What to Do When Markets Are Up a Lot

A couple of years ago, the stock market crashed, and everyone was freaking out. The S&P 500 index fell from a high of around 4,800 to a low of about 3,500 in 2022—a 27% drop. Many stocks fell even more—Amazon’s stock dropped by half, and Meta (Facebook) was down 65%.

Back then, I wrote a series of blog posts (here and here) about how I was dealing with the market crash. The short answer: I didn’t do anything different. I kept on doing what I had always done—regularly investing a part of every paycheck.

Looking back, that proved to be a great strategy. The market has gone up a lot in the last two years, and 2022 turned out to be a great buying opportunity.

All-Time Highs

Now, we find ourselves in a very different situation. The market has gone up a lot and is hitting all-time highs almost every day.

Although this is great, it also means there is a risk that the market could fall a lot. So now I’m faced with the opposite question: Should I sell some stocks and book some profits?

For me, the answer is—once again—I’m not doing anything different. I’m continuing to invest every paycheck, just like I have done in the past, through both bull and bear markets.

Taking Some Profits

However, with the stock market being up so much, here are a few questions I like to consider to determine if I should take some profit:

1. Have My Goals Changed?

It is easy to get excited about the stock market and forget why we invest in the first place. My goals haven’t changed recently, but if they do, it might be a good time to take some profit.

For example, if I’m planning to relocate, I might need extra money for that. Or if a new expense is coming up, like buying a new car or planning an international trip. In these cases, I might think of selling some stocks to cover those costs.

2. Has The Reason For Investing Changed?

Just like everything else in the world, companies rise and fall. If a company I have invested in is past its prime, then that is a good reason to sell. I had invested in Amazon. So I watched the transition from Jeff Bezos to Andy Jassy with interest. So far Amazon seems to be doing great after the transition. But if things change in the future, then it will be a good reason to sell.

3. Am I Losing Sleep?

This is the most important question. Is the stock market hitting all-time highs, and is the fear of a market crash causing me to lose sleep? Investing should never be stressful. If it is causing stress, selling some stocks and booking profits is not a bad idea. After all, no one ever regrets making a profit.

In Conclusion

After looking at these three questions, I’ve decided not to sell anything right now. Instead, I’ll stick to my plan of regular investing.

The stock market will always have ups and downs, and it’s impossible to predict what will happen next. But having time on my side, I am confident that in the long term the stock market will be higher than where it is today…

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