There’s a feelgood feeling in the air that is spreading across stock markets.
In the US, indices such as the S&P 500 and NASDAQ Composite Index have hit new all-time highs as Trump was elected to the US Presidency.
Investors are also pleased to know that the US Federal Reserve made its second interest rate cut in four years with a 0.25 percentage point reduction last week.
This was in addition to the 0.5 percentage point cut back in September 2024, bringing its benchmark federal fund rate to a range of between 4.5% to 4.75%.
Aside from US growth stocks, the Singapore stock market is also ebullient.
The bellwether Straits Times Index (SGX: ^STI) recently hit a new 17-year high of 3,673 on the back of a strong set of results from Singapore’s largest bank, DBS Group (SGX: D05).
With many stocks also hitting their all-time highs, should you consider selling all your stocks now?
Selling your stocks for profits
The first question you should ask yourself is – why do I want to sell my stocks?
Is it because these stocks are overvalued? Or do I want to feel good by booking a profit?
It could also be attributed to a fear of losing all your unrealised gains.
You should be honest with yourself and find out the underlying reason for deciding to sell.
Greed could force your hand as locking in a profit makes you feel good and gives you bragging rights.
On the flip side, worries about a possible market crash could also push investors to clear out their portfolios.
This worry is driven by the fear that all your hard-earned profits may just melt away when the market turns.
Or it could be that your stocks are now priced very expensively as they have risen to never-before-seen levels.
You could have the belief that such levels are unsustainable and that these stocks are poised for a sharp crash.
When to buy back?
Whatever your belief, the key question to ask yourself is when to buy again after you sell off your stocks.
Timing the market is an extremely tough task and many investors find it tough to accomplish consistently.
Hence, when you sell off your stocks, you will need to deploy the money again or it will languish in a bank account earning a pittance.
It could be a while before the optimism fades and gives way to pessimism, leaving you out in the cold as the market continues to climb higher.
Even if a crash does occur and takes share prices down, what would be a good time to buy?
Assuming the bad news carries on, how do you determine a good entry point?
These are pertinent questions to ask yourself as you ponder the move to sell your stocks.
From anecdotal experience, many friends who have sold off their stocks fail to buy them back in time or may not buy them back at all.
In the process, they lose the ability to ride the stock to new multi-year highs and may also reallocate the proceeds to the wrong stocks.
Missing out on dividends
By selling your stocks and then sitting out to wait for a market drop, you will also be missing out on the dividends you would receive had you stayed vested.
A simple example illustrates this.
Imagine if you were lucky enough to scoop up shares of DBS Group at S$17 to S$18 during the pandemic in 2020.
By early January 2021, the bank’s share price had recovered to S$24.40.
Selling at this level would have netted you a 30% to 40% gain.
However, DBS has now gone on to break new all-time highs at S$41.70 and you would also be missing out on all the dividends that the bank paid from early 2021 to the present.
From 2021 to 2023, DBS paid out a total of S$4.66 per share in dividends.
If you include the S$1.08 that was paid out in the first half of this year, this amounts to S$5.74 in dividends that would have missed out on.
Not to mention that you would also have missed out on another 71% gain in DBS’s share price.
Keep an eye on valuations
A key consideration in deciding whether to sell or not also hinges on valuations.
If valuations are too lofty, you may consider divesting your shares if the company’s prospects cannot keep up with investors’ optimism over its future.
Do note, however, that valuation and perceived growth are subjective and are interpreted differently by each investor.
While valuations may look high in the interim, future profit growth could bring valuations down to a more palatable level.
Get Smart: Stay vested while monitoring your stocks
Selling may net cool capital gains but it may also deprive you of significant future profits if the company continues to grow.
Hence, you should think carefully about whether to sell because it may not be easy to redeploy the proceeds to other stocks.
Remember that sitting out the market also means missing out on dividends that you could have received had you stayed vested.
My recommendation would be to keep holding on to your stocks if they have bright prospects while continuing to monitor the business.
That way, you can continue to grow your portfolio and dividends to better prepare yourself for retirement.
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Disclosure: Royston Yang owns shares of DBS Group.
