Key insights
- An investor details a systematic profit-taking strategy involving reinvesting gains from a single stock back into VOO. While the strategy outperformed the S&P 500 over the past 15 months, it's crucial to consider long-term implications, tax implications, and potential opportunity costs. The strategy's success is dependent on the individual stock's performance relative to the index, and may not always be beneficial.
In early January 2025 my IRA was 80/20 equities/fixed income; with the equities being 100% S&P 500 index fund (VOO). At that time I took $20,000 in my IRA (3.5% of my portfolio) and bought a stock.
For the next 15 months, every time the stock gained ~$1,000, I would sell $1,000 of the stock and then put it back in VOO.
In the last 15 months:
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The stock has gone up ~44%.
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The S&P 500 index has gone up ~20%.
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I've sold a total of ~$7,000 of the stock, which was all subsequently reinvested back in VOO.
As a novice investor, I came up with this idea on my own 15 months ago. I believe it falls under the category of "Systematic profit-taking", or "Pruning/trimming stock gains incrementally over time."
As it turns out, so far, it looks like it was a good move. By buying the stock, I've made better use of that $20,000 in the last 15 months; versus having left the $20,000 in VOO. That's what the math is telling me anyway – a 44% gain, versus a 20% gain.
Was this in fact a good move? Am I looking at this right? Or am I missing something?
Long term goal is to continue taking incremental profits of $1,000 until I've regained my original $20,000 investment. At that point any additional gains going forward would be pure profit.