Selling stocks to buy Vanguard Funds

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Vincent247
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Joined: Thu Oct 05, 2017 2:03 pm

Selling stocks to buy Vanguard Funds

Post by Vincent247 » Thu Oct 05, 2017 2:12 pm

I am looking for advice on a stock portfolio started by my parents for my benefit when I was a young child. I am now an adult, and this portfolio was managed by an adviser until I transferred everything to Vanguard so I could avoid the fees and handle it on my own. I have made all of my own investments in Vanguard index funds, and I would like to do the same with this old stock portfolio. I have already sold the stocks that have losses and some that have had gains and avoided capital gains tax by offsetting the two. I have also transferred a fair number of shares to a Fidelity Charitable account to use for my charitable giving. I am left, however, with tens of thousands of dollars in individual stocks that I no longer want to hold, but since the shares have been held for so long and increased greatly in value, selling them would incur a large tax bill. I am planning to continue contributing annually to the Fidelity Charitable account, but I would like to get rid of the individual stocks sooner than later. Is it worth keeping these shares as individual stocks to avoid tax consequences, or should I bite the bullet and pay capital gains?
Thanks for your input.

jalbert
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Re: Selling stocks to buy Vanguard Funds

Post by jalbert » Thu Oct 05, 2017 3:48 pm

Depends on your tax bracket and how diverse the stock portfolio is. You may be able to reduce the tax drag by spreading the sale across several or many tax years. You may be able to do it during the depths of a bear market when the gain is less and the index you are buying has fallen by a comparable amount.
Risk is not a guarantor of return.

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ruralavalon
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Location: Illinois

Re: Selling stocks to buy Vanguard Funds

Post by ruralavalon » Thu Oct 05, 2017 4:05 pm

Welcome to the forum :) .
Vincent247 wrote:
Thu Oct 05, 2017 2:12 pm
I am looking for advice on a stock portfolio started by my parents for my benefit when I was a young child. I am now an adult, and this portfolio was managed by an adviser until I transferred everything to Vanguard so I could avoid the fees and handle it on my own. I have made all of my own investments in Vanguard index funds, and I would like to do the same with this old stock portfolio. I have already sold the stocks that have losses and some that have had gains and avoided capital gains tax by offsetting the two. I have also transferred a fair number of shares to a Fidelity Charitable account to use for my charitable giving. I am left, however, with tens of thousands of dollars in individual stocks that I no longer want to hold, but since the shares have been held for so long and increased greatly in value, selling them would incur a large tax bill. I am planning to continue contributing annually to the Fidelity Charitable account, but I would like to get rid of the individual stocks sooner than later. Is it worth keeping these shares as individual stocks to avoid tax consequences, or should I bite the bullet and pay capital gains?
Thanks for your input.
What is your tax bracket, both federal and state?

What percentage of your total portfolio does this leftover group of stocks represent?

Is this leftover group of stocks well diversified, with stocks from different sectors of the economy? Anything you might want to keep, like BrkB?

Your question ("Is it worth keeping . . .") is really just about weighng the amount of tax liability versus the risk from not being completely diversified, and the value of simplicity. It's hard to answer in the abstract.
Last edited by ruralavalon on Thu Oct 05, 2017 4:14 pm, edited 1 time in total.
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livesoft
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Re: Selling stocks to buy Vanguard Funds

Post by livesoft » Thu Oct 05, 2017 4:11 pm

Only you can answer your question. If stock markets are going to go up, then your stocks will just be creating a bigger tax headache for you.

You said though "tens of thousands" and not "hundreds of thousands", so I will infer that you have less than $100,000 in stocks and that the gains are no more than $80,000. That means the long-term capital gain tax would be about $12,000 which is not too bad.

I might suggest that you sell half now (or whatever does not increase your AGI to cause you grief) and invest in your index funds. Maybe you will be lucky and your newly purchased shares of index funds will lose money, then you can tax-loss harvest and offset some of the gains realized by selling the stocks. (I thought you would like that idea.)

Then sell the rest in January.

Presumably, you will have dividend reinvestment turned off for the stocks and the mutual funds. Also set Cost Basis Method for your mutual funds to be Specific Identification to help with any potential future tax-loss harvesting.
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delamer
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Re: Selling stocks to buy Vanguard Funds

Post by delamer » Thu Oct 05, 2017 4:20 pm

I am in the same position with inherited stocks that did not get a step-up in cost basis.

I also sold the "losers" and offsetting gains, but I am still left with a lot of capital gains.

The stocks I inherited are across a fairly broad range of industries, but have some concentration in one industry. I have decided to keep the stocks for the foreseeable future, but I am slowly reducing the shares in the concentrated industry.

The stocks make up about 1/4 of the total inheritance, and I've decided that I can live with that. Especially since there are no fees to hold them.

Vincent247
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Joined: Thu Oct 05, 2017 2:03 pm

Re: Selling stocks to buy Vanguard Funds

Post by Vincent247 » Fri Oct 06, 2017 9:23 am

ruralavalon wrote:
Thu Oct 05, 2017 4:05 pm
Welcome to the forum :) .
Vincent247 wrote:
Thu Oct 05, 2017 2:12 pm
I am looking for advice on a stock portfolio started by my parents for my benefit when I was a young child. I am now an adult, and this portfolio was managed by an adviser until I transferred everything to Vanguard so I could avoid the fees and handle it on my own. I have made all of my own investments in Vanguard index funds, and I would like to do the same with this old stock portfolio. I have already sold the stocks that have losses and some that have had gains and avoided capital gains tax by offsetting the two. I have also transferred a fair number of shares to a Fidelity Charitable account to use for my charitable giving. I am left, however, with tens of thousands of dollars in individual stocks that I no longer want to hold, but since the shares have been held for so long and increased greatly in value, selling them would incur a large tax bill. I am planning to continue contributing annually to the Fidelity Charitable account, but I would like to get rid of the individual stocks sooner than later. Is it worth keeping these shares as individual stocks to avoid tax consequences, or should I bite the bullet and pay capital gains?
Thanks for your input.
What is your tax bracket, both federal and state?

