrast, the
dramatic reduction and at least for a time the complete elimination of the
Estate Tax ("Death Tax") will benefit mostly a very small
percentage of voters.
So if Congress has cut taxes to benefit
the rich at the expense of the middle class over the past 20-25 years one
can hardly feel confident that they'll suddenly decide it is politically
expedient to do so in the future. Of course, as more and more of the
country's wealth ends up in the hands of a small exceedingly rich minority
while the real wages of most of the middleclass and poor have stagnated
America may some day see the likes of a populist Hugo Chavez-type. In any
case, it appears to me that both major political parties are largely
controlled by political donations that come largely from the rich and
very-rich. Therein perhaps lies the problem. FFT.
Sep 24, 2006 9:29 AM
permabear :
<b>For example, students seem to get more education for each dollar
spent on education at a Catholic (private) grade school than at public
schools.</b>
This is a myth that has been perpetuated by
conservatives for some time. The reality is research has shown that
private schools do not produce a better results when demographics and other
factors are taken into account:
http://www.nytimes.com/2006/07/15/education/15report.html?ex=1310616000&a
mp;en=abe9690ed35b306f&ei=5088&partner=rssnyt&emc=rss
Sep 24, 2006 3:12 PM
permabear :
<b>They get the same scores yet I know Catholic Schools do it on far
fewer dollars per student than public schools.</b>
Dig a
little deeper and your argument isn't supported by the evidence. For one
thing Catholic schools don't account for special education expenses:
http://findarticles.com/p/articles/mi_m1141/is_22_37/ai_72960621
Aug 14, 2007 2:05 PM
:
<b>The Mall Stocks Are Going On Sale [¹]</b> By <i>Brian Hunt | 14 August 2007</i> http://www.dailywealth.com/images/charts/2007/aug/20070814-chart_b_jc_pen
ney.gif For more than 20 years, some of the best minds in
finance have called for the death of the free-spending American
consumer. And, for more than 20 years, they've watched him
stock up on big screen Sonys, rollerblades, video games, and 10
mile-per-gallon Hummers. <b><i>Will the consumer bears
eventually be right?</i></b> We don't worry much
about consumer spending... people have wasted their breath for decades
with <i>"the consumer is dead"</i> analysis.
Recessions and loads of pessimism actually produce fantastic investment
opportunities anyway. <i>But... we have noticed the
</i>"linchpins"<i> of the shopping mall... J.C.
Penney, Kohl's, Sears, and Dillard's are scraping new 52-week lows and
reporting mild sales right now.</i> Time will tell how much the
mortgage debacle will hurt the economy, but the forward-looking stock
market tells us that soggy spending lies ahead... <b><a
href="http://investment.suite101.com/discussion.cfm/230">Norm
xxx</a></B> ______________ The contents of any third-party letters/reports
above <b><i>do not necessarily reflect the opinions or
viewpoint of normxxx.</I></B> They are provided for
<b><i>informational/educational</I></b> purposes
only. The content of any message or post by normxxx anywhere on
this site is <b><i>not</I></b> to be construed as
constituting market or investment advice. Such is intended for
<b><i>educational</I></b> purposes only.
Individuals should <b><i>always</I></b> consult
with their own advisors for specific investment advice.
Nov 11, 2007 7:16 PM
:
Up And Down Wall Street: The World Is Coming To An End!
By Alan
Abelson, Barron's
http://normxxxruminates.blogspot.com/2007/11/day-of-reckoning.html
May 20, 2008 3:48 PM
:
Barron's Interview: Confessions Of A Short Seller
http://normxxx.blogspot.com/2008/05/barrons-interview-confessions-of-shor
t_20.html
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