When Do I Cash In?

In one of my open forums with clients, this (rare) question pops up.  I said quite a rarity because more often, investors are in a quandary during times of losses and not of profits.  However, this seems to be an equally valid question.  A question that is best answered by another question – what was your plan in the first place?

As they say it is easy to deal with gains more than losses.  True, but if one did plan about it or did not have a plan at the time of investment, there is that same concern as to what to do next.  For sure, when one is profiting, the “nice” dilemma is either to out the profit or continue to invest hoping the gains will increase.  This is a good problem to have but if one is unable to resolve the issue, what do you think how one will react when confronted with the same concern in the future?  Another “nice” dilemma?  So, it is going to be a virtuous, if not, a vicious cycle.  It is vicious if one does not know what to do or have not learned; virtuous, if one has learned how to deal with it.

To make the cycle virtuous or have a clarity of action once confronted with the same situation, the answer is to PLAN.  Planning your investment is as important as deciding how to deal with gains as well as with losses.  This is the reason, knowing when to cash in is dependent on how well did one plan the investment in the first place.  Someone who is planning to invest should be able to answer the following:

What is your investment goal?
What is your risk tolerance?
How long is your investment horizon?
What is your risk management plan?
What is your return management plan?
What is your current investment outlook?
How often will you evaluate and adjust your portfolio?

When all of these questions are answered, at least, the investment plan is complete.  These are just the basics and there are a lot more issues to tackle depending on the size of the investment fund or the asset class to invest on.  At any rate, these are general questions regardless of asset type.  It is best that these are clear prior to the actual investment.  When one is able to answer all of these, then there should not too much to worry about later on whether one’s investment portfolio is gaining or losing.