Money 101  >  Money Myths

"You should withdraw your principal once you make money."

POSTED ON November 28, 2019

The myth

One common piece of investing advice is that you should withdraw your investment immediately when it has made money. The thinking behind this is that even a little profit is better than to keep risking your principal.

A typical addition to this advice is to take the profit and use that to make a new investment. That way, it is said, you end up taking the investment risk with the profit only.

Why do people believe it?

There are investments whose value has gone up, only to eventually drop. The people who made these investments would not have had any loss if they sold once they made a profit.

Of course, there also many cases in which the value of the investment did not drop and in fact increased, by the time the investment matured or was sold.

Risks of believing this myth

If you withdraw your principal once you’ve made a profit, you will not be able to earn any more from that investment. You could still make money by reinvesting the profit as your new principal, but the overall value may still not be as big compared to if you did not withdraw the original amount.

The way with the highest earning potential is for you to keep your original investment, and augment it with your profit to achieve compound interest (you can read more about it here).

Verdict: It depends.

Withdrawing your principal can keep you from experiencing a loss, but it may also prevent you from making more money from your investment.