Capital gain conundrum

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skime
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Joined: Fri Nov 10, 2017 6:24 pm

Capital gain conundrum

Post by skime » Tue May 26, 2020 5:36 am

I own SGENX. I realize it's expensive. Since I've owned it it has doubled in price. I'm not thrilled with performance over the last five years. If I sell it and buy an S&P 500 index fund I'll generate a large capital gain that I can't offset.

What would you do in my situation? Hold it or sell and pay capital gain?

Thanks for any advice.

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LiveSimple
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Re: Capital gain conundrum

Post by LiveSimple » Tue May 26, 2020 5:40 am

Sell and buy index fund.

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Noobvestor
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Re: Capital gain conundrum

Post by Noobvestor » Tue May 26, 2020 6:19 am

Depends on the gains, tax bracket, too many variables, but in general I agree with the first response: pull off the band-aid and reallocate.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

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TomatoTomahto
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Re: Capital gain conundrum

Post by TomatoTomahto » Tue May 26, 2020 6:27 am

What percentage of your portfolio is it?
Okay, I get it; I won't be political or controversial. The Earth is flat.

retired@50
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Re: Capital gain conundrum

Post by retired@50 » Tue May 26, 2020 9:34 am

skime wrote:
Tue May 26, 2020 5:36 am
I own SGENX. I realize it's expensive. Since I've owned it it has doubled in price. I'm not thrilled with performance over the last five years. If I sell it and buy an S&P 500 index fund I'll generate a large capital gain that I can't offset.

What would you do in my situation? Hold it or sell and pay capital gain?

Thanks for any advice.
I'm not sure how long you've held this fund, but now might be the best time to get rid of it, since the market isn't at its peak. Your capital gains will be smaller than if you wait for a recovery. With an ER of 1.11% I'd want out as soon as possible.

Regards,
This is one person's opinion. Nothing more.

vanuber
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Re: Capital gain conundrum

Post by vanuber » Tue May 26, 2020 10:34 am

skime wrote:
Tue May 26, 2020 5:36 am
I own SGENX. I realize it's expensive. Since I've owned it it has doubled in price. I'm not thrilled with performance over the last five years. If I sell it and buy an S&P 500 index fund I'll generate a large capital gain that I can't offset.

What would you do in my situation? Hold it or sell and pay capital gain?

Thanks for any advice.
Sell it. I had about $15K in this same fund (SGENX). Sold it all last November for the same reasons (lackluster performance / high fees), took the capital gains and bought VTSAX. It is a tough pill to swallow, but worth it if you have years of investing ahead of you.

Are you sure you can't offset any of the gains? For example, I am currently living on my equity sales and investing 100% of my paycheck into my employee sponsored SIMPLE IRA. This effectively reduces my annual income by $13.5K.
Last edited by vanuber on Tue May 26, 2020 11:58 am, edited 1 time in total.
"If I am to speak ten minutes, I need a week for preparation; if an hour, I am ready now" - Woodrow Wilson

vanuber
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Re: Capital gain conundrum

Post by vanuber » Tue May 26, 2020 11:52 am

Another piece of advice - talk to your CPA. I have substantial capital gains in funds purchased prior to becoming a Boglehead. My CPA ran various capital gains tax scenarios to help form my portfolio reallocation strategy. Everyone's situation is different, but you might be pleasantly surprised at your effective tax rate.
"If I am to speak ten minutes, I need a week for preparation; if an hour, I am ready now" - Woodrow Wilson

MrJedi
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Re: Capital gain conundrum

Post by MrJedi » Tue May 26, 2020 12:08 pm

If you regularly give charitable cash donations at all, you can look into donating these appreciated shares instead.

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goingup
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Re: Capital gain conundrum

Post by goingup » Tue May 26, 2020 1:39 pm

Were you able to do any TLHing earlier this year? If so you can pair the realized losses with the realized gains. It's one reason why I bank losses even if there is no immediate need.

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grabiner
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Re: Capital gain conundrum

Post by grabiner » Tue May 26, 2020 7:44 pm

I would suggest selling the fund. It loses about 2% per year more than an index fund does to higher expenses and taxable capital gain distributions. Thus, if you have a capital gain of half the fund value, it will take less than four years for the saved expenses to exceed the capital gain.

It is also likely that your capital gain on the sale is not as large as your investment gain. Any shares you bought by reinvesting dividends and capital gains increase your basis. (The load you paid when you bought the fund is also part of the basis, although that reduces your investment gain.)
Wiki David Grabiner

kaneohe
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Re: Capital gain conundrum

Post by kaneohe » Wed May 27, 2020 4:37 pm

If you can't bear taking the who CG at once, consider phasing it in over time to distribute the tax load but keep looking for market dips when you might be able to unload all/more with lesser tax consequences. If you start,
you won't end up holding it forever for fear of the CG.

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