Financial Advice Q&A

Occasional Visitor
Posts: 1
Should I try to lock in my investment gains for the year?
[ Edited ]

I'm thinking about rolling a traditional IRA, not currently with USAA, into my work 401k bond fund to lock in 2013 gains. Any thoughts or options? Thank you.

Posted: 2013-11-10 09:41 AM
Other Answers: 1
Community Manager
Posts: 1,009

My first thought is this: I LOVE the idea of consolidating your portfolio.  Fewer moving parts can make it easier to manage your money.  However, unless this is part of a broader plan to shift your portfolio to a more conservative allocation, I worry that what you’re contemplating could be dangerous for your long-term investing success.


Market Timing is Risky Business
If this isn’t part of a broader plan, then what you’re toying with is a concept known as market timing, and it’s a bad idea.  To make it work, you’d have to be able to consistently move into or out of certain investments or asset classes to capture upside movements and then get out in time to side-step downward movements. And while the end result is certainly desirable (maximum upside with minimum downside), it’s virtually impossible to pull this off to your advantage on a consistent basis.  Markets just don’t work that way. If they did, everybody would invest like this and then by that very action, it wouldn’t work anymore. Bottom line, I wouldn’t go there if I were you.


Adjusting Risk Tolerance Makes Sense
On the other hand, if you’re saying, “It’s time to ratchet down the risk profile of my portfolio so I need to reallocate more to bonds,” then this could actually be a good time to do it.  As we get closer to needing to use our invested funds, we generally should reduce the risk and volatility of the portfolio anyway.  Note though, that the timing is just a bonus, it shouldn’t be the driver of the change.


Caution Warranted
If your plan is to get more conservative overall, just be aware that more conservative portfolios can lose money too.  This is especially true of bond investments these days.  They’ve experienced quite a nice run over the past several years and many experts believe that interest rates will begin rising before too long.  The challenge for the bond investor is that when interest rates rise, bond prices tend to fall. Now, this doesn’t mean you should avoid bonds altogether.  They still make sense as part of a well diversified portfolio.  It just means that you should be even more cautious than usual about putting too many eggs in that one basket.


So in summary, there’s absolutely nothing wrong with the idea of making one’s portfolio more conservative and capturing some gains in the process.  It’s actually a good idea to do this as your time frame for the funds grows shorter. You just shouldn’t go more conservative out of a belief that the market is about to move against you.  Because if we could predict market movements with that much certainty, we could get very rich, very fast – and that’s not likely to happen.


Thanks so much for your question.  I hope this helps and I wish you all the best!



Posted: 2013-11-11 11:59 AM


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