Rooting for stock to go down to sell?
Rooting for stock to go down to sell?
If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
Mark
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Re: Rooting for stock to go down to sell?
If the following assumptions are true:
All stocks will generally go up on average
You intend to hold what you want to buy until retirement
Your tax bracket will be lower in retirement
You are relatively far from retirement
You have no other tax situations that could cause your tax bracket to go down in the interim
Then you want to sell ASAP so that you have less of a tax hit now prior to your tax bracket going down in retirement.
If you donate to charity and your particular charity accepts securities then you can donate the appreciated shares instead of after tax cash to get an extra tax incentive.
All stocks will generally go up on average
You intend to hold what you want to buy until retirement
Your tax bracket will be lower in retirement
You are relatively far from retirement
You have no other tax situations that could cause your tax bracket to go down in the interim
Then you want to sell ASAP so that you have less of a tax hit now prior to your tax bracket going down in retirement.
If you donate to charity and your particular charity accepts securities then you can donate the appreciated shares instead of after tax cash to get an extra tax incentive.
Last edited by barnaclebob on Fri Feb 13, 2015 9:29 am, edited 2 times in total.
- cheese_breath
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Re: Rooting for stock to go down to sell?
Let's say a stock's basis is $5, and it's worth has increased to $10. Would you rather wait until it went back to $5, and lose the $5 gain? That leaves $5 in your pocket. Or would you rather sell at $10 and pay taxes on the gain? Guaranteed that will leave you with more than $5 in your pocket.
Or let's say you wait until the stock has dropped to $4 before you sell. That leaves you with $4 in your pocket and a $1 loss for tax purposes. However, the loss doesn't reduce your taxes by a whole dollar, only a percentage depending on what tax bracket you're in.
But realistically you have no way of knowing which way the stock will move. If you want to be in TSM (a good choice IMO) sell the stock and buy TSM.
Or let's say you wait until the stock has dropped to $4 before you sell. That leaves you with $4 in your pocket and a $1 loss for tax purposes. However, the loss doesn't reduce your taxes by a whole dollar, only a percentage depending on what tax bracket you're in.
But realistically you have no way of knowing which way the stock will move. If you want to be in TSM (a good choice IMO) sell the stock and buy TSM.
The surest way to know the future is when it becomes the past.
- cheese_breath
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Re: Rooting for stock to go down to sell?
Glad you started with the qualifier "If" and added "on average" because not all stocks go up. Some will go down. Some will go to zero. OP needs to keep this in mind.barnaclebob wrote:If the following assumptions are true:
All stocks will generally go up on average
You intend to hold what you want to buy until retirement
Your tax bracket will be lower in retirement
You are relatively far from retirement
You have no other tax situations that could cause your tax bracket to go down in the interim
You do not donate money to charity
Then you want to sell ASAP so that you have less of a tax hit now prior to your tax bracket going down in retirement.
If you donate to charity and your particular charity accepts securities then you can donate the appreciated shares instead of after tax cash to get an extra tax incentive.
The surest way to know the future is when it becomes the past.
Re: Rooting for stock to go down to sell?
There is some sense to it and it is not ridiculous. In essence you want to remain in the stock market (except for that short period of time in between sale and purchase) while trying to postpone any significant tax from a sale. That's not ridiculous because you want to stay in the market. If you were planning on taking this money out of the market then yes, you should want the market to go way up.markcoop wrote:If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
I would analyze what kind of tax hit you would take with the sale of the stock today. I would not "expect" it to occur that the market will dip in order for you to be able to make this transaction without a tax hit. The market could go up and up, or it might not. No one knows.
Re: Rooting for stock to go down to sell?
Why would anyone *ever* wish to lose money or stock value? Having to pay tax, as long as it's not 100%, is always a good thing as it means you made at least some money.
Re: Rooting for stock to go down to sell?
Imagine you sell at 10, invest 9.0 in TSM (because you paid taxes) and then the market drops 50%. Are you happier with 5 in TSM (cost basis 5) or 4.5 in TSM (cost basis 9)? But yeah sell the stock and move on. If it is a huge position feel free to do it over a couple of transactions if it makes you feel better.cheese_breath wrote:Let's say a stock's basis is $5, and it's worth has increased to $10. Would you rather wait until it went back to $5, and lose the $5 gain? That leaves $5 in your pocket. Or would you rather sell at $10 and pay taxes on the gain? Guaranteed that will leave you with more than $5 in your pocket.
