When to Sell Positions With Unrealized Gains

[Tranquility Base]

I own 30 or so stocks in various accounts which I would like to eventually sell. Most (25) of the stocks are held in a taxable account and are listed below. I am not sure how well the table will copy and paste into this post, but I will do my best. The list was prepared one month ago but the stocks are the same and the unrealized gains are probably a built larger now.



Symbol Description Market Value Gain/Loss $
AAPL APPLE INC $52,214.85 $44,012.91
ACN ACCENTURE PLC FCLASS A $23,882.95 $19,905.35
BLK BLACKROCK INC $20,044.00 $15,489.98
C CITIGROUP INC $2,803.84 $545.50
COF CAPITAL ONE FC $16,222.64 $9,201.67
COP CONOCOPHILLIPS $9,443.50 $5,150.92
CVS CVS HEALTH CORP $7,729.00 $150.40
CVX CHEVRON CORP $6,387.36 $2,748.63
DE DEERE & CO $30,761.81 $24,613.76
DUK DUKE ENERGY CORP $6,300.20 $867.80
J JACOBS SOLUTIONS INC $13,678.88 $8,685.90
JNJ JOHNSON & JOHNSON $19,099.85 $10,195.59
JPM JPMORGAN CHASE & CO $43,068.55 $29,337.35
KO THE COCA-COLA CO $9,969.90 $2,919.12
MCD MCDONALDS CORP $28,654.56 $18,382.01
MSFT MICROSOFT CORP $65,195.82 $56,338.24
ORCL ORACLE CORP $19,345.28 $14,553.85
PG PROCTER & GAMBLE $21,366.96 $13,043.72
RTX RTX CORP $10,572.24 $5,239.35
STT STATE STREET CORP $6,992.00 $2,978.73
TGT TARGET CORP $22,410.00 $15,286.86
TRMB TRIMBLE INC $8,312.88 $3,317.68
UNP UNION PACIFIC CORP $33,151.60 $19,924.41
USB U S BANCORP $9,281.82 $2,438.47
V VISA INC CLASS A $30,532.77 $22,342.47
Total -- $517,423.26 $347,670.67




I don’t have any large objections to holding any of these stocks other than for the past year I have been working on trying to simplify my holdings. Ironically, I have more positions now than I did one year ago, but that is because I have sold off several large positions in bond funds and replaced them with individual bonds, CDs, and a few, much smaller, positions in other bond funds (thanks to the advice I received from pb4uski and many others on this forum). I have been gradually changing my equity holdings to equity ETFs such as VTI and VOO. I started by selling the easy ones, the low hanging fruit. These were positions which were relatively small, and some had losses which I could use to offset the gains on other positions which I was selling, even though they had gains, because they were relatively small and not worth the bother of continually having to monitor them.


Most of the low hanging fruit has been picked now. I am left with these 30 positions, 25 of which are in a taxable account, and most of which are carrying a significant (significant for me at least) unrealized gain.


I am debating and trying to figure out what to do with them. I can sell them someday to offset losses, but I don’t have any significant unrealized losses at this time. I could sell some of them when needed to meet income needs but that wouldn’t require a significant amount of sales because our income needs are mostly met right now by social security, a pension, and cash reserves.


I don’t want to sell these stocks just to give in to the internal pressure I feel to simplify things and thereby create significant capital gains (all of which would be long term at least) and tax liabilities. I just dream of the day when I don’t have so many positions to monitor every 3-4 months to see how they are doing. I admit that it’s a nice “problem” to have. Even though people in this forum sometimes joke that when asked what they do for work and they don’t want to say that they are retired, they say they are an investment manager, I am not interested in having to spend as much time as I do trying to keep track of these individual stocks. I am no expert. I am self-taught. I think I can do it. I just don’t want to do it.


I always remember Warren Buffett’s comments to the effect that you should take the long view, and not buy something you aren’t intending to hold for ten years, etc. As others often point out, however, we are not Warren Buffett. I am also concerned about not knowing when it is best to sell a stock simply because it is overvalued, and the time is ripe to sell it. Various rating services can shed some light on whether a stock is overvalued and it is very easy to see Morningstar’s opinion on whether a stock is overvalued or undervalued in their reports. But you have to take analysts’ reports with a grain of salt. Just because I have done well (at least I think I have) on these stocks to date and they have some significant unrealized capital gains, doesn’t necessarily mean they should be held forever. I am a big believer in everything having its season.


