When Should One Book Profits?
Profit booking is a part of good financial planning, but it needs to be done thoughtfully. Investors often feel tempted to cash out after seeing good returns, but doing so without a clear purpose can hurt long-term wealth creation. Here are the situations where booking profits is appropriate and beneficial: 1. When you genuinely need the funds and have no suitable alternatives If you have a pressing financial requirement—such as paying for education, buying a home, funding medical expenses, or meeting an important life goal—booking profits makes sense. Equity investments should serve your life goals, not the other way around. When the need is real and unavoidable, taking profits is practical and prudent. 2. When your financial goal is approaching in the next few years As you get closer to a financial goal (typically within 2–3 years), it’s advisable to reduce risk.If your investments have delivered good returns and your goal horizon is nearing, you can start systematically booking partial profits. This helps safeguard the wealth you’ve built and reduces the chance that market volatility will derail your plans right before you need the money. 3. When your actual returns are significantly above your target and you prefer to be more conservative If your portfolio has grown much faster than expected—well above your target returns—you may want to lock in some of those gains.A sensible way to do this is: This approach allows you to secure gains while still staying invested for future growth, but in a more controlled and risk-managed manner. 4. Avoid booking profits purely to time the market Trying to sell high and reinvest at lower levels sounds logical in theory, but rarely works in practice.Market timing is extremely difficult—even professionals struggle with it consistently. If the market continues to rise after you exit, you risk missing out on strong upward moves. Research shows that missing just a few of the market’s best-performing days can drastically reduce long-term returns. It’s usually better to stay invested and let compounding work in your favour rather than constantly trying to outguess market movements. In Summary You should book profits not because markets look high, but because your personal financial situation warrants it—like approaching goals, liquidity needs, or risk management. Otherwise, staying invested and letting your money compound over the long term generally leads to better outcomes.
When Should One Book Profits? Read More »
