Individual stocks question

[ecowtent]

8 years ago, we bought stocks known for yield and consistent dividends through a fee-based registered investment advisor. After several years, we felt that the fees were very high in comparison to the dividends and growth of the stocks-especially when compared to the growth of my 401K. After finding this site, we decided to try managing on our own at Vanguard.

Now we are investing in self-managed Vanguard funds. Vanguard Total Stock Market Index, 500 Index, LT Bond, Intermediate Term Bond and an Equity Income Fund. The problem is the old stocks. Some of the stocks have increased in value. A few have grown and have a gain, but not materially grown. We are in a higher bracket and don’t want to pay more tax if we can avoid it. How do you analyze and decide what should stay and what should go? Is it a gut feeling? Do you sell a little each year? The money invested isn’t a lot, but the non performing stocks are irritating to me.

 

[gayl]

It's definitely not a gut feeling for me. I evaluate each stock on the basis of whether or not I would purchase it now. If the answer is no then I sell. I understand avoiding taxes is a big concern of a lot of people but really it's only a percentage of the net gain. To look at it slightly different, if I put it in another investment that is gaining faster than what it's currently in, and I pay tax on the net gain, going to be actually ahead dollar wise!

 

[pb4uski]

Hard to say without more info but I would be inclined to sell the individual stocks, pay the 15% federal capital gains tax and any state taxes and then reinvest in the Vanguard funds that you own. Simulate the tax impact by doing a trial 2017 return with and without the sale. If the tax bite is too much to swallow, do it over 2 or 3 years to spread out the tax bite.

 

[DrRoy]

When in a similar situation I calculated the net gain in each position, and sold off a portion over several years to spread out the taxes. First to go were the lowest gain positions, which allowed more to be sold off earlier.

 

[LOL!]

Whenever I buy anything, I already write down when and why I am going to sell.

Also in a taxable account, I practice tax-loss harvesting and have plenty of carryover losses from 2008-2009 banked. Thus, I never have to worry about selling and having to pay tax.

So in your situation, I would
a. Make sure to stop digging any hole and make sure I am not reinvesting any dividends.
b. Check the individual lots of these stocks and sell any with losses.
c. Sell enough shares to offset the losses if I wanted to get rid of the shares.
d. Check the individual lots of these stocks and give away to charity the lots with the highest long-term gains to my donor-advised fund and deduct that on my taxes.
e. Look at what's left to get rid of and calculate the tax hit, then decide what to do. It could be sell some now, sell some later.

f. If I use the money from selling now to buy something else, then it is possible that whatever I newly buy with the money goes down in price and I will tax-loss harvest the new stuff to offset any old realized gains.

 

[braumeister]

I evaluate each stock on the basis of whether or not I would purchase it now. If the answer is no then I sell.

That's certainly a valid viewpoint. Another would be if you're happy with stellar dividends and expect them to continue being at least as good. In that case, even if you wouldn't buy the stock today, you might want to hang on to it. When looking at a stock's "performance" you want to look at total return, not just price appreciation.

 

[RunningBum]

You say you're in a higher tax bracket, so I assume you're not trying for an ACA subsidy or 0% LTCGs under the 15% bracket. If that's all true, I don't see what the tax issue is, unless you think in the next year or two you'll be in a low enough bracket to change your sitation. Pay the tax out of the proceeds. Look at the overall picture of getting your investments where you want them to be and don't focus on paying some taxes to get there. Unless you have a good reason to keep any, dump them all and move on. It sounds to me like you'll pay 15% no matter when you sell, so why now sell now? If that's not true, give us more info.

 

[Sunset]

You say you're in a higher tax bracket, so I assume you're not trying for an ACA subsidy or 0% LTCGs under the 15% bracket. If that's all true, I don't see what the tax issue is, unless you think in the next year or two you'll be in a low enough bracket to change your sitation. Pay the tax out of the proceeds. Look at the overall picture of getting your investments where you want them to be and don't focus on paying some taxes to get there. Unless you have a good reason to keep any, dump them all and move on. It sounds to me like you'll pay 15% no matter when you sell, so why now sell now? If that's not true, give us more info.

+1
Plus being in IL , you will pay at most the State tax of 4.95% in 2018 and later years, so this year is the year to get the blended rate, which is roughly 4.3%

http://www.revenue.state.il.us/Publications/Bulletins/2018/FY-2018-02.pdf

 

[ecowtent]

Thank you all. Helpful feedback.


LOl! Thank you- I like to work from a list.


Runningbaum-I do actually expect our income to go down in the next few years, but Sunset's point is well taken. We aren't retired yet. We are trying to organize investments in a way that requires less monitoring. I don't know why, but stocks make me feel like I should monitor more.


When I say we, I actually mean me, as I can't seem to get my husband interested other than hearing that firecalc shows success at the point we want to retire!

 

[MRG]

That's certainly a valid viewpoint. Another would be if you're happy with stellar dividends and expect them to continue being at least as good. In that case, even if you wouldn't buy the stock today, you might want to hang on to it. When looking at a stock's "performance" you want to look at total return, not just price appreciation.

+1
Are the advisors fee' s part of he equation? IE is it's all the equities performance if the fee didn't exist?

If that's the case can you transfer in kind to Vanguard? You'd avoid the fees and taxes. Be aware many times you might pay a small fee to get away from the advisor.

 

[gcgang]

If it bothers you to have the individual stocks, sell.

If you're ok holding, I'll give you another viewpoint. If you don't have a good reason to sell (and incur tax), hold. Assuming portfolio is well diversified.

 

[target2019]

Thank you all. Helpful feedback.

LOl! Thank you- I like to work from a list.

Runningbaum-I do actually expect our income to go down in the next few years, but Sunset's point is well taken. We aren't retired yet. We are trying to organize investments in a way that requires less monitoring. I don't know why, but stocks make me feel like I should monitor more.

When I say we, I actually mean me, as I can't seem to get my husband interested other than hearing that firecalc shows success at the point we want to retire!

What are the stocks, and what percentage of your portfolio? If it is very small, then not worth losing sleep. Just sell, or keep, and focus on the big picture.

 

[medved]

I am in similar position. The basket of individual stocks I have has been the single best performing part of my investment portfolio. But it annoys me and I would like to shed it. I have done all the obvious stuff - selling loss or minor gain positions, used up my loss carryforward, etc. I don't want to pay the capital gains tax. I am in the highest tax bracket. The advice I got says "don't let the tax tail wag the investment dog" (in other words, don't let tax strategy dictate your investment goals). But others say "defer tax as long as you can." I am thinking maybe there will be a capital gains tax cut soon, so I am holding off. If there is, i will consider it a "Blue Light Special" and sell.

 

[Dash man]

I have a group of individual stocks well diversified and has a total of about $660,000 of capital gains in a taxable account. They throw off pretty good dividends that we move to our checking account. We hope to keep them to pass on to the kids at a new cost basis, but I do keep a close watch for any changes in their financial picture and am not afraid to sell some if needed.

 

[ecowtent]

No more advisor fees. We moved to Vanguard in kind.


Individual stocks are 15% of portfolio. Biggest is Lockheed Martin, Walgreens, and Waste Management. I guess my biggest reason to sell would be the recent recovery for several of the smaller stocks. We had a loss for quite a while on the average stock price and we are finally in a gain position.


Medved- 100% what you wrote!


Thank you all for your opinions. It is really helpful.

 

[jebmke]

We have been dumping legacy stocks with large gains in a Donor Advised Fund during years with high tax rates and taking the tax deduction and avoiding the gain entirely.