Question: I don't think you've covered taking a profit. When is it recommended?

Bruce T.

Answer:

Dear Bruce,

Taking a profit means not losing money! So, yes. It's wise to continually review one's portfolio, not only to take profits but also to weed out losers.

The extent to which you do either, of course, depends upon your personal situation - how much money you have invested, what your financial obligations are, whether you are invested in growth or income stocks or both, your tolerance for risk (or lack thereof). After reading the four following generalizations regarding taking profits, adopt only those you are comfortable with, keeping in mind that very few individual investors are good at timing the market and most do better investing for the long term.

Caution: Please note that these suggestions are hedged with words such as "probably," "perhaps" and "might." That's because these guidelines are not at all foolproof.

(1) If a stock you own has done particularly well and you think it will continue to rise in price, you might want to sell 50% (or another percentage) of your position. Keep in mind that when and if the stock drops in price, you can always get back in.

(2) For each of the growth stocks in your portfolio, consider assigning a profit percentage and selling when the stock reaches that number. It might be anywhere from 15% or 20% to 30%. More provided you're very optimistic about management and the company's product or service. This technique requires both discipline and willingness to pay attention to the market. At the same time it helps you avoid being too greedy.

(3) Track the number of weeks it takes for a stock to reach your assigned take-a-profit percentage. The less time it takes, the stronger it probably is and the fewer shares you may want to sell.

(4) If your market watch has turned up a company (or companies) that is well managed, carries little debt yet is down from its historic high, you might want to add it to your portfolio.

Good luck!