Clint Eastwood used to say that a man has got to know his limitations. I think I know many of my limitations. One limitation is that I am not as capable of determining or knowing when it is time to sell a stock as I am in knowing when it is time to replace an appliance, a computer, or a motor vehicle.


What would you do? I am guessing many people would just try to be patient and wait to sell until the opportunity arises and I have losses to offset the gains. But I want to avoid blindly continuing to hold an investment simply because it has a built-up unrealized gain and has done well in the past.

 

[Dash man]

I’d keep most of them. I bet they pay you nice dividends over the course of a year and most of the raise their dividends annually. That’s a nice paycheck and is what I have done. There are a couple of companies I’m not familiar with, but overall it’s a good diversified set of dividend payers.

 

[PaunchyPirate]

It sounds like 5 of them are in an IRA of some sort. You can sell them with no taxable consequence. Sell them first and reinvest the proceeds as desired.

I see a few that only have a few hundred dollars of cap gains. I’d sell them and pay the necessary taxes on the gains.

If you haven’t already, turn off dividend reinvestment for all the others. Take the dividend money and invest it as desired or spend it.

For the rest, I would not rush to sell. when you want to spend some money, sell one of them. I’d sell when one starts to bear bad news or I’d sell the one with the least gains, as needed. Otherwise let them ride. If you truly want to sell, do so in some logical order up to the limit of capital gains taxes you want to bear. Factor in added taxation on your SS and IRMMA and NIIT.

 

[Tranquility Base]

I have turned off dividend reinvestment for all of them (although I should double check that). I figured there wasn't any reason to make the "problem" any worse.


I have considered selling the ones that have the least amount of capital gains and paying the necessary taxes on the gains. Last year was my first year selling off things, most of which were the low hanging fruit with capital losses. It was easy enough to see what the net gain or loss for the year was going to be on a running basis. But I slipped at properly estimating where it would put our taxable income. There are just so many moving pieces to the puzzle to try to keep track of.

 

[Al18]

For stocks, it’s important to buy low and sell high. The stock market has been on a tear since 11/1/23. I would sell a small percentage (5%?) and spend.the money. I like to sell some of the worst performing and the best performing stocks. Keep the middle performing stocks.

 

[RunningBum]

What are your concerns about controlling taxable income? 20% LTCG rate? ACA subsidy? IRMAA? Something else? That would determine whether and how much to sell.

An alternative to selling is to donate the highest % gain shares, probably via a Donor Advised Fund, if you itemize. Even if you don't it's more efficient than using cash for your charitable giving.

 

[Tranquility Base]

Good question. I think I forgot to address that in my original post.


My main concern has been staying inside the 12% federal income tax bracket and maxing out the 12% bracket by doing a Roth conversion, My attempts to max out the bracket in the past have been fairly close. I'm not worried about going over the limit a little bit. My spreadsheet has been very helpful. But as I mentioned earlier, there are so many moving parts - social security, pension, capital gains including the year end distributions from mutual funds, dividends (and what portion will be qualified). I would say my spreadsheet is pretty detailed and very helpful. But its accuracy isn't the greatest. But to be realistic, it's an attempt to build a crystal ball.

 

[GrayHare]

What I do is sell 1) when the company no longer matches the reason I bought into it, 2) when the holding grows so much it becomes too large a % of my total holdings (define "too large" in whatever way you deem appropriate for your situation), 3) when the holding generates complex tax consequences I don't clearly understand, 4) when I need money for another purpose and I can lock in a gain, and 5) when there's a capital loss with little hope of recovery.

 

[Tranquility Base]

What I do is sell 1) when the company no longer matches the reason I bought into it, 2) when the holding grows so much it becomes too large a % of my total holdings (define "too large" in whatever way you deem appropriate for your situation), 3) when the holding generates complex tax consequences I don't clearly understand, 4) when I need money for another purpose and I can lock in a gain, and 5) when there's a capital loss with little hope of recovery.

