The Power of Profit Taking: Why Locking in Gains Protects Your Future

As Pierce Hanlen highlighted in his recent blog, share markets can move with surprising speed, particularly in today’s highly connected and technologically advanced environment. A company that climbs steadily over months can see its share price fall within days, wiping away hard-earned gains just as quickly.

That reality poses a challenge for investors: when is the right time to take profits?

At Hewison Private Wealth, our philosophy is to build long-term strategies based on strong fundamentals. Along the way, however, there are moments when trimming back positions and realising gains is a powerful tool. Profit taking is not about pessimism. It is about discipline, risk management, and protecting the wealth you have already created.

Why profit taking matters

Trying to pick the exact peak of a share price is an impossible endeavour. Waiting for “just a little more” often ends in disappointment when markets turn. Profit taking allows investors to lock in some of their wins, while also opening the door to future growth opportunities.

The tax question

One reason investors often hesitate to take profits is the tax impact. Selling investments can trigger capital gains tax, and the instinct is to delay. Yet history shows that sharp corrections can erase more value than the potential tax obligation from locking in profits, and the opportunity cost of inaction can be high.

Working with a financial adviser and an accountant can help optimise tax outcomes, ensuring you make use of carried-forward tax losses from previous years or other strategies to offset gains when selling investments.

Protecting against risks and unlocking opportunities

Profit taking also helps reduce risks and create opportunities:

• Reducing concentration risk: Over time, a single holding may perform well and grow disproportionately large. Trimming exposure helps maintain balance and diversification within a portfolio.
• Managing emotions: Locking in gain cushions the psychological impact of market falls. Even if a share price declines, you have already secured part of the benefit and reduced the potential for regret. If the fundamentals of the investment remain sound, you can re-enter at a lower price with confidence.
• Creating flexibility: Proceeds from profit taking can be redeployed into underweight asset classes within a portfolio or used to top up high-quality companies that have become undervalued either during a broad market downturn or following a stock-specific shock.

Key Takeaway

At Hewison, the focus is on achieving long-term wealth creation. Profit taking complements this approach by allowing investors to extract value from positions that have already delivered capital appreciation, while still leaving scope for future growth.

Profit taking is not about timing the market or abandoning quality holdings. It is about discipline and balance. By realising gains selectively, investors can protect wealth, reduce risk, and create flexibility to reinvest—strengthening their portfolio for whatever markets deliver next.