I'm about to inherit a single stock with a worth of just over 7 figures....

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Afty
Posts: 828
Joined: Sun Sep 07, 2014 5:31 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Afty » Thu Jul 19, 2018 3:57 pm

harrington wrote:
Thu Jul 19, 2018 12:27 pm
Part of me wants to continue holding it to pass on to the next generation and part of me says to sell it and buy an index fund for more diversification.
Don't get attached to stocks. I think you know what the right decision is here.

VaR
Posts: 585
Joined: Sat Dec 05, 2015 11:27 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by VaR » Thu Jul 19, 2018 4:00 pm

Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I may have. I see giving up the $35,000 annually as a potential mistake. I don't disagree in being diversified but if this is a solid asset and the OP is comfortable owing an individual stock then he should run with it. If not, then go with index funds.
Giving up the free lunch of diversification is the real potential mistake here. It is questionable whether it would meet a suitability standard, much less a fiduciary standard. In my opinion, it's irresponsible to advise someone to keep their concentrated position if they have stepped up basis. You say "solid asset", but how do you define that? I don't know of any single equity that is less risky than a diversified portfolio of equities.

Being focused on dividends is another common investment mistake. What's the rationale for preferring dividends to capital gains? Especially in the case of the OP who doesn't seem to have a dependence on the dividends. I'd guess that they would prefer the gains to be deferred capital gains rather than paid out as dividends and taxed every year. But what say you, OP?

There are a number of suboptimal ways of addressing the aforementioned financial biases, but I don't want to muddle the advice unless we have to.

Also, it just occurred to me that not only will the OP inherit a $500,000 position, but he or she will have to pony up $500,000 to "buy out" the brother's inherited position. OP, will you have to come up with this additional cash or will this just be a swap of inherited assets?

maj
Posts: 412
Joined: Wed Jun 25, 2008 2:58 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by maj » Thu Jul 19, 2018 4:01 pm

Good for you coming to Boglehead.org.

I do not know your age.
Regardless, please pay attention to the suggestions that you diversify.

I hope you do not fulfill the old saying: No one believes anything until he discovers it for himself.
If you hold on to a single inherited stock of significant value, and it disappoints, you will have discovered too late the elixir of diversification.
And the opportunity is lost forever.

Since the stock is inherited, you likely will have little or no tax to pay when you sell it.
No matter if you had a large tax bite, pay your taxes, and diversify.

Diversify into what?
USA Total stock market index fund (or etf)
or if you want to go global, especially if you are young, Total World Stock Index Fund (or etf).

Peace

GoldenFinch
Posts: 1647
Joined: Mon Nov 10, 2014 11:34 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by GoldenFinch » Thu Jul 19, 2018 4:13 pm

Selling and diversifying into VTSAX means it’s still your Dad’s legacy money, but it’s safer. After the transaction is done it will still feel like the same wonderful gift that it is, but you won’t have the elevated risk of losing it that comes along with owning a single stock.

User avatar
vineviz
Posts: 2044
Joined: Tue May 15, 2018 1:55 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by vineviz » Thu Jul 19, 2018 4:14 pm

knpstr wrote:
Thu Jul 19, 2018 3:54 pm
Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I see giving up the $35,000 annually as a potential mistake.
Almost any index fund will just as likely allow you to withdraw $35,000 a year on a $1M portfolio, its only a 3.5% withdrawal rate.

He wouldn't be giving up $35,000 annually. If they wanted that amount of income they could still have it.
Absolutely. And EVEN IF the withdrawal rate was hard to replace, there is no single stock that can justify being over 25% of the portfolio.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

lostdog
Posts: 1241
Joined: Thu Feb 04, 2016 2:15 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by lostdog » Thu Jul 19, 2018 4:18 pm

Sell it and diversify. Vanguard Total Stock Market for just U.S. exposure or Vanguard Total World for even more diversification into the global market cap.

FireHorse
Posts: 73
Joined: Sat Nov 25, 2017 7:03 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by FireHorse » Thu Jul 19, 2018 4:19 pm

Energy stock - sell it and take the money and run

User avatar
oldzey
Posts: 1073
Joined: Sun Apr 13, 2014 8:38 pm
Location: Land of Lincoln

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by oldzey » Thu Jul 19, 2018 4:40 pm

harrington wrote:
Thu Jul 19, 2018 12:27 pm
It is an energy stock that my Dad has held as an employee and through retirement and reinvested the dividends. It generates about $35,000 per year in dividends. My brother has no interest in hanging on to his share so I will probably buy him out. Part of me wants to continue holding it to pass on to the next generation and part of me says to sell it and buy an index fund for more diversification. Thoughts?
Listen to that part of you, and also listen to this: Warren Buffett: Buying And Holding Index Funds Has Worked
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