I'm probably too focused on trying to avoid taxes on any gains; basically trying to have my cake and eat it too. #1 is hard for me to put a finger on. #2 has not been a problem yet; I'd cap a position at 5% I think. I've already ditched some for reason #3. I haven't had the need in #4 yet. Plenty of experience with #5 although maybe in some cases the sale was not so much the result of there being "little hope of recovery" as it was the result of me running out of time and patience.

 

[RunningBum]

LTCGs aren't covered by the regular income tax brackets, so you could be in the 12% bracket with endless LTCGs taxed at 0%, 15%, 20% or 23%. If you want to stay at 0% LTCGs, you'll be very limited in what you can do with LTCGs and Roth conversions. And at that income level you may be pushing more of your SS benefits into being taxed.

Another option is to let the stocks ride (as long as you feel they are worth staying invested in) and let your heirs get stepped up basis if you don't need that money for your own needs.

I've got a similar spreadsheet to try to track my income to stay at 0% QDivs. In the past it was to stay under 400% FPL but with no ACA cliff right now that's not a concern. I messed up my spreadsheet with a new column for 2023. Not by a lot, but I could have converted $1200 more. I thought I had over converted, so it was OK, but I lost a little confident in my own know-how.

 

[Tranquility Base]

LTCGs aren't covered by the regular income tax brackets, so you could be in the 12% bracket with endless LTCGs taxed at 0%, 15%, 20% or 23%. If you want to stay at 0% LTCGs, you'll be very limited in what you can do with LTCGs and Roth conversions. And at that income level you may be pushing more of your SS benefits into being taxed.

Another option is to let the stocks ride (as long as you feel they are worth staying invested in) and let your heirs get stepped up basis if you don't need that money for your own needs.

I've got a similar spreadsheet to try to track my income to stay at 0% QDivs. In the past it was to stay under 400% FPL but with no ACA cliff right now that's not a concern. I messed up my spreadsheet with a new column for 2023. Not by a lot, but I could have converted $1200 more. I thought I had over converted, so it was OK, but I lost a little confident in my own know-how.

I'll have to reevaluate my spreadsheet to address your points about the LTCGs. This is one item I would have liked to discuss with my former accountant but I could never get his time for much more than tax preparation. We would invariable have our information to him by late February. We got tired of April 10 rolling around and wondering if we would hear from him before April 15. We always did. But we tired of the waiting and wondering.


Good point about the heirs. I hope to live many decades more. But the reality is that our annual income needs will be met (and more) once RMDs kick in for us in a couple of years and once I start taking my social security at age 70. So there isn't likely to ever be a need to sell these particular stocks. I just don't like having the complexity. (No need for kind volunteers to offer to take them off my hands.)


It's good to know that I don't have a monopoly on messing up spreadsheets. On the bright side, I've learned a lot each year about spreadsheets and good design versus bad design. But sometimes I feel like I've fallen into the spreadsheet business. And what is my other half going to do if and when I go first?

 

[gcgang]

When to sell positions with Unrealized Gains? For me, it’s never, as I don’t want to pay the tax and know I don’t have any insights into any company being overvalued and, like you, am unlikely to ever need the funds.

At a quick glance it looks like a decently diversified portfolio. Hang in there, avoid the tax, and also avoid those high ETF expenses (lol).

If charitably inclined, in addition to the aforementioned DAF, you might explore Charitable Annuities, where you get a tax deduction and some kind of income stream.

 

[Dash man]

I really don’t understand your feelings that you need to sell. Dividends are a great source of income. We collect over $140k/year in dividends alone. Add in SS and a small pension with some bond interest and we’re doing pretty well. DW hasn’t even begun her SS yet. We don’t plan to sell any more of our taxable stocks than we have to. Our kids will enjoy a step up basis of over two million plus two nice Roth accounts. We will only sell some of our taxable accounts for a possible real estate purchase to help a sibling whose husband left and has a disabled son. Dividend income is great, why throw it away?

 

[target2019]

1) Have you looked at lot details?

2) My children have accounts, and each year I gift shares.

3) Wait for a crash?

I would love to have your problem.

 

[target2019]

If CVS and DUK are long term, and in taxable, good time to cut or trim. Check the lot details.