Or let's say you wait until the stock has dropped to $4 before you sell. That leaves you with $4 in your pocket and a $1 loss for tax purposes. However, the loss doesn't reduce your taxes by a whole dollar, only a percentage depending on what tax bracket you're in.
But realistically you have no way of knowing which way the stock will move. If you want to be in TSM (a good choice IMO) sell the stock and buy TSM.
Re: Rooting for stock to go down to sell?
If you will ever have to live off of your savings, you will not root for stock to go down. At least, I would not.
Last edited by Sheepdog on Fri Feb 13, 2015 9:44 am, edited 1 time in total.
Unless you try to do something beyond what you have already mastered you will never grow. (Ralph Waldo Emerson)
- cheese_breath
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Re: Rooting for stock to go down to sell?
Tax loss harvesting can be a wise move in down markets. But rooting for a down market so you can lose a dollar to save a fraction of a dollar in taxes doesn't seem wise IMHO.
The surest way to know the future is when it becomes the past.
Re: Rooting for stock to go down to sell?
markcoop wrote:If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
LOL, paying capital gains tax should be a joyous event. Being in the market is about making money, not making losses. Make your change and if the market tanks you can always harvest a loss and switch to something similar but not like enough (for the IRS) later.
- cheese_breath
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Re: Rooting for stock to go down to sell?
And just to add, although I'm sure you already know, moving out of your individual stocks into something like TSM reduces your risk.
The surest way to know the future is when it becomes the past.
Re: Rooting for stock to go down to sell?
I am also converting stocks from my pre-BH days into VTI. I have lots of cap gains on those positions and just sell a few each year to spread out the LTCG hit. Because the cap gains are large, I am in danger of being subject to IRS rules regarding minimum tax pre-payments. So what I try to do is sell at the end of the year, otherwise I have to make a pre-payment which of course is dead money at that point. The IRS has rules on income pre-payments when the income is unevenly distributed in the year. Here is the form to use for that:
http://www.irs.gov/pub/irs-pdf/f2210.pdf
BTW, I never root for anything to go down.
http://www.irs.gov/pub/irs-pdf/f2210.pdf
BTW, I never root for anything to go down.
Kolea (pron. ko-lay-uh). Golden plover.
Re: Rooting for stock to go down to sell?
Thanks for the replies. I agree with everything said. And of course I don't really want the market to go down to have a loss. Let me present this a different way. Imagine the following cases:
1) Stock currently at a loss - no problem selling it and buying TSM.
2) Stock at or close to break even - Again, no problem selling it and buying TSM.
3) Stock at a gain - Willing to sell it but not as enthusiastic as (1) and (2).
I find it an odd behavioral reason as to why I'm more enthusiastic in cases (1) and (2). I think the hating to pay capital gains tax clouds the judgement of what's better overall. If I generalize this a bit, it makes me wonder how often I make a wrong decision because of a strong hate. Not looking for answers here, just noting an observation.
1) Stock currently at a loss - no problem selling it and buying TSM.
2) Stock at or close to break even - Again, no problem selling it and buying TSM.
3) Stock at a gain - Willing to sell it but not as enthusiastic as (1) and (2).
I find it an odd behavioral reason as to why I'm more enthusiastic in cases (1) and (2). I think the hating to pay capital gains tax clouds the judgement of what's better overall. If I generalize this a bit, it makes me wonder how often I make a wrong decision because of a strong hate. Not looking for answers here, just noting an observation.
Mark
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Re: Rooting for stock to go down to sell?
Nobody likes paying taxes, but don't let the tail wag the dog. Before I was a Boglehead I got burned because I wanted to wait until January of the next year to sell some stock to support my living expenses. The stock tanked before then and I had to sell a lot more than if I sold earlier.markcoop wrote:Thanks for the replies. I agree with everything said. And of course I don't really want the market to go down to have a loss. Let me present this a different way. Imagine the following cases:
1) Stock currently at a loss - no problem selling it and buying TSM.