What percentage of your total portfolio does this leftover group of stocks represent?

Is this leftover group of stocks well diversified, with stocks from different sectors of the economy? Anything you might want to keep, like BrkB?

Your question ("Is it worth keeping . . .") is really just about weighng the amount of tax liability versus the risk from not being completely diversified, and the value of simplicity. It's hard to answer in the abstract.
Thanks for the reply.
My federal bracket is 33% and state is 6.84%.
I have 4 individual stocks (American Express, Amgen, Oracle, ADP) worth 187,200 with capital gains of 154,000. Obviously, these have been held for quite some time. This represents 20% of my otherwise diversified portfolio of Vanguard mutual funds. I'm not particularly attached to any of the individual stocks.

Vincent247
Posts: 4
Joined: Thu Oct 05, 2017 2:03 pm

Re: Selling stocks to buy Vanguard Funds

Post by Vincent247 » Fri Oct 06, 2017 9:27 am

livesoft wrote:
Thu Oct 05, 2017 4:11 pm
Only you can answer your question. If stock markets are going to go up, then your stocks will just be creating a bigger tax headache for you.

You said though "tens of thousands" and not "hundreds of thousands", so I will infer that you have less than $100,000 in stocks and that the gains are no more than $80,000. That means the long-term capital gain tax would be about $12,000 which is not too bad.

I might suggest that you sell half now (or whatever does not increase your AGI to cause you grief) and invest in your index funds. Maybe you will be lucky and your newly purchased shares of index funds will lose money, then you can tax-loss harvest and offset some of the gains realized by selling the stocks. (I thought you would like that idea.)

Then sell the rest in January.

Presumably, you will have dividend reinvestment turned off for the stocks and the mutual funds. Also set Cost Basis Method for your mutual funds to be Specific Identification to help with any potential future tax-loss harvesting.
Thanks for the reply. It's it bit more than I implied: $187,200 in 4 individual stocks that have been held for many years, with capital gains of $154,000. I plan to sell them gradually so as to avoid a huge tax bill, though your suggestion of hoping for a loss on my index funds for tax loss harvesting purposes is tempting :happy

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CyclingDuo
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Re: Selling stocks to buy Vanguard Funds

Post by CyclingDuo » Fri Oct 06, 2017 9:42 am

Vincent247 wrote:
Fri Oct 06, 2017 9:23 am
Thanks for the reply.
My federal bracket is 33% and state is 6.84%.
I have 4 individual stocks (American Express, Amgen, Oracle, ADP) worth 187,200 with capital gains of 154,000. Obviously, these have been held for quite some time. This represents 20% of my otherwise diversified portfolio of Vanguard mutual funds. I'm not particularly attached to any of the individual stocks.
Turn off DRIPs if you are using them, and use the dividends to purchase more shares of your index funds. Map out a plan to digest the capital gains if you spread out the selling between 2017, 2018, 2019, and beyond if you really want to sell them. Those 4 stocks in combination should track the market rather closely - so nothing lost there. No ER fees either, so they currently are not hurting you as investments.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Selling stocks to buy Vanguard Funds

Post by delamer » Fri Oct 06, 2017 10:09 am

CyclingDuo wrote:
Fri Oct 06, 2017 9:42 am
Vincent247 wrote:
Fri Oct 06, 2017 9:23 am
Thanks for the reply.
My federal bracket is 33% and state is 6.84%.
I have 4 individual stocks (American Express, Amgen, Oracle, ADP) worth 187,200 with capital gains of 154,000. Obviously, these have been held for quite some time. This represents 20% of my otherwise diversified portfolio of Vanguard mutual funds. I'm not particularly attached to any of the individual stocks.
Turn off DRIPs if you are using them, and use the dividends to purchase more shares of your index funds. Map out a plan to digest the capital gains if you spread out the selling between 2017, 2018, 2019, and beyond if you really want to sell them. Those 4 stocks in combination should track the market rather closely - so nothing lost there. No ER fees either, so they currently are not hurting you as investments.
Solid advice.

Vincent247
Posts: 4
Joined: Thu Oct 05, 2017 2:03 pm

Re: Selling stocks to buy Vanguard Funds

Post by Vincent247 » Sun Oct 08, 2017 9:59 pm

CyclingDuo wrote:
Fri Oct 06, 2017 9:42 am
Vincent247 wrote:
Fri Oct 06, 2017 9:23 am
Thanks for the reply.
My federal bracket is 33% and state is 6.84%.
I have 4 individual stocks (American Express, Amgen, Oracle, ADP) worth 187,200 with capital gains of 154,000. Obviously, these have been held for quite some time. This represents 20% of my otherwise diversified portfolio of Vanguard mutual funds. I'm not particularly attached to any of the individual stocks.
Turn off DRIPs if you are using them, and use the dividends to purchase more shares of your index funds. Map out a plan to digest the capital gains if you spread out the selling between 2017, 2018, 2019, and beyond if you really want to sell them. Those 4 stocks in combination should track the market rather closely - so nothing lost there. No ER fees either, so they currently are not hurting you as investments.
Thanks for the advice!

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