123
Posts: 3819
Joined: Fri Oct 12, 2012 3:55 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by 123 » Thu Jul 19, 2018 4:46 pm

Grt2bOutdoors wrote:
Thu Jul 19, 2018 12:55 pm
Keep $10K of it in stock, sell everything else. $10K is well within the realm of investing. Sell everything else and diversify. ...
+1 Keeping some amount for sentimental reasons is okay whether it's $10K, 100 shares, or 1000 shares, whatever you currently need as a "tribute", but diversify the rest.
The closest helping hand is at the end of your own arm.

viz
Posts: 135
Joined: Fri May 04, 2018 11:22 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by viz » Thu Jul 19, 2018 4:56 pm

j0nnyg1984 wrote:
Thu Jul 19, 2018 12:29 pm
You'll have to take care to manage the tax hit, but yes, I would definitely get out of it and into something like VTSAX.

Why would you "buy your brother out?" Let him manage his half as he wishes.
First of all, OP sorry for your loss.
There shouldn't be much of a tax hit unless the stock has greatly appreciated since OP's dad passed as cost basis reset. I would just sell and get to the default portfolio.

User avatar
Rob5TCP
Posts: 3164
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Rob5TCP » Thu Jul 19, 2018 4:58 pm

A client asked me to review her portfolio a couple of months ago (she knows I am a Boglehead investor and understands what that means).
She had about 9% of her portfolio in G.E. When I asked her why so much, she had been buying GE for 30+ years. Long story short, at one point it was over 1/3 of her portfolio. GE was the most valuable company in 2001 - by 2006 it was number 2, by 2011 it was out of the top 5 and now...
Her FATHER got her into G.E. and encouraged her to buy more and more. She has sold about 1/2 of what she has left (so she is down to 5%). I would never allow any one equity to be more than 5/6% of my net worth.
YMMV --

Nate79
Posts: 3581
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Nate79 » Thu Jul 19, 2018 5:06 pm

vineviz wrote:
Thu Jul 19, 2018 4:14 pm
knpstr wrote:
Thu Jul 19, 2018 3:54 pm
Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I see giving up the $35,000 annually as a potential mistake.
Almost any index fund will just as likely allow you to withdraw $35,000 a year on a $1M portfolio, its only a 3.5% withdrawal rate.

He wouldn't be giving up $35,000 annually. If they wanted that amount of income they could still have it.
Absolutely. And EVEN IF the withdrawal rate was hard to replace, there is no single stock that can justify being over 25% of the portfolio.
Agree. There is not a single financial, rational nor educated reason to keep a concentrated position in any single stock when there is the opportunity to get out without tax consequences.

A recommendation to keep a single stock is extremely disengenuous to push a dividend strategy which is not based in any reasonable risk/reward evaluation.

Gill
Posts: 4733
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Gill » Thu Jul 19, 2018 5:09 pm

viz wrote:
Thu Jul 19, 2018 4:56 pm
j0nnyg1984 wrote:
Thu Jul 19, 2018 12:29 pm
You'll have to take care to manage the tax hit, but yes, I would definitely get out of it and into something like VTSAX.

Why would you "buy your brother out?" Let him manage his half as he wishes.
First of all, OP sorry for your loss.
There shouldn't be much of a tax hit unless the stock has greatly appreciated since OP's dad passed as cost basis reset. I would just sell and get to the default portfolio.
You can’t be sure there is a stepped up basis.
Gill

Cash is King
Posts: 31
Joined: Sun Dec 10, 2017 9:04 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Cash is King » Thu Jul 19, 2018 5:21 pm

Nate79 wrote:
Thu Jul 19, 2018 5:06 pm
vineviz wrote:
Thu Jul 19, 2018 4:14 pm
knpstr wrote:
Thu Jul 19, 2018 3:54 pm
Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I see giving up the $35,000 annually as a potential mistake.
Almost any index fund will just as likely allow you to withdraw $35,000 a year on a $1M portfolio, its only a 3.5% withdrawal rate.

He wouldn't be giving up $35,000 annually. If they wanted that amount of income they could still have it.
Absolutely. And EVEN IF the withdrawal rate was hard to replace, there is no single stock that can justify being over 25% of the portfolio.
Agree. There is not a single financial, rational nor educated reason to keep a concentrated position in any single stock when there is the opportunity to get out without tax consequences.

A recommendation to keep a single stock is extremely disengenuous to push a dividend strategy which is not based in any reasonable risk/reward evaluation.
Hyperbole at it's finest.

User avatar
topper1296
Posts: 582
Joined: Fri Apr 03, 2009 10:50 pm
Location: Nashville TN

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by topper1296 » Thu Jul 19, 2018 5:25 pm

I haven't read all of the other responses, however why not find a "middle ground"? Maybe sell 80% of it to put in a total stock market index and keep the rest.

