No Profit Until You Take a Profit
You may be already wondering what this question is doing on a website that provides help with investing and investments. But, there is a point at which transitioning your investments away from opportunity and risk to reduced opportunity but safer investments makes sense. We wrote recently about the silent warning from Warren Buffett in that he is finding few attractive investments these days and as a result is stockpiling cash. In a more-immediate timeframe, Jim Cramer, the former hedge fund manager-turned TV investment personality, always notes that you do not have a profit when investing in stocks until you take a profit! The Motley Fool recently published an article on the same theme.
When Is the Time to Stop Investing?
The article by The Motley Fool is entitled, Once You’ve Won the Game, Quit Playing.
Despite the stock market’s history of wealth creation over the long run, on a day-by-day basis it can be quite volatile. Heck, there are occasionally even decade-long periods when the market winds up below where it was when it started. If you still have time before you need to get at your money, you can deal with that volatility. In fact, with time on your side, a drastically down market can be a great time to go value hunting for cheap stocks.
While that risk is real, currently, we’re still benefiting from the longest bull market in history. If you’ve been invested through it, you might be looking at your portfolio today and realize that you’re ahead of where you need to be at this stage in your life in order to meet your ultimate retirement goals. If so, congratulations, you’ve won the game. For at least part of your money, it’s time to quit playing.
You do not need to take all of your money out of the market and you should not be just holding cash. But, as we have written, there are ways to invest without losing any money. Taking advantage of long term treasuries, AAA corporate bonds, and a ladder of CDs insured by Federal Deposit Insurance at your bank(s) can be a good idea. Just as you will balance your stock portfolio, you can balance the maturity dates on bonds and treasuries so that money is always coming available as you need it.
What Do You Lose if You Stop Investing?
If you stop investing in strong companies with the prospects for continued growth, you will lose money by pulling out. But, if Trump’s trade war with China worsens and throws the world into a recession, it could take ten or twenty years of steady growth to come back to where we are today. If you have not invested in stocks with strong intrinsic value, they may never recover from a financial downturn and market crash.
What Do You Gain if You Stop Investing?
If you have already won, as noted by The Fool, you will gain a good night’s sleep every night as you worry and fret less about your investments. As we noted at the beginning, we are not talking about getting out of every investment and holding cash. Rather, we are talking about taking some money off the table and following Cramer’s advice about not having a profit until you take a profit. There are still conservative dividend stocks that are excellent growth prospects at any time and likely to continue to keep paying dividends for decades to come.