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Old 05-25-2013, 10:03 PM   #21
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True. What I was thinking is, say you had 30 stocks, and let's say on average they followed the market pretty closely. Probably some would be up, some down, so you could realize a loss or a gain if you needed. But with an ETF that matched the market, you would have to go with what it was (up/down/flat).

OK, you might have ETF shares purchased at different times, and that would give you some choice. But I think on average, 30 stocks would provide more flexibility. It may or may not be significant, but it's something to think about.

-ERD50
This is the approach I take. I own 30 to 50 different stocks. I can contribute appreciated stock to charity, harvest losses to offset capital gains from appreciated stocks that I have lost confidence in, but mostly I buy and hold the stocks awaiting retirement and the anticipated lower marginal tax brackets.
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Old 05-26-2013, 12:14 AM   #22
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Right now, everything is in my IRA and is 100% equities. 2/3 of my investments are in mutual funds, almost all index funds. The balance, 1/3, is in 14 individual stocks (I did not realize how much it was until just now), mostly in oil and gas and pipelines. Until about 5 years ago I was only in mutual funds.

Long ago, I started with mutual funds, all high-cost ones, chasing performance. After several years, I noticed that the fund that appeared every year in Forbes' September Honor Roll was Vanguard's S&P 500 index fund, but few others were there even two years in a row. Switched everything to VFINX.

Later learning about the value of international diversification (Efficient Frontier, Less Antman, Paul Merriman) and slice-and-dice (Pietro), I divided some of it up into international, small cap and value index funds. I started to learn about dividends.

Over the years I bought a little of two technology stocks, both disasters but I got out before they died. Fingers burned.

Later, I took positions in health care (managed) and energy (index) funds, figuring that these were two areas that had good long-term prospects. So far, so good.

After a while, I figured that I ought to be able to pick a few good oil and gas stocks (I work in oil and gas) and avoid the dogs and the frauds, so the energy index fund was liquidated for a few individual stocks, which I try to buy on weakness. I have a few that are speculative, in oil sands and pipelines, but I don't think there is much downside risk there, especially in the long run (unless cold fusion comes back). Yes, I am overweighted in energy. I don't see too much downside risk in the long run, though, and the dividends pay me to wait.

Still, it has worked out pretty good so far.

I have set up a brokerage account outside of the IRA, to park IRA distributions and to invest what I don't spend in retirement. I might get some individual stocks, but it is getting late in life and I might just stick it all in Wellesley.

When I croak, DW has instructions to sell everything and put it into Wellesley.
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Old 05-26-2013, 09:16 AM   #23
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I'm in the 'individual stock' camp. That view morphed slowly over time (I suppose a latent "wanting to be in control" trait subconsciously expressing itself). Because I believe in diversification, my portfolio has morphed into its own monster, with about 400 positions overall (about 65% individual stocks, 35% ETFs/mutual funds in terms of numbers, but probably about 50/50 in terms of equity values).

As my portfolio grew from gains and contributions in the early 2000s, and realized ER was a possibility after wandering onto this site, I started to add individual stocks that I felt had better prospects and yields compared to the market as a whole, and the feeling that I would rather own stocks with lower PEs and better yields/growth prospects compared to, say, S&P500 or a Wilshire 5000 index. Another trait leading to individual stocks is that I tend to make sector bets. I might learn that a few (1 to 3) stocks in a certain sector are beaten down, so I might add a few in that sector to my portfolio, given my interest in value over growth.

And, as I continue to creep closer to ER, the dividends become more central to my plan to hopefully live off of the dividend income alone, with using small capital gain distributions/sales for infrequent additional splurges. Because the individual stocks I look for have higher dividend yields compared to the indexes, I'd rather go for a relatively 'stronger' floor of dividend income with smaller prospective capital gains, rather than a lower yield from an index with a hope for capital gains and then selling off part of my portfolio to fund my needs. And I also have a big slug in MLPs (mainly pipelines), and the only way to gain exposure to those is individually or an ETF- and I have enough holdings to diversify myself to not need to pay 0.60% expense ratio to a fund to hold the exact same MLPs as I hold individually.

