Sell individual stocks now after transfer to Vanguard?

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RTJ
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Sell individual stocks now after transfer to Vanguard?

Post by RTJ » Thu Oct 05, 2017 3:42 pm

First, I would like to thank those who are so generous with their time and knowledge for educating me and inspiring me to move from a brokerage to Vanguard! I am trying to decide how to proceed with the rest of the transition.

Portfolio is 30 times yearly expenses. I am 64 years old and retired.

The transfer from the brokerage included a number of high ER funds as well as a number of individual stocks. I have sold the mutual funds and accept that I will be paying some long term capital gains. But I am free of ridiculous ER's! The proceeds from the mutual funds are invested about equally in Life Strategy Conservative Growth and Life Strategy Moderate Growth. That accounts for 2/3 of the value of the portfolio.

The individual stocks are the remaining third and also have long term capital gains. I'm inclined to sell these stocks and take the hit on capital gains and put that money into a less risky stock/bond mix. Vanguard's asset mix shows me at 63 stocks, 36 bonds presently but recommends 45/55.

Should I dump all the stocks now? Even though there will be taxes, I've still made money :) Any opinions/suggestions are welcome. Thanks!

afan
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Re: Sell individual stocks now after transfer to Vanguard?

Post by afan » Thu Oct 05, 2017 3:49 pm

An alternative to selling all now might be to try to match sales with capital losses, if you have any. You might sell some this year and some next to avoid being kicked into a higher tax bracket.

In part, it depends on the riskiness of the stocks. Those that are similar to the broad market- a collection of very large cap stocks for example, will do as a group similar to the stock portion of your mutual funds. Small and microcaps have much more risk of dropping a lot more than the overall market. If you have some of those, I would sell.

I assume all of this is in taxable funds? If you have money in tax favored accounts, you could reduce your stock allocation there so that your overall stock percent is where you want it. Then you could more gradually lower your taxable stock percent, while avoiding a big income spike that would raise your taxes too much.

There would be a great argument to hold on to any stocks that have short term gains until they become long term.

Look over what you have, see how large a gain and a tax bill selling now would produce. Then decide how much you want to raise your taxes this year.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

delamer
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Re: Sell individual stocks now after transfer to Vanguard?

Post by delamer » Thu Oct 05, 2017 3:54 pm

Do you know your federal long-term capital gains tax rate? It can range from 0% to 20%.

Do you know your state long-term capital gains tax rate, if any?

That is the information you need to decide when/if to sell your stocks. For instance, it may be that you could avoid some tax by taking half of your gains this year and half in 2018, depending on your other income.

Check out the TaxCaster app. You can use it to enter different income and capital gains scenarios, and see how they affect your federal taxes (in dollars) and your marginal rate.

This is, of course, assumes that the stocks are in a taxable account. If not, then there are no tax consequences to selling.

RTJ
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Re: Sell individual stocks now after transfer to Vanguard?

Post by RTJ » Thu Oct 05, 2017 5:40 pm

Thanks for the answers so far. I think what I'm trying to decide is whether it's a good idea to sell the stocks and pay the capital gains in order to achieve a different asset allocation, perhaps closer to the Vanguard recommended 45/55. Tax rate is 15% and all is in a taxable account.

delamer
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Re: Sell individual stocks now after transfer to Vanguard?

Post by delamer » Thu Oct 05, 2017 6:36 pm

How much does the taxable brokerage account make up of your total investments?

What is the allocation of your other investments?

Your allocation should be set for your entire portfolio, not just the taxable account.

MotoTrojan
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Re: Sell individual stocks now after transfer to Vanguard?

Post by MotoTrojan » Thu Oct 05, 2017 7:14 pm

RTJ wrote:
Thu Oct 05, 2017 5:40 pm
Thanks for the answers so far. I think what I'm trying to decide is whether it's a good idea to sell the stocks and pay the capital gains in order to achieve a different asset allocation, perhaps closer to the Vanguard recommended 45/55. Tax rate is 15% and all is in a taxable account.
45/55 isn't bad but I'd take that recommendation with a grain of salt, depending on your goals. 3.33% withdrawal rate could allow some decent growth and security at something closer to 60/40, with some good International equity exposure for diversification.

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CyclingDuo
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Re: Sell individual stocks now after transfer to Vanguard?

Post by CyclingDuo » Thu Oct 05, 2017 7:52 pm

RTJ wrote:
Thu Oct 05, 2017 3:42 pm
First, I would like to thank those who are so generous with their time and knowledge for educating me and inspiring me to move from a brokerage to Vanguard! I am trying to decide how to proceed with the rest of the transition.

Portfolio is 30 times yearly expenses. I am 64 years old and retired.

The transfer from the brokerage included a number of high ER funds as well as a number of individual stocks. I have sold the mutual funds and accept that I will be paying some long term capital gains. But I am free of ridiculous ER's! The proceeds from the mutual funds are invested about equally in Life Strategy Conservative Growth and Life Strategy Moderate Growth. That accounts for 2/3 of the value of the portfolio.

The individual stocks are the remaining third and also have long term capital gains. I'm inclined to sell these stocks and take the hit on capital gains and put that money into a less risky stock/bond mix. Vanguard's asset mix shows me at 63 stocks, 36 bonds presently but recommends 45/55.

