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Is it Time to Take Some Money Off the Table?

Angels Landing Summit

Wouldn’t it be nice to be able to lock in your “winnings,” particularly at the end of a long bull market? You know, take some money off the table?

The problem is… what do you do with the money then? Hold cash? Invest in fixed income? For how long? When do you put it back on the table?

If you’ve done well with a particularly risky investment, it might make sense to take the money and run. Think Bitcoin in December of 2017 when it was worth nearly $20,000 a coin as opposed to less than $4,500 today.

On the other hand, if you’re following an investor policy statement that you believe to be sound, taking money off the table is akin to timing the market. I’ll bet you know what Dr. Jim Dahle thinks about that.

This article originally appeared on The White Coat Investor and is just as timely today as it was then.


Is it Time to Take Some Money Off the Table?


One of my investing pet peeves is the phrase “take some money off the table.” Perhaps the reason why is the blatant reference to gambling.

At a casino in Las Vegas, it wouldn’t be unusual for a gambler who has had a recent streak of luck to “take some money off the table” and just play with “house money.” If he takes off what he brought to the table, his worst case scenario is going home without any losses. Not a bad outcome in a place where the odds are always against you.

The reason I don’t like it when it is used with investing is that smart investing really isn’t gambling. Not only are the odds stacked in your favor, but the secret to investing intelligently is to make as few trips through the “Wall Street Casino” as possible. Ideally, it’s one round trip for each dollar.

You might contribute this hypothetical dollar into a 401(k) at age 35, invest it in a hypothetical index fund, and then pull it out at age 75 to spend. One round trip through the casino over 40 years will have a trivial effect on that dollar–the “casino” won’t be getting much of a cut of it. Plus, the likelihood of that investor losing money on that investment over 40 years is so close to zero that the difference can be safely ignored.

Investing is serious business for me. I don’t really do “fun money” or “play money.” If I want to have fun, I use the money to go heli-skiing rather than send it to some Wall Street gurus and Uncle Sam. I might be a thrill-seeker, but there is little thrill for me in investing, and it turns out that’s a good thing for long-term returns.

What does it really mean when an investor says “I’m going to take some money off the table”? Well, it could mean any of several things.


Angels Landing Summit
table for 5 at angel’s landing


Timing The Market


Most commonly, it means he is trying to time the market by going to cash with some or all of his investment. He believes that the market is going to go down in the near future and that he can then invest the money back in the market.

I’m not sure I need to go over why this is a dumb idea, but the difficulty with market timing is that you have to be right not once, but twice, and you have to be right by enough to overcome the transaction costs including taxes and the value of your time. It is so hard to do that consistently over the long run that it isn’t worth trying.

As a general rule, all that “going to cash” is going to do is decrease your returns.


The Wealth Effect


For some people “taking money off the table” means to sell investments and spend the money. While I’m a big fan of spending money on things, experiences, and charitable causes that will increase your happiness, it is important to be aware of The Wealth Effect.

That is to say, when our investments go up we feel wealthier and are more likely to spend. That’s not such a bad thing since spending the same dollar amount from your portfolio when it is up means spending a smaller percentage of it than spending from it when it is down.

However, it is important to remember that you’re not really as rich as you think you are in a bull market (but neither are you as poor as you think you are in a bear market.) “Mr. Market” has some rather volatile moods which even out over the long term for the patient investor. Bipolar disorder might not be contagious, but catching Mr. Market’s moods certainly is.


Being Wise About Asset Allocation Changes


A few people use the phrase “taking money off the table” when referring to a permanent change in their asset allocation. Bernstein likes the phrase “When you win the game, stop playing.” That is to say, if a recent bull market has decreased your need to take risk, then take less risk.

Most investors will want to decrease the “shallow risk” (volatility) of their portfolio as they approach retirement to reduce sequence of returns risk (i.e. the risk of running out of money despite having adequate average returns because the poor returns showed up early.)

It seems wiser to make that sort of an asset allocation change a few years into a bull market rather than after a recent 30% drop. Isn’t that market timing too? I suppose it is in a way, but I see it more as a reaction to your own personal situation (nest egg to financial needs ratio) rather than a reaction to Moody Mister Market.