Nate79
Posts: 3581
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Nate79 » Thu Jul 19, 2018 5:26 pm

Cash is King wrote:
Thu Jul 19, 2018 5:21 pm
Nate79 wrote:
Thu Jul 19, 2018 5:06 pm
vineviz wrote:
Thu Jul 19, 2018 4:14 pm
knpstr wrote:
Thu Jul 19, 2018 3:54 pm
Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I see giving up the $35,000 annually as a potential mistake.
Almost any index fund will just as likely allow you to withdraw $35,000 a year on a $1M portfolio, its only a 3.5% withdrawal rate.

He wouldn't be giving up $35,000 annually. If they wanted that amount of income they could still have it.
Absolutely. And EVEN IF the withdrawal rate was hard to replace, there is no single stock that can justify being over 25% of the portfolio.
Agree. There is not a single financial, rational nor educated reason to keep a concentrated position in any single stock when there is the opportunity to get out without tax consequences.

A recommendation to keep a single stock is extremely disengenuous to push a dividend strategy which is not based in any reasonable risk/reward evaluation.
Hyperbole at it's finest.
Feel free to post rational proof for having an extremely concentrated position in a single stock disputing the basis for bogleheads investing strategy. I've yet to see it. Claiming what I wrote as "hyperbole" is laughable at best.

mouses
Posts: 3819
Joined: Sat Oct 24, 2015 12:24 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by mouses » Thu Jul 19, 2018 5:30 pm

harrington wrote:
Thu Jul 19, 2018 12:27 pm
It is an energy stock that my Dad has held as an employee and through retirement and reinvested the dividends. It generates about $35,000 per year in dividends. My brother has no interest in hanging on to his share so I will probably buy him out. Part of me wants to continue holding it to pass on to the next generation and part of me says to sell it and buy an index fund for more diversification. Thoughts?
No. Do not buy your brother's share.

If you are emotionally attached to the stock, keep one share. Then decide what to do with the rest (keep some, invest some on a, b, c, put some in CDs, etc. depending on good investing principles.)

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by livesoft » Thu Jul 19, 2018 5:32 pm

topper1296 wrote:
Thu Jul 19, 2018 5:25 pm
I haven't read all of the other responses, however why not find a "middle ground"? Maybe sell 80% of it to put in a total stock market index and keep the rest.
Because that would be bad.
Wiki This signature message sponsored by sscritic: Learn to fish.

viz
Posts: 135
Joined: Fri May 04, 2018 11:22 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by viz » Thu Jul 19, 2018 5:36 pm

Gill wrote:
Thu Jul 19, 2018 5:09 pm
viz wrote:
Thu Jul 19, 2018 4:56 pm
There shouldn't be much of a tax hit unless the stock has greatly appreciated since OP's dad passed as cost basis reset. I would just sell and get to the default portfolio.
You can’t be sure there is a stepped up basis.
Gill
for my education, in what cases will stepped basis will not apply? thanks!

letsgobows
Posts: 43
Joined: Thu May 01, 2014 10:21 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by letsgobows » Thu Jul 19, 2018 5:39 pm

assuming your dad has passed away and a step-up in basis was done, now is the time to SELL!!!!!!

Cash is King
Posts: 31
Joined: Sun Dec 10, 2017 9:04 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Cash is King » Thu Jul 19, 2018 5:42 pm

Nate79 wrote:
Thu Jul 19, 2018 5:26 pm
Cash is King wrote:
Thu Jul 19, 2018 5:21 pm
Nate79 wrote:
Thu Jul 19, 2018 5:06 pm
vineviz wrote:
Thu Jul 19, 2018 4:14 pm
knpstr wrote:
Thu Jul 19, 2018 3:54 pm

Almost any index fund will just as likely allow you to withdraw $35,000 a year on a $1M portfolio, its only a 3.5% withdrawal rate.

He wouldn't be giving up $35,000 annually. If they wanted that amount of income they could still have it.
Absolutely. And EVEN IF the withdrawal rate was hard to replace, there is no single stock that can justify being over 25% of the portfolio.
Agree. There is not a single financial, rational nor educated reason to keep a concentrated position in any single stock when there is the opportunity to get out without tax consequences.

A recommendation to keep a single stock is extremely disengenuous to push a dividend strategy which is not based in any reasonable risk/reward evaluation.
Hyperbole at it's finest.
Feel free to post rational proof for having an extremely concentrated position in a single stock disputing the basis for bogleheads investing strategy. I've yet to see it. Claiming what I wrote as "hyperbole" is laughable at best.
That's funny. How do you determine an extremely concentrated position? Assumption? I never mentioned it was okay to have "an extremely concentrated position in my above posts. I guess that's more hyperbole.

avidsaver
Posts: 75
Joined: Wed Aug 13, 2014 1:47 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by avidsaver » Thu Jul 19, 2018 5:44 pm

Wow I would not be able to sleep well at night with 7 figures being in one stock especially an energy stock. As grim as it sounds I would take advantage of the step up in basis from your dad passing to diversify the stock into an index fund and/or target date fund that aligns with your chosen AA and investment policy statement.