What's in IRA you can just cut, and invest the proceeds in your VTI or money market.

 

[DrRoy]

You might establish a figure of $5-10K/yr and make modest moves. Some of the positions are within that amount.

 

[pb4uski]

...Another option is to let the stocks ride (as long as you feel they are worth staying invested in) and let your heirs get stepped up basis if you don't need that money for your own needs. ...

That's what I was thinking. Keep them and keep collecting the dividends and take advantage of the stepped-up basis.

 

[RunningBum]

Some people are calling this a pretty well-diversified portfolio, but unless this is everything you own, you can't really say that. If you have a large S&P 500 index fund, it is already heavily invested in MSFT and AAPL, and you are adding to that with another 10%+ of each with these investments. But if you have a small cap fund, or even total market, you may be offsetting that.

My point is to look at your entire portfolio to see if your allocations look reasonable. If needed, you can adjust that allocation by selling some of these holdings, or changing other investments.

 

[Montecfo]

I sell when I find something better. And I see more to like here than to dislike.

But if I wanted to trim I would first sell individual lots with small gains if any.

Otherwise I would just harvest a bit each year and not lose sight of your overall portfolio as RunningBum said above.

Also these are great for charitable contributions or for early gifting to low bracket heirs.

I think most of us would probably hang on. The goal simplifying has too large a cost.

 

[Route246]

There is no right or wrong answer.

If you put it into a spreadsheet you can sort by %gain you can see which ones have the lowest return vs highest return (irrespective of time). If it were me, and only me, I would start selling from the top of this list down. My reasoning is that the ones near the bottom have characteristically been good performers while the ones at the top have not been performing as well (again, irrespective of time).

Psychologically, you would be selling your lowest gains as a percentage of basis which can emotionally take some of the sting out of paying the inevitable tax.

Just a whimsical idea, not advice or strategy.

Symbol	Market Val	Gain/Loss	Pct	Basis	Gain
CVS CVS HEALTH CORP	$7,729.00	$150.40	1.95%	$7,578.60	1.98%
DUK DUKE ENERGY CORP	$6,300.20	$867.80	13.77%	$5,432.40	15.97%
C CITIGROUP INC	$2,803.84	$545.50	19.46%	$2,258.34	24.15%
USB U S BANCORP	$9,281.82	$2,438.47	26.27%	$6,843.35	35.63%
KO THE COCA-COLA CO	$9,969.90	$2,919.12	29.28%	$7,050.78	41.40%
TRMB TRIMBLE INC	$8,312.88	$3,317.68	39.91%	$4,995.20	66.42%
STT STATE STREET CORP	$6,992.00	$2,978.73	42.60%	$4,013.27	74.22%
CVX CHEVRON CORP	$6,387.36	$2,748.63	43.03%	$3,638.73	75.54%
RTX RTX CORP	$10,572.24	$5,239.35	49.56%	$5,332.89	98.25%
JNJ JOHNSON & JOHNSON	$19,099.85	$10,195.59	53.38%	$8,904.26	114.50%
COP CONOCOPHILLIPS	$9,443.50	$5,150.92	54.54%	$4,292.58	120.00%
COF CAPITAL ONE FC	$16,222.64	$9,201.67	56.72%	$7,020.97	131.06%
UNP UNION PACIFIC CORP	$33,151.60	$19,924.41	60.10%	$13,227.19	150.63%
PG PROCTER & GAMBLE	$21,366.96	$13,043.72	61.05%	$8,323.24	156.71%
J JACOBS SOLUTIONS INC	$13,678.88	$8,685.90	63.50%	$4,992.98	173.96%
MCD MCDONALDS CORP	$28,654.56	$18,382.01	64.15%	$10,272.55	178.94%
JPM JPMORGAN CHASE & CO	$43,068.55	$29,337.35	68.12%	$13,731.20	213.65%
TGT TARGET CORP	$22,410.00	$15,286.86	68.21%	$7,123.14	214.61%
V VISA INC CLASS A	$30,532.77	$22,342.47	73.18%	$8,190.30	272.79%
ORCL ORACLE CORP	$19,345.28	$14,553.85	75.23%	$4,791.43	303.75%
BLK BLACKROCK INC	$20,044.00	$15,489.98	77.28%	$4,554.02	340.14%
DE DEERE & CO	$30,761.81	$24,613.76	80.01%	$6,148.05	400.35%
ACN ACCENTURE PLC FCLASS A	$23,882.95	$19,905.35	83.35%	$3,977.60	500.44%
AAPL APPLE INC	$52,214.85	$44,012.91	84.29%	$8,201.94	536.62%
MSFT MICROSOFT CORP	$65,195.82	$56,338.24	86.41%	$8,857.58	636.05%