So the next time you hear someone use the phrase “take some money off the table,” rather than think “That sure sounds smart,” I want you to remember it probably isn’t very smart at all if the intent is for that money to go back on the table at some point.



What do you think? What common investing phrases annoy you? Have you been guilty of “taking money off the table?” Why did you do it? Did it work out well for you? Comment below!

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12 thoughts on “Is it Time to Take Some Money Off the Table?”

  1. Pingback: Journal Club 11-29-18 - Passive Income M.D.
  2. Subscribe to get more great content like this, an awesome spreadsheet, and more!
  3. If you retired on 1M and 40K/yr and the market return dropped in half for 18 years would you still extract 40K/yr? This is the plight of a retiree who retired in Dec 31, 1999.

    The S&P 500 claims a long term return of 10.8% (7.1% inflation adjusted). The S&P over the past 18 years including the dot com bust and the great recession has returned 5.8% (3.5% inflation adjusted) DATA The 10 year bond over the same 18 years averaged 3.9%/yr return.

    If you own a 70/30 SPY/BND portfolio the expected return is 7.41% and a risk of 10.48%. A 30/70 portfolio is expected to return 5.07% and a risk of 5.27%. That’s 2.34% difference or 32% less return between the two portfolios. The risk of the 70/30 is 5.1% different or 50% more. So if you go from 30/70 to 70/30 it’s a 32% increase in return and you pay 50% more in risk. We all like making that money but what happens in a market crash? Risk takes over.

    SPY alone has a reward of 9.25% and a risk of 14.88% and we will use SPY for comparison. The market crashes and SPY drops in half (50%). 70/30 drops by (0.5 * 10.48/14.88) or 35%. This means to get to zero SPY has to grow 100%, while 70/30 need only grow 70%. 70% happens sooner than 100%, so 70/30 is back to compounding sooner. In 2008 my portfolio with this exact risk profile I was back even in 2011 and SPY was even in 2013, and I was 15% ahead by 2013. 30/70 drops by (0.5 * 5.25/14.88) or 17.7%, only 50% of the 70/30 portfolio and only 34% of SPY. To get even 30/70 need only grow 35% while SPY need grow 100% 30/70 is compounding before either of the other two portfolios. 35% recovery happened about Dec 2010, 3 years sooner than SPY. 30/70 returns less but returns it sooner.

    50/50 would give 6.2% expected return (1.3% less than 70/30) and 7.67% risk. 50/50 would drop 25% and be to zero sooner but in between 70/30 and 30/70. In addition by “taking some off the table” you will have more bond money to put back on the table when you buy low. This is precisely how re-balancing works. As the AA increases you sell some stock high and put it into bonds for a rainy day. Upon a crash you take some of the “sold high”bond money and put it back into stocks at buy low prices. The AA forces you to “market time” automatically and mechanically. Nobody calls that gambling they call it smart. So if you look at it you give up a little return but you give up more risk and you make back some if not all by buying low. This isn’t market timing as much as a kind of dynamic risk management.

    Big ERN wrote an article on using market data to trigger like Shiller CAPE to vary asset allocation. I looked but couldn’t find it. Changing your post retirement withdrawal scheme in a downturn like wise could be viewed as “market timing” as you are literally taking money off the table, but actually this is also just risk mitigation. The problem doesn’t come from going to 50/50 from 70/30 but from going from 70/30 to 100% cash after you’re down 50%. Homey says don’t do that.

  4. Well, there is some finesse in all this. It is too much to articulate in a comment section. In general, I agree that staying in stocks will make you the richest many decades from now.

    But if your health isn’t that great, and your job future isn’t too certain, and you are risk-averse, it is okay to take those factors into your decision.

    Stocks that are priced at the top of a 10-year bull are much less likely to return 12% a year for the next 6 years, for example. Should you buy an overpriced grocery item just because 20 years from now it will cost even more? Maybe. Maybe not.

    What are your investment alternatives? I have “cashed in some of my chips” from excess and unexpected stock returns to buy businesses, real estate, and to donate to charities.

