With the stock market rising day after day, people who have invested in mutual funds, including those investors that I have assisted just this late 2011, are already experiencing great profits, probably near 50% of their original investment.
Although very excited and ecstatic about the progress of their investments, they are now starting to fear that the profits may pull back, or even disappear on worst case. So before that happen, they are now considering to redeem their investments to realize and secure their profits.
Still reading? Then you’re probably one of those who are in this situation where fear is slowly overcoming greed.
Going back to the basics
Amidst your fear and confusion, and before you make any decision, ask yourself these three questions:
1. Where will you put your money after redeeming your investments?
Given that you want to secure your profits by redeeming your investments, have you given a thought on where you’ll be putting it next? In the bank? Well, for how long? Remember that interests in the bank doesn’t fair well (not even a pinch of dignity) to inflation rates.
Or you’ll buy yourself a new iPhone? Not unless you have invested to save faster for your iPhone purchase, it could be better to just watch the market pull back some of your profits rather than wasting it on something that won’t contribute to your financial independence.
2. What is your investment plan?
Some seasoned investors do a bit of investment re-balancing to manage the risks in their investment portfolio. What usually happen is that on initial investment plan/strategy, a portfolio is created where risks are managed based on short term and long term needs. There, an acceptable combination of risk categories are established.
In cases where one risk category performs really well, e.g. the stock market, these investors assess again the portfolio and re-balance the risks by unloading part of one or several top performing risk categories and loading other risk categories that were left behind. This is to maintain the acceptable ratio and proportion of each risk category established during the investment planning stage.
If this is your reason why you are redeeming your investments, it would be really great if you share us how you do it
3. What are you investing for in the first place?
The principles of life does not differ in the principles of investing.
In one’s career, those who tend to succeed more are those who have set succeeding as their objective, their goal. They know what they want, and make conscious actions towards achieving it.
The same way with investing. Along the way, there are many things that could happen that may be favorable or unfavorable to you, but the way you react should always be in line with your goals or objectives, nothing more, nothing less.
Thus, if you are investing for your retirement or for your child’s education that will occur in 5 years or more, you’ll know that whatever happen, you’ll not be redeeming your investments, except of course, if you are re-balancing your investments.
The problem is, if you are just investing because everyone is investing, you’ll just get persuaded when everybody is redeeming.
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