For international holdings, while I do have some small holdings in indexes (World, Asia, Europe), the "are you smarter than an index a 5th grader could invest in" thing is kicking in, and I feel like I want to decide which specific countries have better growth (Russia, Eastern Europe, specific Asian countries) compared to the overall world indexes, since many world indexes seem to have just a sliver in the truly emerging economies - and even in emerging indexes, many are so heavily weighted to the likes of Brazil, India and Russia that you get hardly any exposure to other emerging/frontier economies.

I do have a large percentage (maybe 15-20%?) of US stock fund ETFs, and a much smaller individual holding list of international stocks vs ETFs/funds, so it's kind of a hybrid approach in terms of individual stocks vs ETFs vs indexes.
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Old 05-26-2013, 09:22 AM   #24
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I held almost nothing but individual stocks in my 30's and 40's. I did so because there are far greater gains (and losses) possible with individual stocks, and there are no CG taxes until you sell shares. It took more study and tracking, but I did very, very well with MSFT, INTC & CSCO (15-bagger) especially - probably just lucky. Yes, I held some duds too, but they were fewer and further between. But in my late 40's, early 50's I consciously shifted all my equity holdings to MF's to reduce volatility, and that's when I started to hold bond funds as well. I don't have the time or the $ need to follow individual shares at my advanced age...
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Old 05-26-2013, 10:28 AM   #25
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I did poorly with individual stocks, and found the analysis piece to be difficult. Companies tend to be opaque about their true condition until earnings time, and even then the financial statements seem to hide a lot of nuance. I had trouble reading between the lines. Much happier with the lazy portfolio approach.
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Old 05-26-2013, 10:47 AM   #26
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While I like invest theory, as mentioned earlier, very conservative: Truth is made most of my wealth by saving cash with interest, not investing, and living frugally (not to be confused with cheaply). I assumed 0% growth in net worth in ER and can make it to about 90. Money will very likely outlive me. If I could make 5% return per year could live off just that. Guess that is a simple and lazy approach, but it worked. Last, whenever I could I did not defer taxes, so taxes might be due on 10-15k a year, if I withdraw that. So, guess I would just pay taxes on social security, maybe not, without any taxable income. Basically, tax return would show 0% income, cap. gains, etc. Would be very poor. It was a strategy put together: no significant capital loss and very low tax rate in ER.
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Old 05-26-2013, 10:55 AM   #27
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I've moved primarily in the individual stock camp, but I stick mostly with the dividend blue chippers. I do look at the financials, but let the boys at Value Line and Standard and Poors do most of the research for me. So for me, it doesn't take a ton of time following the stocks that I own. I guess ignorance truly is bliss.
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Old 05-26-2013, 11:03 AM   #28
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I've always been a mutual fund investor. I know what I don't know, which in this case is good stock picking. I'm comfy letting VG do my thinking as far as stocks in funds go (VHDYX, VTSAX, VWINX, VEUSX).

In recent years, I bought a few individual stocks for the hell of it...
CELG, BHP (because they bought out Petrohawk HK), and a few BKRB.

So far so good.
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Old 05-26-2013, 11:14 AM   #29
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Hi freebird5825, guess you saw my last post. Spent some time researching, but minimal speculative investment. Just like the topic. The strategy was saving, not investing and not deferring taxes, so I knew what they were. All kind of done on automatic so didn't have to pay much attention when saving at the risk free rate. The future is not known only probability, it does not even exist now. So, what I did may change dramatically by 2016 if forecast is correct, but that is a whole different discussion. Possibly double / triple total worth, watching very closely, that's where my attention is really focused: significant LT trend changes. All the best.
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Old 05-26-2013, 11:29 AM   #30
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Originally Posted by Ed_The_Gypsy View Post

When I croak, DW has instructions to sell everything and put it into Wellesley.
Wouldn't this expose her to significant capital gains taxes? She would get stepped up basis on one half of the assets, but the original basis would remain on the other half. In practice, I don't know how this rule is applied to the specific securities.