Gill
Posts: 4733
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Gill » Thu Jul 19, 2018 5:52 pm

viz wrote:
Thu Jul 19, 2018 5:36 pm
Gill wrote:
Thu Jul 19, 2018 5:09 pm
viz wrote:
Thu Jul 19, 2018 4:56 pm
There shouldn't be much of a tax hit unless the stock has greatly appreciated since OP's dad passed as cost basis reset. I would just sell and get to the default portfolio.
You can’t be sure there is a stepped up basis.
Gill
for my education, in what cases will stepped basis will not apply? thanks!
When the asset comes from a trust in such way that it is not included in the estate of a decedent or from a qualified plan.
Gill

User avatar
Blimpalot
Posts: 15
Joined: Thu Jan 11, 2018 12:14 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Blimpalot » Thu Jul 19, 2018 6:01 pm

Rob5TCP wrote:
Thu Jul 19, 2018 4:58 pm
A client asked me to review her portfolio a couple of months ago (she knows I am a Boglehead investor and understands what that means).
She had about 9% of her portfolio in G.E. When I asked her why so much, she had been buying GE for 30+ years. Long story short, at one point it was over 1/3 of her portfolio. GE was the most valuable company in 2001 - by 2006 it was number 2, by 2011 it was out of the top 5 and now...
Her FATHER got her into G.E. and encouraged her to buy more and more. She has sold about 1/2 of what she has left (so she is down to 5%). I would never allow any one equity to be more than 5/6% of my net worth.
YMMV --
Yes. Heck, I even worry sometimes that my holdings in VTSAX are not diversified enough. I mean it sounds great that it is invested in over 3,000 companies. But 18% is invested in just 10 companies (at least half of which I loathe, but that's a different story). Yeah, technically I am invested in the "entire US market" but I still feel a little wobbly about having so much concentrated in so few. This is one reason I disagree (mildly) with Jim Collins on whether international equities should be part of a stock portfolio (he says no). I like that with, say, Vanguard's Total World fund, there are twice as many companies and the top ten comprise "only" 10% of the total portfolio--it's almost twice as diversified.
"Nothing I see can be taken from me."--Tom Marshall

LFKB
Posts: 514
Joined: Mon Dec 24, 2012 7:06 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by LFKB » Thu Jul 19, 2018 6:04 pm

If rather than inheriting $1M of the stock someone gave you $1M in cash, would you put it all in this stock? That is the answer you should be asking yourself.

LFKB
Posts: 514
Joined: Mon Dec 24, 2012 7:06 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by LFKB » Thu Jul 19, 2018 6:09 pm

Nate79 wrote:
Thu Jul 19, 2018 5:06 pm
vineviz wrote:
Thu Jul 19, 2018 4:14 pm
knpstr wrote:
Thu Jul 19, 2018 3:54 pm
Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I see giving up the $35,000 annually as a potential mistake.
Almost any index fund will just as likely allow you to withdraw $35,000 a year on a $1M portfolio, its only a 3.5% withdrawal rate.

He wouldn't be giving up $35,000 annually. If they wanted that amount of income they could still have it.
Absolutely. And EVEN IF the withdrawal rate was hard to replace, there is no single stock that can justify being over 25% of the portfolio.
Agree. There is not a single financial, rational nor educated reason to keep a concentrated position in any single stock when there is the opportunity to get out without tax consequences.

A recommendation to keep a single stock is extremely disengenuous to push a dividend strategy which is not based in any reasonable risk/reward evaluation.
:? tell that to people who invested in Apple, Amazon, Nike, Netflix in the early days...there are plenty of reasons to own single stocks if you are willing to take the risk. Most here are not.

investorpeter
Posts: 145
Joined: Sun Jul 31, 2016 5:46 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by investorpeter » Thu Jul 19, 2018 6:13 pm

I am in the sell-the-stock-and-buy-an-index-fund camp. The only reason to hold onto a concentrated stock position is to avoid paying capital gains taxes during your lifetime so that you can pass on to your children with a step up in basis. And this is exactly what your dad did. In effect, he took on the risk of the concentrated stock position during his lifetime so that you can now sell without paying the capital gains that he would have had to pay. In a sense, to not sell now would be to squander the risk that your father took. That's just an unconventional, but not irrational, way of looking at this.

