Monday, March 31, 2008

Taking Profits

It is always a good idea to take profits when you have a successful investment. If you have a well-balanced, diversified portfolio, then this means re-balancing. If bonds make up 30% of your portfolio and they perform strongly in a short time and now make up 40% of your portfolio, then you should sell off that gain and re-balance. You can take the profits and buy the portion(s) of your portfolio that has sunk in its percentage. In other words, if stocks were previously 30% of your portfolio and have now gone down to 20%, you can take the profits from the bonds and buy more stocks to re-balance back to 30% stocks and 30% bonds.

If you are speculating in a particular stock or investment, then taking profits is even harder. If a stock doubles, why not sell half and protect your initial investment? It is hard to sell after an investment has done well because it seems like the sky is the limit. But remember that it can go down just as fast as it went up. Don't get too greedy. When you have a good investment, take some profits. If you have an online brokerage account, it is even better to set a price target when you buy a stock, fund, or ETF. If you buy 100 shares of a stock at $20, you can put in a limit order to sell 50 shares at $30 and make it "good until cancelled". Then you don't have to think and you won't let your emotions get the best of you. It is always good to be taking profits from successful investments.

Sunday, March 16, 2008

Gold at $1,000 an Ounce

Gold continues to hit new all-time highs. This past week, gold went past the $1,000 mark for the first time ever. Much of this increase is due to the weakness of the American dollar. The dollar is in free fall against other currencies. Although it is hard to fight the trend right now as the dollar continues to plummet, gold could very well be in for some hard times in the short-term. Gold is an excellent hedge against fiat currency (paper currency backed by nothing). In times of high inflation and uncertainty, gold is a great thing to have. You should always have some gold and/or gold-related investments in your portfolio.

You should be warned that gold may not do well in a recession. If the dollar continues to fall, then gold will probably continue its run. But it appears that we could be in for a deep recession, where cash will be king. If you hold gold for the long-run, then don't worry about it. But we could see a sharp drop in the gold price with a severe recession. Don't get caught speculating with gold or gold related investments if you are not prepared to lose money. Gold is a must for diversification and should be a part of your portfolio. But standing alone, speculating on gold right now is a very risky business.