2) Stock at or close to break even - Again, no problem selling it and buying TSM.
3) Stock at a gain - Willing to sell it but not as enthusiastic as (1) and (2).
I find it an odd behavioral reason as to why I'm more enthusiastic in cases (1) and (2). I think the hating to pay capital gains tax clouds the judgement of what's better overall. If I generalize this a bit, it makes me wonder how often I make a wrong decision because of a strong hate. Not looking for answers here, just noting an observation.
The surest way to know the future is when it becomes the past.
- saltycaper
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Re: Rooting for stock to go down to sell?
It is. I don't think it ever makes sense to want the market to drop unless you are deliberately sitting on a pile of cash and thinking you will time your way in (not recommended).markcoop wrote:However, that also seems ridiculous.
Quod vitae sectabor iter?
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Re: Rooting for stock to go down to sell?
Yes, I think I need a year of -10% or 2 years of 0% growth to make our GLWB contracts to be "in-the-money" .
I need the cash flow for a used farm tractor.
I need the cash flow for a used farm tractor.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
Re: Rooting for stock to go down to sell?
rooting for a stock to go down so you can sell and tax loss harvest is like rooting for someone to hit you on the head with a hammer, because it's going to feel so good when the pain starts to go away.
between scotch and nothing, i'll take scotch. -- faulkner
Re: Rooting for stock to go down to sell?
Is there any evidence that rooting for stocks to move one way or another influences the outcome?
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Rooting for stock to go down to sell?
I didn't own any individual stocks, but I did have some higher ER actively-managed no-load mutual funds in my taxable account before I became a Boglehead. A low income year corresponded with the stock market swoon of 2008, so I was quite happy to sell the mutual funds at a much smaller capital gain and immediately reinvest in TSM. I was able to get some gains at 0% tax rate and the rest at 15%.red5 wrote:There is some sense to it and it is not ridiculous. In essence you want to remain in the stock market (except for that short period of time in between sale and purchase) while trying to postpone any significant tax from a sale. That's not ridiculous because you want to stay in the market. If you were planning on taking this money out of the market then yes, you should want the market to go way up.markcoop wrote:If you own individual stocks that you'd prefer not to have (assume you acquired the stock pre-boglehead days), but still want that money invested in stocks (say, TSM), I seem to be conflicted as to what I prefer to happen. If I have a negative cost basis, then I can sell, take the tax loss, and then buy what I really want to own. Seems like the best of all worlds. However, that also seems ridiculous. I should want it to shoot up and sell it for a large gain. Now if the stock is moving in lock-step with TSM and both are down, then it makes sense. But stocks rarely move in lock step with TSM. Of course, I shouldn't be rooting for something to happen and just invest as I see fit.
I would analyze what kind of tax hit you would take with the sale of the stock today. I would not "expect" it to occur that the market will dip in order for you to be able to make this transaction without a tax hit. The market could go up and up, or it might not. No one knows.
In this case, I was comfortable that these mutual funds had a pretty high correlation with the stock market as a whole. I'm not sure I'd be willing to wait for the inevitable market pull back to sell individual stocks though.
Re: Rooting for stock to go down to sell?
I'm rooting for stocks to go down to buy.
Re: Rooting for stock to go down to sell?
Another thing you can do with stocks that you want to sell but that would be expensive to sell is to donate them to charity. If you are going to donate $10,000 to a charity, donating $10,000 of stock which you bought for $5000 more than a year ago will normally give you the full $10,000 deduction, with no capital-gains tax due on the $5000 gain.
Re: Rooting for stock to go down to sell?
Nor would I. I went through the same experience the OP is going through now. I chose not to wait for some future drop and it helped that the cap gains I had were not significant.cherijoh wrote: I'm not sure I'd be willing to wait for the inevitable market pull back to sell individual stocks though.
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Re: Rooting for stock to go down to sell?
In general, one makes money in stocks by buying low and selling high.
Minimizing taxes by having individual stocks go bust is not a sustainable strategy...
Minimizing taxes by having individual stocks go bust is not a sustainable strategy...
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