User avatar
ThereAreNoGurus
Posts: 135
Joined: Fri Jan 24, 2014 11:41 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by ThereAreNoGurus » Thu Jul 19, 2018 6:25 pm

livesoft wrote:
Thu Jul 19, 2018 3:41 pm
Cash is King wrote:
Thu Jul 19, 2018 3:21 pm
I see giving up the $35,000 annually as a potential mistake.
I'm laughing because that assumes that a passively-managed low-expense-ratio diversified index fund portfolio won't pay out just as much or more annually.

I wish my index funds didn't pay out so much because I get taxed on those payouts in my taxable account.

Plus we all know about the Dividend Fallacy anyways.
I don't think Cash is King realizes the "Dividend Fallacy," that a dividend payment is not the same as an interest payment from a bond. In other words, the stock price is adjusted down by the amount of the dividend. See: https://investor.vanguard.com/investing ... g-dividend

Edited to add: Also see this: https://www.physicianonfire.com/selling ... dividends/

User avatar
cheese_breath
Posts: 8017
Joined: Wed Sep 14, 2011 7:08 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by cheese_breath » Thu Jul 19, 2018 6:27 pm

harrington wrote:
Thu Jul 19, 2018 12:27 pm
... Part of me wants to continue holding it to pass on to the next generation...
And if it turns out to ba another Enron? How will your next generation view you when they see your brother's next generation retired, and they're still working to scrape out a living?
The surest way to know the future is when it becomes the past.

User avatar
vineviz
Posts: 2044
Joined: Tue May 15, 2018 1:55 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by vineviz » Thu Jul 19, 2018 6:48 pm

Cash is King wrote:
Thu Jul 19, 2018 5:42 pm
How do you determine an extremely concentrated position? Assumption?
The influence a potential asset has on a portfolio is determined by its mean expected return, its expected variance, and its correlation with the other assets (or, alternately, with the portfolio itself). The mathematics are rather involved, but the evaluation can definitely be done objectively and quantitatively.

I guess it's true that we're making some assumptions here, because we don't know the stock or the rest of the portfolio, but I can say with confidence that after many years analyzing countless portfolios I've never found a situation where the optimal weight for an individual stock was north of 20%.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
vineviz
Posts: 2044
Joined: Tue May 15, 2018 1:55 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by vineviz » Thu Jul 19, 2018 6:58 pm

Blimpalot wrote:
Thu Jul 19, 2018 6:01 pm
Heck, I even worry sometimes that my holdings in VTSAX are not diversified enough. I mean it sounds great that it is invested in over 3,000 companies. But 18% is invested in just 10 companies (at least half of which I loathe, but that's a different story). Yeah, technically I am invested in the "entire US market" but I still feel a little wobbly about having so much concentrated in so few. This is one reason I disagree (mildly) with Jim Collins on whether international equities should be part of a stock portfolio (he says no). I like that with, say, Vanguard's Total World fund, there are twice as many companies and the top ten comprise "only" 10% of the total portfolio--it's almost twice as diversified.
I doubt I can put your mind at ease, but please take some comfort in the fact diversification isn't accomplished linearly with the addition of more assets. VTSAX is, itself, incredibly diversified and that "18% is invested in just 10 companies" might FEEL like concentration but mathematically it is light years away from being risky. Don't sweat it.

I happen to agree with you that international stocks can be useful additional diversification in a portfolio (especially emerging markets stocks, but that's another story), but not because there are "twice as many companies" in Total World. Having twice as many stocks doesn't make it "twice as diversified". There is no one set way to quantify diversification, but one way (Shannon entropy) would suggest that you could think of Total World as being about 25% "more diversified" than VTSAX.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Spirit Rider
Posts: 8899
Joined: Fri Mar 02, 2007 2:39 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Spirit Rider » Thu Jul 19, 2018 7:08 pm

Cash is King wrote:
Thu Jul 19, 2018 5:21 pm
Nate79 wrote:
Thu Jul 19, 2018 5:06 pm
Agree. There is not a single financial, rational nor educated reason to keep a concentrated position in any single stock when there is the opportunity to get out without tax consequences.

A recommendation to keep a single stock is extremely disengenuous to push a dividend strategy which is not based in any reasonable risk/reward evaluation.
Hyperbole at it's finest.
Logical fallacy at it's finest. When you can't defend your position against a legitimate counter-argument.

AlwaysWannaLearn
Posts: 230
Joined: Mon May 28, 2018 8:37 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by AlwaysWannaLearn » Thu Jul 19, 2018 7:50 pm

harrington wrote:
Thu Jul 19, 2018 1:43 pm
I let my emotions get the best of me and I agree that selling the stock is the correct route to take......I used to tell my Parents that they were taking a huge risk holding all this stock in one company. I guess I knew the correct answer all along. Thanks for the advice.
I'm sorry for your loss, OP. :(

Please bear in mind that it's not an all-or-nothing decision. Given that emotion is what makes us human and fulfilled, no need to apologize for being human! For all the reasons stated - and that you wisely tried to convince your parents of! - as you've recognized, you DO likely need to sell most of that position at your hopefully-stepped up basis, and diversify that holding. BTW, that's assuming it would represent a significant % of your portfolio if left untouched; if it's <1%, never mind. Do as you wish....