 

[Tranquility Base]

I really don’t understand your feelings that you need to sell. Dividends are a great source of income. We collect over $140k/year in dividends alone. Add in SS and a small pension with some bond interest and we’re doing pretty well. DW hasn’t even begun her SS yet. We don’t plan to sell any more of our taxable stocks than we have to. Our kids will enjoy a step up basis of over two million plus two nice Roth accounts. We will only sell some of our taxable accounts for a possible real estate purchase to help a sibling whose husband left and has a disabled son. Dividend income is great, why throw it away?

I don't feel that I need to sell. It would be more accurate to say that I prefer to simplify the inventory. Dividends are a great source of income but I don't consider them much when purchasing, selling or retaining any position. Our needs are mostly met with my spouse's SS, my spouse's pension and the dividends and interest we receive. We do receive dividends but I am not driven by the dividends. If I need to generate some income or funds, I'll just pick something to sell. Many of the dividends just get reinvested, although few stock dividends get reinvested automatically (just dividends from ETFs). When my SS kicks starts in a few years, I'm guessing there will just be more reinvestment. Yes, our kids can received the stocks and everything else someday. In the meantime, however, I would prefer not to have to keep any eye on so many individual stocks.

 

[Tranquility Base]

1) Have you looked at lot details?

2) My children have accounts, and each year I gift shares.

3) Wait for a crash?

I would love to have your problem.

I have looked at lot details, primarily last year though, in an effort to find every loss I could in order to offset some gains that were incurred when I overestimated a bit.


I don't want to try to time things. But I am guilty of watching for a time when a particular stock is up and the market overall, and hopefully VTI or VOO are down too, so I can get a nice price on the sale and a nice price on the buy. That's not the same as a crash and it doesn't address the LTCG issue either. It's more like trying to get the most bang for my buck.

 

[Tranquility Base]

You might establish a figure of $5-10K/yr and make modest moves. Some of the positions are within that amount.

That's probably a good way to go. I have a tendency to try to do everything all at once. Patience is not a virtue I am known for. Last year it was easier to trim with a chainsaw because there were several positions with fairly large long term losses which enabled me to get rid of those losers and also sell some long term gainers up to the amount of the long term losses.

 

[Tranquility Base]

Some people are calling this a pretty well-diversified portfolio, but unless this is everything you own, you can't really say that. If you have a large S&P 500 index fund, it is already heavily invested in MSFT and AAPL, and you are adding to that with another 10%+ of each with these investments. But if you have a small cap fund, or even total market, you may be offsetting that.

My point is to look at your entire portfolio to see if your allocations look reasonable. If needed, you can adjust that allocation by selling some of these holdings, or changing other investments.

I agree. Thank you. I thought I made it clear it my original post that these stocks are not my entire portfolio. But it was a long post so some people may have missed that. These are just the individual stocks I own that I would prefer to hold the same amount/value in ETFs. I didn't bank on the comments that I had a well diversified portfolio based on just these 25 stocks because I knew those people had missed the point that these are just my individual stock holdings.



I think I am diversified pretty well right now, at least based on the Portfolio Checkup feature on Schwab's website and the similar feature at Personal Capital. I assume that those tools take into account the stocks that are held individually, such as MSFT and AAPL that you mentioned, and the same stocks that are owned again through VTO, VOO and other index funds.


My allocation between stocks and fixed income at least has managed to stay fairly constant without much effort on my part. I've just reinvested dividends and interest in bonds or equity ETF depending on which way I need to tilt the allocation at the time.

 

[Jerry1]

I'd be in no hurry to sell but I would look into the rules about LTCG's and see if there's any room to get some of those locked up gains out of there at the zero to 12% tax rate.