Money in the hand is worth two on paper

One of the challenges of investing is deciding when to exit the market. If you are someone who reads many of the personal finance or investment books, most of them advocate a buy and hold strategy for the long term in equities as it has been historically proven that equities yield a higher return than money market instruments and definitely more than cash in savings and fixed (time) deposit accounts.

So when is the right time to get out?
The right time is when you need the cash and for most of you, unless you are contemplating retiring right here right now and need the money to buy an annuity, you should stay invested in your portfolio of investments depending on your risk profile.

So if you still working or running a business generating income, you do not need the cash and can keep it invested in the market or in whichever investment asset class that suits your risk profile. Holding power is one of the most powerful forces that allow you to resist the temptation to take quick profits on a rising market. If you are investing for a long term, you should not be overly bothered by the gyrations or movements up and down of the stock index where some of your equities could be correlated to but instead look towards to long term. But life doesn't always play out like the personal finance textbooks, instead there could be times when we need to lock in our gains from our a portion of investments to pay off debt.

My periodic exits
This brings us back to the fundamentals of personal investing which is pay down debt first, put away some spare cash for emergencies and put the rest of investible savings into investment assets that reflect your risk-return profile. However, if you have bought a home that is financed by debt, you will realise that paying off the debt requires you to not just pay your loan instalments using your central provident fund (CPF) but also to make periodic repayments of your outstanding loan principal so that you save the interest costs that you are paying to service your loan.

In my case, I paid off my housing loan periodically whenever I received my annual bonus or when I managed to lock in some realised gains from investing in equities (stocks and shares). In this way, I was fortunate to ride the bull run of the SGX from 2003 (SARS period) to the current irrational exuberance of the stock and property markets. The paper gains I had would have been even greater if I had held some of my stocks. Imagine, DBS was going for $10+ per share a few years back. However, I needed to realise some of the gains because paring down my debt allowed me to save a lot of interest cost and allow me to accelerate my journey towards financial freedom even faster. This realisation of gains was for a purpose: to pay down debt. Currently, I will remain invested in the stock market because this allows me to participate in the stock market gains and generally bullish sentiment. For prudence's sake, I am not 100% invested and still have 54% in money market, treasury bills and some cash.

A number of investors I encounter on internet investment and money forums ask this question on when does one exit the market. I hope that some of my thoughts above will help them along in some way to clarify their own thinking.

When do you want to exit the market, you decide!

Be well and prosper.