Should I be selling mutual funds now?

[Nika]

So 3-4 months ago, frustrated by low interest rates in savings account we decided to move 5K out of the emergency fund into Vanguard's SP500 fund. So now it became $5,720. I made 14.4% in less than four months.

Babys ESA is up 13% from what I originally invested around in the same time frame.

The thing is, how much higher can I possibly expect it to go? Stocks generally go down Jan-Sep. Maybe it is better to lock down the profit and exit for a while? I already made a decent interest for the year. Oh, I can't reinvest into the same fund for 90 days if I sell. If I could, It would be a simpler decision.

[kv968]

Congrats on the gains although if that's a significant chunk of your EF you really shouldn't have it in the market but that's a different story.

As far as the market goes, who knows? Technically, the S&P might start hitting resistance around 1350-1360 (which is the "experts" outlook for it). If that's the case, that's only 2.5-3.5% higher than it is now. The recent run-up has been on lower volume and earnings have only been coming in about average so far. It seems as if Europe has calmed down for the time being but that could literally change overnight. I'd say, especially since it's part of your emergency fund, I'd be looking to get out. Maybe wait a bit if you want, but keep your finger on the trigger. If you do decide to hold on and it falls below 1250 (-5%), I'd definitely get out.

My question is, why couldn't you get back into the fund for 90 days? I looked at Vanguard's site and it seems as if you can't do a round-trip for 60 days.

[dczech09]

Just because your fund went up so much already, does not mean that it is due to drop. That is just like saying "hey the coin hit heads 50 times, so its overdue to hit tails!" Makes no sense, right?

The past is no indication of future results. The way I view it is that every day is a clean slate for the stock market. It could go up or down and the past results really do not factor into what happens.

If you sell out today and buy into a different fund, who is to say that your next fund will not drop? Who can say whether or not your next fund is overdue for a drop.

With that said, I have a few issues with your "strategy"...

You have a lot of your emergency fund tied up in mutual funds. Bad idea. The whole idea of an emergency fund is that it is enough out of the way that you do not spend it, but it is enought in the way that you can easily access it when you need it. The only mutual fund that will do that is a money market mutual fund with check drafting capabilities.

Secondly, it does not sound like your money is under a tax shelter? Is it in an IRA, 401k, or similar covering. You should be taking care of those things before doing a simple brokerage account. If it is not in a tax shelter, you will owe taxes on your earnings.

[disneysteve]

Originally Posted by Nika

we decided to move 5K out of the emergency fund into Vanguard's SP500 fund.

Babys ESA is up 13% from what I originally invested around in the same time frame.

The thing is, how much higher can I possibly expect it to go? Stocks generally go down Jan-Sep. Maybe it is better to lock down the profit and exit for a while?

Your EF doesn't belong in the stock market. What if it would have dropped by 14.4% and then something happened that you needed that money for? Keep you EF safe. It isn't about interest rates. It is about safety and liquidity.

As for the ESA, that should be in stocks assuming the child is not close to college age.

How much higher can the market go? Who knows? There is no limit. In 2011, the market was flat. It ended the year right about where it started but over time, it generally grows with a long term average annual return of about 10%.

I'm not sure where you got the idea that the market typically falls from January to September. That isn't true at all.

What you are talking about doing is called market timing - trying to guess when the market will go up and when it will go down. The problem is that is impossible. Nobody knows when those ups and downs will occur. Trying to guess will almost always result in losing money over the long term. Invest steadily over time (but not with your emergency funds) and let your money grow. There will be ups and downs along the way but the long term trend should be up. Just remember that the stock market is not a casino. The point isn't to make your money and get out. The point is to build wealth over decades.

[Nika]

I have decided on a tiered emergency fund. I don't see good reasons why the entire EF does not have to be super liquid.

First "tier" is in a savings account buffer
Second tiere is a CD
Third Tiere is in mutual funds

The point isn't to make your money and get out. The point is to build wealth over decades.

.4-1% you can get from guaranteed investments (CDs, savings account) does not build wealth. It erodes it, 4-5% a year or higher. I am talking about real inflation, the way it applies to regular people who buy food and fuel.

So one HAS to take risk to just preserve the capital. This earning is like 14 to 30 times that I would get in a year in a savings account. In other words, it would take me many many years to get there.

What you are talking about doing is called market timing - trying to guess when the market will go up and when it will go down. The problem is that is impossible. Nobody knows when those ups and downs will occur.

Yes, I have been trying to time the market. Not in a way it is usually described though. I've been buying in small increments - kind of like dollar cost averaging whenever the market dips substantially. So I've been good at buying low and holding, but I need to work on selling high. I have hard time letting go of something that is going up and wonder if I need to work on it more. Hence the post -- I wanted to see an outside opinion on the validity of holding under these market conditions vs. locking the profit. (disregard that this is a part of the EF).

My question is, why couldn't you get back into the fund for 90 days? I looked at Vanguard's site and it seems as if you can't do a round-trip for 60 days.

Oh, 90 days is for the ESA, which is with TRowePrice.

Secondly, it does not sound like your money is under a tax shelter? Is it in an IRA, 401k, or similar covering. You should be taking care of those things before doing a simple brokerage account.

Why would you assume we are not taking care of retirement?

[disneysteve]

Originally Posted by Nika

.4-1% you can get from guaranteed investments (CDs, savings account) does not build wealth. It erodes it, 4-5% a year or higher. I am talking about real inflation, the way it applies to regular people who buy food and fuel.