Ha
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Old 05-26-2013, 12:17 PM   #31
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In practice, I don't know how this rule is applied to the specific securities.
Half the basis is stepped up (or down) on each jointly-held individual security.
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Old 05-26-2013, 12:28 PM   #32
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I rely on mutual funds for international equities. But I invest in individual US stocks because there is more transparency in that particular segment of the equity world, which allows me to make more educated decisions, and because of the relative stability of select dividends in the US.
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Old 05-26-2013, 12:37 PM   #33
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Half the basis is stepped up (or down) on each jointly-held individual security.
Thank you Fired@51. Let me see if I understand. Say basis is $48,000 on a given jointly held security, and date of death value is $96,000. Step up 1/2 * $48,000 =$24,000 to 1/2* $96,000 =$48,000. So new basis is $24,000 +$48,000=$72,000.

Is this correct?

Ha
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Old 05-26-2013, 12:56 PM   #34
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Mostly index funds for me, but I have about 20% of portfolio in BRKB, PFE, LLY, AEP, GEFB, AZN, BPL. Looking for good ideas to invest excess income/dividends.
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Old 05-26-2013, 01:06 PM   #35
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Thank you Fired@51. Let me see if I understand. Say basis is $48,000 on a given jointly held security, and date of death value is $96,000. Step up 1/2 * $48,000 =$24,000 to 1/2* $96,000 =$48,000. So new basis is $24,000 +$48,000=$72,000.

Is this correct?
Yes - your math is unassailable.
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Old 05-26-2013, 01:21 PM   #36
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My 401ks are in mutual funds (100% equity, mostly international), but my brokerage account equities including IRA are by far mostly in individual stocks (mostly US small caps, and some mega cap ADRs). For me stock selection is something I enjoy doing so any performance shortfall and the higher expenses I consider to be cost of entertainment. I can't do much with spreadsheets so at the end of 1998 I sealed a trading account that I funded with a year's pay. I covered taxes on its 1099 items outside this account, but all fees and commissions were paid from its cash balance, and nothing moved in or out. A couple of months ago it hit six times the dollar value of what I put in 14 years ago, so I don't think my performance was that bad. I've also got a bad case of the sprawls with this one, I'm harvesting the losses this year and hoping the gains hold until my W2 stops.

So I guess for me the pluses are fun and a finer degree of control, and the main downside is the record keeping. BTW I have nothing against mutual funds, all my bond and money market holdings are in those.
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Old 05-26-2013, 01:58 PM   #37
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Yes - your math is unassailable.
LOL. Thanks.

Ha
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Old 05-26-2013, 02:50 PM   #38
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Half the basis is stepped up (or down) on each jointly-held individual security.
I think this might really depend on what state they live in. My mom stepped up 100% of everything when my dad died. State was Texas and no one has tried to argue with that over the past couple of decades.
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Old 05-26-2013, 05:05 PM   #39
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I think this might really depend on what state they live in. My mom stepped up 100% of everything when my dad died. State was Texas and no one has tried to argue with that over the past couple of decades.
Texas is a community property state. If the stock was held as community property, the surving spouse would receive a double step-up in basis. If it were held jointly only half the basis would be stepped up. Evidently your parents held everything as community property instead of joint tenancy.
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Old 05-27-2013, 08:00 AM   #40
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Quote:
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When I croak, DW has instructions to sell everything and put it into Wellesley.










Wouldn't this expose her to significant capital gains taxes? She would get stepped up basis on one half of the assets, but the original basis would remain on the other half. In practice, I don't know how this rule is applied to the specific securities.

Ha
I suppose it would if it were not in an IRA, but it is. Right now, my/our only investment outside of the IRA is the house.

The idea is to simplify things for her (and maybe me if my marbles fall out before I leave the game).
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