Singapore's benchmark index has recently surpassed the 5,000-point mark, approaching its historical peak.

Reaching such heights often triggers investor anxiety.

Existing investors may fear an imminent market downturn that could erase their paper profits.

Those on the sidelines might hesitate, wondering why they should invest when prices are near a peak and seem destined to fall.

This presents a difficult reality.

Markets inevitably decline. Historical patterns confirm that every bull run concludes, every upward trend reverses, and peaks are followed by troughs.

The unanswerable question is the precise timing of such a shift.

Understanding Market Downturns

The potential for loss is genuine. Market corrections, defined as declines of 10% or more, are a recurring feature of financial markets.

The statistics provide a clear perspective. Since 1993, the Straits Times Index has experienced such a 10% drop in eight out of every ten years. Given this frequency, the strategy of selling assets to realize gains and repurchasing them later at lower prices appears logical.

The benefit of this approach is straightforward: securing profits and achieving peace of mind by protecting capital. This aspect is easily understood.

The more complex consideration involves the potential costs associated with this strategy.

The Hidden Cost of Selling a Strong Performer

Consider the case of DBS Group (SGX: D05).

Its share price has been trading at record levels, significantly above its historical average price-to-book value ratio.

A logical argument for selling exists: realize the current premium, await a price decline towards its historical average, and then repurchase. This could translate into tangible, realized profits.

However, it is crucial to consider what is forfeited.

DBS is projected to distribute substantial dividends per share this year, representing a yield exceeding 5% at recent prices. Selling the shares means relinquishing this income stream.

If the primary goal is to lock in capital gains, selling may align with that objective. But for investors relying on dividends for passive income, selling creates a new challenge: finding a comparable replacement investment offering similar yield and business quality.

The Challenge of Timing Re-entry

The theory suggests that share prices eventually revert to their mean, allowing investors to repurchase at a more favorable price later.

The complication lies in the market conditions typically required for such a "bargain" price. For DBS to offer a significantly higher yield, it would likely not be during normal market conditions.

The last instance of such a high yield occurred in March 2020 amid the pandemic-induced market crash, when dividends were also capped by regulators.

Imagine that scenario: global lockdowns, economic uncertainty, and reduced dividend payouts.

Would an investor have had the conviction to buy during that period of extreme pessimism?

The same instinct that prompts selling to protect gains today often prevents buying when prices are low and news is negative. While investors may believe they will act rationally, fear frequently overrides planned strategies.

Clarifying Investment Objectives

Maintaining positions during market highs can be psychologically challenging, especially when a correction seems historically inevitable. When a downturn occurs, portfolio values will decline—this is the inherent risk of remaining invested.

Yet, the timing of any correction remains unpredictable. It could happen soon or after further significant gains. There is also no guarantee that an investor will successfully repurchase shares at a lower price.

Therefore, the fundamental question for investors is to define their primary goal.

If the objective is a reliable income stream, a diversified portfolio of dividend-paying stocks can deliver exactly that, with payments arriving regularly regardless of market volatility, eliminating the need for market timing.

Another critical, often overlooked point is that financially robust companies with strong cash flows not only maintain but often increase their dividends over time. DBS, for example, has raised its dividend significantly over the past five years. Selling to await a better entry point means missing out on all such future dividend growth, which accrues to the portfolio without any action required from the investor.