    The “Mr. Market” reference comes from Warren Buffett’s mentor, Benjamin Graham. Graham felt it was advisable to reduce the percent of your equity holdings – especially near the end of a raging bull.

  5. The problem with taking money off the table and market timing in general is that we never know when the top of the market is. A couple of years ago, when the DJIA was at around 18,000, I read article after article saying that the end of the bull market is here. Following that advice, I should have converted my retirement fund to safer investments. However, I would have missed out on the DJIA increasing to over 26,000!

  6. Thoughts money invested in a 529? I know there are different philosophies
    1)be aggressive. Who cares if it drops in value? cash flow in meantime. transfer monies which have dropped in value to a younger kid. keep money in market (ie don’t take off table)
    2) vs. take money off table. its spring of high school senior year. Market is up 9%. take it off the table. Whew..the next year market is down 17%. and this is money for your only kid (no younger siblings).
    Thoughts? Particularly since author hasn’t used his 529s yet…..will he let those accounts tumble 10-25% in a bear market the year the beneficiary needs it…… IMO this is different than retirement pot due to 1) size of accounts (retirement should be larger and should be able to weather a downturn easier and 2) length of time money in accounts and time to recover (both longer than saving and using for college). is this (529) the exception to “timing the market”? or not?

    We have taken money off table when we have had stock concentration in our account (any single security >10% of NW), but not necessarily out of market…just gets reallocated. I have never “cashed in” in fear of market downturn or during the bear years we went through.

    • bean, I was 100% equities til my kid was 6, then entered into the Vanguard Age-based Aggressive. Kid is 9 and that puts it at 70/30. I am a tinkerer by nature, but for some reason letting Vanguard arbitrarily change her portfolio is a relief to me. As is the fact that I superfunded this year and won’t be contributing again for five years (or ever–it’s a pretty big account for a 9yo). It is the ONE account that I have that is truly hands off.

  7. Unlike WCI, I do have a “play money” account. It allows me to follow my base instincts and do dumb things like try to time the market while risking less than 1% of my portfolio.

    Suffice to say my play money account has underperformed vs. the market, even though I made a few brilliant picks such as Apple at $29.

  8. We took some money off the table this past year. However, it was driven by two things.

    One was that we realized that we are far enough ahead that we could decide to retire now, continue and stockpile a giant pile, or spend a bit more. We decided on a combo of loosening the purse strings a bit and continue working until our kids finish highschool (gradually scaling back until then). We had a good opportunity to use some money from our taxable account to buy a newer motorhome. Don’t regret it.

    With a shorter horizon than my initial career plan and having basically achieved my goal, I have been revisiting my risk tolerance and find it is lower than it used to be. We started gradually shifting our asset allocation from all stock to now about 80:20. I did this expecting that the market will continue to outperform in the long-run, but knowing that I emotionally will be affected by the bumps even though I intellectually shouldn’t care.

  9. Unless you need a certain amount of money in the next few months and want to avoid taking it out during the next bear market, which we all know is coming, then leave it in the market for the long haul. I plan on leaving my accounts alone, except for the purchases I plan to make on sale. However, I’m still in the wealth accumulation phase. I’m not into timing the market because experience has taught me I’m not especially good at it. I’ve both gained and lost money with market timing.

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  11. The answer is mostly behavioral. Be aware that loss aversion is one of the most powerful investing emotions out there.
    If you have a large taxable account, then become a master of tax loss harvesting without going to cash. Take all losses when short term, take all gains when long term.
    Mathematically and historically, it is always better to stay in the Market.

  12. I agree that taking money off the table just is another phrase for timing the market.

    If taking money off the table thoughts come to mind when the market is going down, then you are likely at a lower risk profile than you anticipated and you might want to revisit your asset allocation and Investment policy statement.

    There are countless cases of people taking money off the table thinking the market will drop and that they will jump back in only to see that the market keeps going higher. There is then the psychology behavior that these people do not want to admit they were wrong and don’t want to jump back in at the higher cost (part of it is loss aversion) thinking they will wait till the market drops back down in future and jump in then (only to never see it happen).

    Cash on the sidelines creates cash drag and chances are better that you would be making more if that money was in play.


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