That said, you don't have to sell it ALL. I'm not one of these people who thinks that emotion has no place in investing. I think it's more of a "balance", just like an AA, and it changes over time. Bottom line: There's nothing wrong with holding on to a few shares for sentimental value. I agree with the others here who've advised holding on to a "bit", and selling the rest: They're the ones who are recognizing your situation with a bit more "emotional intelligence" than those who are (appropriately, given the objective of this forum) offering the best course from a narrow strict financial/investment perspective. If you're comfortable selling it all and diversifying the proceeds, do it. If not, and in your current situation, you feel like you'd sleep better at night and/or feel better when looking yourself in the mirror by holding some to honor your father's kind legacy, hold on to some of it. You can always sell later as the "emotional" factors fade/"rational" factors take over. If you choose the latter path, any cap gains you pay at the time will merely be the price you paid for your "sleep better/mirror" factors. Small price to pay, IMHO.

FWIW, I still have a few shares from a former employer that launched my career, and from my late father's employer where he was employed throughout his career and that paid for the comfortable middle-class life I had as a kid. We were both very loyal to those companies. Yes, I know it's not "right" from a finance/investment pov to have these in my portfolio, but so what? It's <1% and more to the point, it gives me great joy and comfort on the few times a year I log into my brokerage account to see those company names sitting there. It's a happy memory of my Dad and the sacrifices he made for me, and a happy memory of a company that set me on a course to a happy retirement. To me, that's priceless. YMMV.

Cruise
Posts: 655
Joined: Mon Nov 21, 2016 7:17 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Cruise » Fri Jul 20, 2018 12:59 am

OP: Diversify!

My father named me as a trustee for his 7-figure portfolio composed mostly of one stock, also purchased in an employee stock purchase plan.

As trustee, I had to make the very difficult decision to diversify from this legacy which had great emotional attachment. With the help of our bank's trust department, I cut the ties and bought a diverse selection of stock and bond funds.

Great that I made this decision, because the company ended up having some very public problems that caused its stock price to plummet. My siblings ending up thinking I was a financial genius :) .

MJS
Posts: 191
Joined: Sat Aug 05, 2017 10:55 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by MJS » Fri Jul 20, 2018 1:04 am

investorpeter wrote:
Thu Jul 19, 2018 6:13 pm
I am in the sell-the-stock-and-buy-an-index-fund camp. ... In effect, he took on the risk of the concentrated stock position during his lifetime so that you can now sell without paying the capital gains that he would have had to pay. In a sense, to not sell now would be to squander the risk that your father took.
+1. You might consider quietly providing the same service to your brother. If he's not interested in financial management, taking on his shares might be a very brotherly thing to do.

Best wishes to you and your family in this time of grief.

selters
Posts: 608
Joined: Thu Feb 27, 2014 9:26 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by selters » Fri Jul 20, 2018 3:42 am

harrington wrote:
Thu Jul 19, 2018 12:27 pm
It is an energy stock that my Dad has held as an employee and through retirement and reinvested the dividends. It generates about $35,000 per year in dividends. My brother has no interest in hanging on to his share so I will probably buy him out. Part of me wants to continue holding it to pass on to the next generation and part of me says to sell it and buy an index fund for more diversification. Thoughts?
For the sake of argument, I'll assume it's Exxon Mobil and that it's a million dollars. But the argument applies to any single stock. No exceptions.

If you inherited one million dollars in cash, would you buy one million dollars worth of Exxon Mobil stock? If yes, then you should keep it. If no, then you should diversify into an index fund (and a bond fund or cash, if desirable).

Maybe you can keep 10% of it or something for emotional reasons.

I do get that there's a nice story behind this and a lot of sentimental value to the stock, but the risk is just too great to take that into consideration.

Unless, of course, your net worth is $10 million from before. In that case, you can keep it.

selters
Posts: 608
Joined: Thu Feb 27, 2014 9:26 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by selters » Fri Jul 20, 2018 3:55 am

simplesimon wrote:
Thu Jul 19, 2018 12:39 pm
I wonder how many people faced this predicament with GE stock 2-3 years ago and what they ended up doing...
There was a great about this on Reddit, and maybe it was mentioned on here, too, about a guy who inherited about a million dollars worth of GE, but it was down 30%. He wanted to keep it, since, after all it produced $40,000 of dividends a year. And maybe he should wait for it to recover.

