While I have enjoyed the recent stock market rally, I have no confidence in the market's ability to continue advancing. So as the market advances, I have been taking profits in accounts that have been hitting new highs, and maintaining the original account balance. That way I stay invested and take profits. So if the market goes up, our investments will participate. If the market goes down, I have protected some profits.
At first, I would wait for a 5% gain before taking out funds. Now I am taking out funds with as little as a 1% gain. Since the accounts are like a mutual fund with a 1.25% expense fee, there is no commission charge when I sell a small portion to raise cash. I have been doing this since 2012 and have taken as much as 40% out, while maintaining the original amount invested. However, I do have one account that is losing about 10% net after accounting for the funds taken out.
I plan to do this until I have withdrawn about 50% of the original investment to create a cash cushion. After that I may let the investments ride until they gain 25-50% before taking additional funds out.
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12 hours ago
2 comments:
Ok. So let me ask this question. What type of account is "like a mutual fund" and has an (annual?) "1.25% expense fee"? Also, don't you still pick individual stocks?
PFS
It was my attempt to describe a managed account that has a wrap fee. The positive of a managed account is that it is like a mutual fund, but holds the actual shares of stocks. The negative is the higher initial minimum investment. When I started investing, managed accounts charged 4%. Now, some top professional managers are offered through brokers at 0.9-1.25%, which is a little higher than a specialty mutual fund.
Yes, I still buy individual stocks, mostly dividend paying ones. However, I'm preparing for when I'm older and perhaps less confident in my skills. So I am testing having good proven professional managers by allocating a portion of our funds to this option.
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