Should I dump all the stocks now? Even though there will be taxes, I've still made money :) Any opinions/suggestions are welcome. Thanks!
Move the stocks "in kind" over to your new Vanguard Brokerage account. We are in the middle of a bull market melt-up, so I wouldn't advise you to sell them at the moment.

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Toons
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Re: Sell individual stocks now after transfer to Vanguard?

Post by Toons » Thu Oct 05, 2017 8:10 pm

If you have held the stocks for many years with large cap gains,
And You don't need to sell them out of necessity
Keep Them.
I have. :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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abuss368
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Re: Sell individual stocks now after transfer to Vanguard?

Post by abuss368 » Thu Oct 05, 2017 9:32 pm

RTJ wrote:
Thu Oct 05, 2017 3:42 pm
First, I would like to thank those who are so generous with their time and knowledge for educating me and inspiring me to move from a brokerage to Vanguard! I am trying to decide how to proceed with the rest of the transition.

Portfolio is 30 times yearly expenses. I am 64 years old and retired.

The transfer from the brokerage included a number of high ER funds as well as a number of individual stocks. I have sold the mutual funds and accept that I will be paying some long term capital gains. But I am free of ridiculous ER's! The proceeds from the mutual funds are invested about equally in Life Strategy Conservative Growth and Life Strategy Moderate Growth. That accounts for 2/3 of the value of the portfolio.

The individual stocks are the remaining third and also have long term capital gains. I'm inclined to sell these stocks and take the hit on capital gains and put that money into a less risky stock/bond mix. Vanguard's asset mix shows me at 63 stocks, 36 bonds presently but recommends 45/55.

Should I dump all the stocks now? Even though there will be taxes, I've still made money :) Any opinions/suggestions are welcome. Thanks!
A judgement call in terms of the individual stocks and the risks they present to an investment portfolio. One possible solutions would be to no longer reinvest any dividends. You could also sell over a period of years.

We sold our individual stocks 10 years ago, paid the tax, and never looked back. In hindsight it was a very wise decision.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Ron Scott
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Re: Sell individual stocks now after transfer to Vanguard?

Post by Ron Scott » Fri Oct 06, 2017 12:03 am

I disagree with most of the responses above because I do not believe an investment strategy should be subordinate to a tax strategy.

From what I gather, you have a sizable portfolio in individual stocks in your taxable account that has performed well and you are looking to shift more of your total assets into bonds. If so, selling those individual stocks makes perfect sense.

ThrustVectoring
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Re: Sell individual stocks now after transfer to Vanguard?

Post by ThrustVectoring » Fri Oct 06, 2017 1:24 am

Are you planning on making any charitable donations? If so, look into in-kind donations (or Vanguard's Donor Advised Fund). You get to claim the full value of the stocks as a tax deduction without paying capital gains, so it's pretty much a free win if you were going to donate anyways.

stlutz
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Re: Sell individual stocks now after transfer to Vanguard?

Post by stlutz » Fri Oct 06, 2017 2:15 am

I do not believe an investment strategy should be subordinate to a tax strategy.
+1.

However, since we are close to the end of the year, you could consider taking some gains this year and some gains in January of next year. You would consider doing this if either a) you could take gains at a 0% rate next year or b) taking more gains would push you into a higher capital gains bracket this year.

Just based on what you've written, (a) is probably more likely to come into play than (b). But that depends on what other income sources you have and when you will start taking Social Security.

RTJ
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Re: Sell individual stocks now after transfer to Vanguard?

Post by RTJ » Fri Oct 06, 2017 9:18 am

Great responses and advice! Thanks!

Since I have already incurred some capital gains by selling the high ER mutual funds, I think waiting until January to sell the stocks will be my strategy. Most of these stocks were purchased 3 or 4 years ago so all are long term.

informal guide
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Re: Sell individual stocks now after transfer to Vanguard?

Post by informal guide » Fri Oct 06, 2017 10:08 am

If you plan to sell in January anyway and the stocks are widely traded, you might want to consider selling covered call options (slightly out of the money) on the stocks - -It gives you the possibility of a higher sale price and reduces risk a slight bit.

This adds some complexity short term - -not very Boglehead-like - - but slightly improves returns if the stock is called away and provides a bit of value if the stock drops (the option premium)

I have done that for three stock positions a couple months ago that I want to sell but not until next year. From a tax standpoint, the premium - -if the stock is called away --, is, I believe, included in the sale price. Otherwise it is a short term capital gain when the option expires worthless.

For example, I sold contracts (each contract is for 100 shares) to sell Norfolk Southern stock at $140 for $3.25 per share, expiring in January 2018. The stock was trading at around $130 when I sold the contract three weeks ago, so I'd be happy with a sale at $140.00. This works a bit better for me because I have some free trades from Vanguard (otherwise you pay commissions on both the sale of the contract and, if applicable, the sale of the stock). If the stock closes above $143 in January, my gains are lower than they otherwise would have been. If the stock is below $140 then, I simply pocket the $3.25 per share and can write contracts in January (say for July) or sell the stock.

David Scubadiver
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Re: Sell individual stocks now after transfer to Vanguard?

Post by David Scubadiver » Fri Oct 06, 2017 11:18 am

Writing covered calls expiring in January is what I would do to lock in the gains this year. That is what I did with Apple. But, then I closed out the position at a profit and am now long and uncovered again.

Eta: Options didn’t lock in the gain. Just protected some against a downward slide. If options aren’t for you I’d sell to diversify if the stocks make up more than 5% of your portfolio.

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