So one HAS to take risk to just preserve the capital. This earning is like 14 to 30 times that I would get in a year in a savings account. In other words, it would take me many many years to get there.

Exactly. That's why I said you shouldn't be selling out of stock funds. You should stay in them for the long term.

[firehawkocean]

I say buy and hold. Read the only investment guide you'll ever need by Andrew tobias

[dczech09]

Originally Posted by Nika

Why would you assume we are not taking care of retirement?

I am not assuming any such thing. An IRA or 401k is not just for retirement though. They are for long-term investing and tax protection. It just so happens that they are typically used to shelter retirement savings.

My point is that you appear to be investing in a non-tax favored way. If I am incorrect, then it is because I have not been given information to make a different distinction. You should be seeking tax favored options is all that I am getting at.

With that said, do not try to time the market. What you described about being good at buying low, but needing to learn to sell high is very much market timing. Am I saying that you should not be looking to buy low and sell high? No, absolutely not. What I am saying, and what Disney Steve has been getting at, is that you cannot time the market consistently for the long-term. So you should not FOCUS on buy low sell high; by doing so, you put too much emphasis on external factors out of your control.

Instead, you should focus on factors that you can control. Such a factor would be a motive to sell. If your motive to sell is fear that the investment will drop due to the price already, escalating, then you have a bad motive. Buy and hold. The price will fluctuate up and down; that is the nature of the market. You cannot sell out at a high price and then expect it to drop so you can buy back in. That almost never works out.

[ecoadapt]

Originally Posted by dczech09

Just because your fund went up so much already, does not mean that it is due to drop. That is just like saying "hey the coin hit heads 50 times, so its overdue to hit tails!" Makes no sense, right?

The past is no indication of future results. The way I view it is that every day is a clean slate for the stock market. It could go up or down and the past results really do not factor into what happens.

If you sell out today and buy into a different fund, who is to say that your next fund will not drop? Who can say whether or not your next fund is overdue for a drop.

With that said, I have a few issues with your "strategy"...

You have a lot of your emergency fund tied up in mutual funds. Bad idea. The whole idea of an emergency fund is that it is enough out of the way that you do not spend it, but it is enought in the way that you can easily access it when you need it. The only mutual fund that will do that is a money market mutual fund with check drafting capabilities.

Secondly, it does not sound like your money is under a tax shelter? Is it in an IRA, 401k, or similar covering. You should be taking care of those things before doing a simple brokerage account. If it is not in a tax shelter, you will owe taxes on your earnings.

I believe you've stated the essential point needed to say!

[bjl584]

Originally Posted by Nika

So 3-4 months ago, frustrated by low interest rates in savings account we decided to move 5K out of the emergency fund into Vanguard's SP500 fund. So now it became $5,720. I made 14.4% in less than four months.

Babys ESA is up 13% from what I originally invested around in the same time frame.

The thing is, how much higher can I possibly expect it to go? Stocks generally go down Jan-Sep. Maybe it is better to lock down the profit and exit for a while? I already made a decent interest for the year. Oh, I can't reinvest into the same fund for 90 days if I sell. If I could, It would be a simpler decision.

Mutual funds aren't typically something that are traded like a stock. They are designed more as a longterm investment. I just sold a mutual fund last week, but that's because it has been losing investors and capital over the past several years. It's been showing a slow decline, and the numbers didn't support it coming back.

That being said, 14.4% is a nice gain. Personally, I'd be torn. I'd want the gain, but i wouldn't want to get into a habit of trying to time the market, especially using mutual funds as an investment vehicle. Will that fund go higher? I don't know. I may be tempted to sell it while keeping the thought in the back of my mind that this is a one time thing. A nice gain, but I wouldn't be making a habit out of doing this. Even a longterm investor gets a good pick now and then. When you do, you have to know when to pull the trigger.

[disneysteve]

Originally Posted by bjl584

That being said, 14.4% is a nice gain. Personally, I'd be torn. I'd want the gain, but i wouldn't want to get into a habit of trying to time the market, especially using mutual funds as an investment vehicle. Will that fund go higher? I don't know. I may be tempted to sell it while keeping the thought in the back of my mind that this is a one time thing. A nice gain, but I wouldn't be making a habit out of doing this. Even a longterm investor gets a good pick now and then. When you do, you have to know when to pull the trigger.

This actually raises a good point. We often talk about buying investments. We rarely talk about selling them. I'm going to start a new thread to discuss that topic.

[MonkeyMama]

I agree with the others.

If this is another level of efund, maybe this would be better off in a ROTH. Tax sheltering gains is something to consider - and has nothing to do with what we think about your retirement savings. It's just wise to take advantage of tax shelters when you have those kinds of gains. Why pay taxes that you don't have to?

If you need the money for emergency fund, it shouldn't be in a mutual fund. I'd sell it. As DisneySteve said, cash EFs are about safety and liquidity. In the short run!

Basically, if you need the money in the short run, quit while you are ahead. If you can afford to invest it in the long run, keep it in the market. If you are in the middle, take some out and leave some in.

ESA sounds like long-term investment with a new baby. I'd keep that money in the market for the long run. I think it's a safe bet that in the next 18 years or so, the stock market should go up.

[frankhoward]

. It appears that the European Union is on the verge of collapse, or least the investors believe it is, and therefore they will seek other places to put