It fell another 30% and it cut its dividend in half. He ended up selling it at a 50% loss. Which was still the wise thing to do, given the circumstances. There are many sad stories about people who lost 90% or 100% in single stocks because they held on to them for sentimental reasons.

VaR
Posts: 585
Joined: Sat Dec 05, 2015 11:27 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by VaR » Fri Jul 20, 2018 3:55 am

selters wrote:
Fri Jul 20, 2018 3:42 am
Unless, of course, your net worth is $10 million from before. In that case, you can keep it.
Well, at $10 MM the $1 million position would be 10% of assets and likely more than 10% of investable assets and so it would still be a concentrated position. As a result any advisor would recommend that you diversify out of it unless there are tax reasons and even then one should consider a strategy to diversify out of it.

selters
Posts: 608
Joined: Thu Feb 27, 2014 9:26 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by selters » Fri Jul 20, 2018 4:01 am

VaR wrote:
Fri Jul 20, 2018 3:55 am
selters wrote:
Fri Jul 20, 2018 3:42 am
Unless, of course, your net worth is $10 million from before. In that case, you can keep it.
Well, at $10 MM the $1 million position would be 10% of assets and likely more than 10% of investable assets and so it would still be a concentrated position. As a result any advisor would recommend that you diversify out of it unless there are tax reasons and even then one should consider a strategy to diversify out of it.
It's still an unwise and not ideal thing to do. But it's not irresponsible, I'd say. One can defend it for sentimental reasons.

Mr.BB
Posts: 623
Joined: Sun May 08, 2016 10:10 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by Mr.BB » Fri Jul 20, 2018 5:55 am

Wanting to buy your brothers shares tells me you have too much of an emotional/sentimental attachment to this gift.
Its not like the shares you are receiving are going to be worth more because you now would own all the shares. As you have read there are Enron horror stories (I know someone who has one too), and there are just as many AMZN or AAPL horror stories of people who sold their shares many years ago who wish they hadn't. The bottom line is that it is a concentrated position and you don't have to sell all your shares, but if you sold 2/3 of them and then bought a diverse mutual fund you would be greatly reducing your portfolio risk.
Last edited by Mr.BB on Sat Jul 21, 2018 6:18 am, edited 1 time in total.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

User avatar
vineviz
Posts: 2044
Joined: Tue May 15, 2018 1:55 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by vineviz » Fri Jul 20, 2018 6:28 am

VaR wrote:
Fri Jul 20, 2018 3:55 am
selters wrote:
Fri Jul 20, 2018 3:42 am
Unless, of course, your net worth is $10 million from before. In that case, you can keep it.
Well, at $10 MM the $1 million position would be 10% of assets and likely more than 10% of investable assets and so it would still be a concentrated position. As a result any advisor would recommend that you diversify out of it unless there are tax reasons and even then one should consider a strategy to diversify out of it.
I agree.

Even if you needed time to sort out the taxes, selling covered call options in the mean time to hedge the concentration risk would probably be worth considering.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

VaR
Posts: 585
Joined: Sat Dec 05, 2015 11:27 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by VaR » Sat Jul 21, 2018 2:41 am

vineviz wrote:
Fri Jul 20, 2018 6:28 am
VaR wrote:
Fri Jul 20, 2018 3:55 am
selters wrote:
Fri Jul 20, 2018 3:42 am
Unless, of course, your net worth is $10 million from before. In that case, you can keep it.
Well, at $10 MM the $1 million position would be 10% of assets and likely more than 10% of investable assets and so it would still be a concentrated position. As a result any advisor would recommend that you diversify out of it unless there are tax reasons and even then one should consider a strategy to diversify out of it.
I agree.

Even if you needed time to sort out the taxes, selling covered call options in the mean time to hedge the concentration risk would probably be worth considering.
Or even safer put on a protective collar.

truenorth418
Posts: 406
Joined: Wed Dec 19, 2012 7:38 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by truenorth418 » Sat Jul 21, 2018 3:06 am

If instead of the stock you inherited an equal value in cash, would you immediately run out and spend all the cash to buy this stock? No? Then why effectively do the exact same thing by holding onto the stock?

gotester2000
Posts: 589
Joined: Sun Nov 12, 2017 1:59 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by gotester2000 » Sat Jul 21, 2018 7:56 am

Investing in a basket of stocks allowed me to be FI at least 10 years earlier than indexing. While I dont maintain the same allocation I still have some in direct stocks. Plus I took the risk and had a significant corpus tied to a house or two. Both worked. I am glad I did this when young and did not know about index - too much knowledge paralyses action.
By the way, investing does not work on math and logic as also on human emotions - if it had been then bonus shares and dividends would not be so profitable.

