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Question on selling stocks/funds
Old 05-16-2014, 07:48 PM   #1
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Question on selling stocks/funds

First off, I am not a finace saavy, so I may not be asking the right question here, but here goes...

I am in the accumulation phase, and the only thing I've sold so far are 100% of stocks or funds that I bought in a single transaction on a single day, so I can see how much gains/losses I've had fairly easily. And at the end of the tax year, I can see in the tax statement from the brokerage firm the breakdowns.

I have funds/stocks I have bought multiple times with different purchase prices over the years (but they are all in one account in one brokerage firm.) When I sell a portion of these stocks/funds, how do the gains/losses get calculated? I imagine I cannot say I am selling the stocks that I bought on 1/1/2013, not the ones I bought on 6/1/1998??
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Old 05-16-2014, 09:25 PM   #2
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If you have your account with Vanguard, you can choose between LIFO or FIFO; It doesn't matter how many different times you bought them. I'm assuming most brokerage firms will do the same.
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Old 05-16-2014, 09:45 PM   #3
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Most brokerages apply an average cost basis of your shares unless you say otherwise. If you want to sell specific shares you must arrange with the brokerage to do so. If you sell part of a stock holding and employ average cost basis you cannot later sell more of that stock and switch to a different way to calculate the cost basis.
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Old 05-16-2014, 11:08 PM   #4
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Thank you very much for your help, GrayHare and Jerome. I now understand :-)
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Old 05-16-2014, 11:12 PM   #5
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....I imagine I cannot say I am selling the stocks that I bought on 1/1/2013, not the ones I bought on 6/1/1998??
Actually, you can. In fact, in my opinion that is the best way to do it. It's called the specific identification method. Your broker should be able to provide you with purchase date, purchase price, current value and gain(loss) for each purchase "lot". The you just decide which lots (or portions thereof) you want to sell.

Beyond a certain date going backwards your broker might not have the details but if you do you can still do it yourself but it is quite a bit more effort.

Talk with your broker. They can provide you with the details.
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Old 05-16-2014, 11:25 PM   #6
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Thought that was called 'lots'. Best to establish them upfront, but I think you can do it after the fact.
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Old 05-17-2014, 12:19 AM   #7
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You can sell specific lots (i.e. x number of shares bought on y date). I done it several times. Your brokeage should be able to give you more info/details.
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Old 05-17-2014, 12:21 AM   #8
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Most brokerages apply an average cost basis of your shares unless you say otherwise. If you want to sell specific shares you must arrange with the brokerage to do so. If you sell part of a stock holding and employ average cost basis you cannot later sell more of that stock and switch to a different way to calculate the cost basis.
Average basis is a method that cannot be used for stocks and ETFs. It can only be used for open-ended mutual fund shares.

See also: Cost basis methods - Bogleheads and the links therein. The IRS has some good publications on all this as well.

I have always used "Specific Identification" and tell my broker "Sell XXXX.XXX shares bought on YY/YY and ZZZZ.ZZZ shares bought on WW/WW and …." The broker's web interface makes this very easy to do.

In the past, some web interfaces such as at Vanguard were not so sophisticated to allow one to specifically identify the shares to be sold. In that case one had to write a "letter of instruction" otherwise the default shares sold were the oldest shares one purchased (FIFO or first-in first out).
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Old 05-17-2014, 07:09 AM   #9
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Just to clarify, Vanguard's website now allows one who has selected the specific identification method to select the specific lots (or portions thereof) that are being sold when putting in a sell order. It is easy.
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Old 05-17-2014, 08:11 AM   #10
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Typically, a fund co./brokerage in recent yrs would have asked you to choose your preferred method for selling "covered" shares. If you didn't choose, there is typically a default method that selects the method. Best to clarify w/ institution where you stand. Older "uncovered" shares are/may be handled differently.
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Old 05-17-2014, 08:12 AM   #11
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There was a change to mutual fund reporting on 1/1/2012 that your mutual fund company now must report your cost basis when you sell. As part of this you now have 2 sets of holdings in mutual funds: what you acquired before 1/1/2012, and what you bought since. The new reporting makes it easier to sell mutual funds by specific ID with the newer shares. The newer and older shares are each treated as separate blocks, and once you start using average cost on a block, you are stuck with that method for that block. I recommend specific ID for newer shares, it gives you more flexibility and can avoid STCG and wash sales if you buy and sell in a short period of time. For the older shares you may find it easier to use average cost if you haven't been tracking the purchases yourself, because that may be all your mutual fund company will report to you. They don't have to report anything to you, but mine have always told me the average cost when I've sold.

For individual stocks I've never heard of using average cost. I don't think it's allowed. I think brokers had to start reporting basis on 1/1/2011. Before that, they may or may not have the basis for you. If you've transferred the shares from another broker it's unlikely that they will have your basis, so it's up to you to go back to your own records and figure it out.

Most likely when you go to sell you will see exactly what choices you have. Certainly you can start a sale and cancel it before submitting it, so you can try it out and see.
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Old 05-17-2014, 12:27 PM   #12
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I would like to thank everyone for posting in this thread. I have a much better grasp of how I could sell my stocks/mutual funds. The boglehead wiki was quite helpful as well as you all sharing information. I am starting to feel that if I want to sell a lot of stocks/funds, I may want to talk to a tax advisor (or come here :-)) before I make the plunge! For now, I think default of FI/FO for stocks and average cost for funds is OK since I am not planning to move anything major.
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Old 05-17-2014, 02:58 PM   #13
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I would like to thank everyone for posting in this thread. I have a much better grasp of how I could sell my stocks/mutual funds. The boglehead wiki was quite helpful as well as you all sharing information. I am starting to feel that if I want to sell a lot of stocks/funds, I may want to talk to a tax advisor (or come here :-)) before I make the plunge! For now, I think default of FI/FO for stocks and average cost for funds is OK since I am not planning to move anything major.
I read you other tax thread. Can't your CPA help you to structure that?

Many brokers make it quite easy to sell what lots you want to, and will show you how to get largest gain, smallest gain, all long term, all short term, whatever you are trying to achieve. But I get it that you do not really want to make this a study, so he have someone who is knowledge about it, ask him, or her.

If you have a laptop you can take it to his office and have him show you exactly how to proceed.

Ha
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