Ideas on what to do with old stock for future house fund

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JimmyC
Posts: 2
Joined: Sun Jul 16, 2017 11:51 am

Ideas on what to do with old stock for future house fund

Postby JimmyC » Sun Jul 16, 2017 12:26 pm

Hey Guys,

Long time lurker, first time poster so, first off, thanks for creating such an amazing source of knowledge towards the goal of financial independence!

I wanted to get some ideas on what to do with some stock that was given to me at or around the time I was born (1990).

From what I understand, I was originally given an unknown amount of stock in UpJohn which has subsequently spun off and grown to roughly 22k in (~60%) Pfizer (PFE) and (~%40) Monsanto (MON). With splits, spin-offs, reinvested and cashed out dividends, multiple account transfers and an unknown purchase date or amount of over 2 decades ago, I have pretty much conceded I will not be able to accurately source the cost basis and will have to pay long term gains (at %15) on it when I ultimately sell. My guess is even if I did find a cost basis I was comfortable reporting, I'd still likely owe cap gains on a good %80-90 of it since I have had it so long.

I have always planned to put the proceeds towards a down payment on a house some day (likely 3-5 years from now). I am comfortable keeping the amount in the market with a moderate amount of risk as it only makes up (after taxes) about %15 of what our ultimate down payment will likely be. Gotta love HCOL areas...

Focusing solely on this amount (I don't really factor it in to my long term investments at this point), I figure I have a couple of options. I am hoping the community might be able to help steer me in the right direction.

Option 1: Leave the money in these two stocks and pull it out/pay taxes when we are closer to purchasing a home (likely in the month before we are getting serious). I'd probably stop reinvesting the dividends and let the payments flow in to our down payment savings account/CD (ally, %1.05 and %1.25)

Option 2 (leaning towards this one): Pull out the money now, pay the taxes to get that out of the way and invest elsewhere to mitigate risk. Probably would go with TSM or a moderate growth blend. The money would remain in a taxable account, sooner I make this move the sooner I can qualify for long term cap gains in the case of a sale.

Again, I am looking at these equities only in the scope of our down payment and am comfortable with the risk of keeping this money in the market; even if that means potentially having to leave it there in the case of a dip when we are looking to buy. Just want to see what the smartest way to do this would be.

For those who are thinking it, we are currently debt free and saving for retirement at %20 or so.

Thanks in advance!

JimmyC
Posts: 2
Joined: Sun Jul 16, 2017 11:51 am

Re: Ideas on what to do with old stock for future house fund

Postby JimmyC » Tue Jul 18, 2017 8:41 pm

Only bump I'll give it. Otherwise, I'm rolling with option 2!

bloom2708
Posts: 2240
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Ideas on what to do with old stock for future house fund

Postby bloom2708 » Wed Jul 19, 2017 9:22 am

Option 2. Sell. Pay the tax. Put in an Ally or Synchrony online savings.

Money needed in 3-5 years should not be in the stock market.

It was a gift, so paying tax on the gain should just be part of the plan.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

alex_686
Posts: 1998
Joined: Mon Feb 09, 2015 2:39 pm

Re: Ideas on what to do with old stock for future house fund

Postby alex_686 » Wed Jul 19, 2017 10:07 am

The IRS does allow one to estimate your cost basis in this case.

The simplest, cleanest answer is to sell now. Reinvest in your current AA since your can bear the risk.

If charitable giving is part of your budget, give the appreciated stock and direct the cash normally spent on charitable giving towards your savings.

There are more exotic complex options out there. I know that most Bogleheads are against advisories but here is an edge case where it might makes sense. However we are only talking about 3k? In the trade off between risk and complexity I would just take the hit.

retiredjg
Posts: 29396
Joined: Thu Jan 10, 2008 12:56 pm

Re: Ideas on what to do with old stock for future house fund

Postby retiredjg » Wed Jul 19, 2017 10:08 am

You cannot hold house money in stocks until you need it unless you are willing to put the house off for several years if the market crashes. Sell it now and put it in savings - CDs, maybe some a short term bond fund.

Since you have already said you don't want to do that, sell now and invest however you want knowing the possible consequences.

not4me
Posts: 61
Joined: Thu May 25, 2017 3:08 pm

Re: Ideas on what to do with old stock for future house fund

Postby not4me » Wed Jul 19, 2017 10:43 am

alex_686 wrote:The IRS does allow one to estimate your cost basis in this case.

The simplest, cleanest answer is to sell now. Reinvest in your current AA since your can bear the risk.

If charitable giving is part of your budget, give the appreciated stock and direct the cash normally spent on charitable giving towards your savings.

There are more exotic complex options out there. I know that most Bogleheads are against advisories but here is an edge case where it might makes sense. However we are only talking about 3k? In the trade off between risk and complexity I would just take the hit.


Adding to this good post...your cost basis doesn't have to be perfect if you can get a minimal number. That is, if you could say "it is at least $20, but don't know how much more" that still saves you taxes over going with a cost basis of zero.

In case it isn't obvious on the charitable giving if you itemize deductions, you deduct the fair market value at that time & so you don't have to have a solid cost basis.

I wouldn't consider a covered call strategy as exotic & think it would fit well here. But I also wouldn't argue with the idea of taking the hit & getting it cleared off your plate. sticking with the $3k estimate, that translate to about 1-2% of ultimate down payment. I'm assuming your current allocation would not direct this into other individual stocks.


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