User avatar
BigFoot48
Posts: 2590
Joined: Tue Feb 20, 2007 10:47 am
Location: Arizona

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by BigFoot48 » Sat Jul 21, 2018 8:57 am

As a Mobil retiree I sold my last 100 shares years ago as I transition to a simplified, diversified Bogleheads portfolio. I have a digital copy of a Mobil stock certificate but any sentimentality I have is with my former co-workers and the work experiences.

Sell the stock to those who want the risk and invest in diversified funds.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 12-time loser

dharrythomas
Posts: 890
Joined: Tue Jun 19, 2007 4:46 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by dharrythomas » Sat Jul 21, 2018 1:08 pm

gotester2000 wrote:
Sat Jul 21, 2018 7:56 am
Investing in a basket of stocks allowed me to be FI at least 10 years earlier than indexing. While I dont maintain the same allocation I still have some in direct stocks. Plus I took the risk and had a significant corpus tied to a house or two. Both worked. I am glad I did this when young and did not know about index - too much knowledge paralyses action.
By the way, investing does not work on math and logic as also on human emotions - if it had been then bonus shares and dividends would not be so profitable.
Absolutely, diversification works whether you want it to or not.

You took the additional risk of a concentrated portfolio and came out ahead. That means there was an equal amount of money invested in the parts of the market that came out behind.

Please don't confuse a winning outcome with the right strategy. Random chance and things outside your knowledge and control played a part in determining the winning and losing individual investments.

GrowthSeeker
Posts: 168
Joined: Tue May 15, 2018 10:14 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by GrowthSeeker » Sat Jul 21, 2018 2:20 pm

As others have stated, the basis is "stepped up" to the closing price on the date of death. If you sell it at that price there is no capital gain to pay tax on.

My only other comment is regarding what account it is currently in: check to see if there is a large commission for selling it. If so, you may want to transfer it to Etrade, or Vanguard, or TDAmeritrade, or Schwab or Fidelity or just about anywhere where the commission for selling a stock is in the realm of $5 to %10 per trade. I inherited account where it was a full service broker and selling a few hundred shares of one stock would be a commission of over $200.
Just because you're paranoid doesn't mean they're NOT out to get you.

livesoft
Posts: 62776
Joined: Thu Mar 01, 2007 8:00 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by livesoft » Sat Jul 21, 2018 2:29 pm

GrowthSeeker wrote:
Sat Jul 21, 2018 2:20 pm
As others have stated, the basis is "stepped up" to the closing price on the date of death.
I know closing price works for mutual funds, but does it work for an individual stock? Or is it the average price between the high and low prices of the trading day?
Wiki This signature message sponsored by sscritic: Learn to fish.

MnD
Posts: 3791
Joined: Mon Jan 14, 2008 12:41 pm

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by MnD » Sat Jul 21, 2018 2:29 pm

If it was me I wouldn't worry about the brothers share. Assuming my share was worth $1M I'd sell $900K and keep $100K in Energy Stock Inc.
Or some round number of shares that's maybe close to 10%. I infer the OP is not broke so maybe the stock is now 5% of his portfolio or maybe 2%.
Take the dividends in cash and do something fun with the $3500 every year.
Last edited by MnD on Sat Jul 21, 2018 2:31 pm, edited 1 time in total.

bberris
Posts: 1072
Joined: Sun Feb 20, 2011 9:44 am

Re: I'm about to inherit a single stock with a worth of just over 7 figures....

Post by bberris » Sat Jul 21, 2018 2:29 pm

VaR wrote:
Thu Jul 19, 2018 3:09 pm
Besides agreeing with everyone else advising to sell and diversify now when there are no capital gains due to step-up basis, I'd like to observe that we get a fair number of people coming to the forum asking for advice on what to do when they have a concentrated position (usually with AAPL) with a fair amount of capital gains baked into the position. They'd like to sell in order to eliminate their concentrated position risk, but don't want to have to pay the capital gains tax.

Others ask for advice when they have an old active mutual fund position that has a high expense ratio. They no longer want to hold the position but don't want to have to pay capital gains.

I mention these cases because having a concentrated position means:
1. In the worst case, it will crash and you'll end up with nothing.
2. In the "best" case, it will become a problematic concentrated position and a tax burden.
3. In the neutral case (market perform), you will just be forced to bear lower risk-adjusted returns and lose the free lunch of diversification benefit.

Don't get hung up with "owning" a thing. There are probably far better ways of honoring your father's memory. Have you considered establishing a Donor Advised Fund in his name? Or my high school lets you fund college scholarships in a name of your choosing. Donating over a certain amount I'd get to put my father's name on the back of a seat in the auditorium. :)
I would add:
4. In most cases, you will owe capital gains tax at some future date anyway, unless you are in the 0 % cap gains bracket, or you die with unrealized gains. Both of those situations have downsides.

Post Reply