Over-allocated (70%) to well performing company stock

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Topic Author
Panky
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Joined: Wed Jun 10, 2020 5:25 pm

Over-allocated (70%) to well performing company stock

Post by Panky »

Summary - when/how/if to reduce my tax-able over-allocated position in DOCU (which is currently spiking in value) ?

Details:
I have ~2,500 shares of DOCU stock from previous employment there. I have no future grants of this stock coming.

This is about 70% of my stock/bond/cash assets (not including primary and investment real estate), and is in a tax-able brokerage (other stock/bond assets are pre-tax traditional 401k [which we are maxing out], or simple money market).

COVID related run ups have this stock at $200+, from $75/share at the start of the year.

I am trying to consider how this should relate the pace at which I reduce this position.
My cost basis is very low (<5%) so effectively this is all long term capital gains profit.

On the one hand I want to lock in my windfall, but on the other hand I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.

My investment plan had been to wind down my position in this company by 3% a quarter until DOCU is under 20% of assets, but I am second guessing myself due to this intense run up in valuation.



1. What framework should I use to evaluate how to proceed?

2. What other options should I consider to unwind this position?
(When I was still receiving grants, I often took a neutral position, by selling my oldest X stocks, when my next grant was of X more stocks, to maintain a neutral weighting in terms of shares. Would something like this be worthwhile via options? This seems unneeded and higher risk.)

3. Any way to tax-shelter these long term capital gains further?
We are currently maxing traditional 401ks but not yet taking IRA or other investment options outside of basic brokerage.


I am working on generating a more formal IPS with my (very bullish) partner this month, but this continues to be a sticking point, and I am trying to get more information to help find the optimal approach.

I am adverse to losing what we currently have in market, whereas my partner is always thinking about gains we have missed out on by selling some 'early'.
000
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Re: Over-allocated (70%) to well performing company stock

Post by 000 »

It it were me I would sell at least half ASAP.

Don't cut your arm off to spite the tax man, especially if these are all long-term gains.

Once could also buy puts to secure the position.
RocketShipTech
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Re: Over-allocated (70%) to well performing company stock

Post by RocketShipTech »

Unless you have inside information that the company will do even better than the market expects, sell everything now.
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calmaniac
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Re: Over-allocated (70%) to well performing company stock

Post by calmaniac »

Panky wrote: Wed Aug 19, 2020 4:50 pm I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.
Do you have any actual capital losses this year?

Or can you sell something now to generate capital losses?

[Apologies if I am quoting out of context above]
Last edited by calmaniac on Wed Aug 19, 2020 4:57 pm, edited 1 time in total.
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Topic Author
Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

calmaniac wrote: Wed Aug 19, 2020 4:56 pm
Panky wrote: Wed Aug 19, 2020 4:50 pm I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.
Do you have any actual capital losses this year?

Or can you sell something now to generate capital losses?

[Apologies if I am quoting out of context above]
Let me clarify - The 'lost out' bit I was referencing to was just paper gains we would have had if we had not sold some shares of DOCU in January (sold around $77/share, vs current $208/share).

No current capital losses to report.
Items I could sell are all in traditional 401k so would not be applicable for capital loss either (at least as far as I understand).
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Brianmcg321
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Re: Over-allocated (70%) to well performing company stock

Post by Brianmcg321 »

I would sell it all. Max out my Roth IRAs for the year and then buy a new Tesla.
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Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

000 wrote: Wed Aug 19, 2020 4:53 pm It it were me I would sell at least half ASAP.

Don't cut your arm off to spite the tax man, especially if these are all long-term gains.

Once could also buy puts to secure the position.
I lean in the same direction, or at least selling off more aggressively now.

Long term gains - most (85%+) is long term gains now, within 4 months it will be 100% long term capital gains.

Puts - I am not very sophisticated in my investing, so need to be more knowledgeable about how I would structure puts to secure the position.
I also then need to make sure that does not violate any trading rules since I am a former employee - I am certain I was not allowed to buy or sell options during my employment, I am not certain what restrictions I may still be bound by.
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Abel
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Re: Over-allocated (70%) to well performing company stock

Post by Abel »

I don't see what there is to evaluate here. This is not investing. What you propose looks like an emotion based decision: you fear something may happen to take away your paper gains, so you want to pull the trigger now. But you made some sales that in hindsight were premature.

It all comes down to what the future brings. Do you really think our collective crystal ball is any clearer than yours?

If it were me I'd sell it all and pay the taxes due, but that's just me.
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Stinky
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Re: Over-allocated (70%) to well performing company stock

Post by Stinky »

000 wrote: Wed Aug 19, 2020 4:53 pm It it were me I would sell at least half ASAP.

Don't cut your arm off to spite the tax man, especially if these are all long-term gains.

Once could also buy puts to secure the position.
I would agree with selling a lot of your stock right now. 70% of your portfolio in a single stock, especially that if your employer, is way too much.

Check out your employer’s rules before you buy puts or any other type of options. Some employers have rules prohibiting employees from purchasing any type of options on company stock. This may not apply to former employees.
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000
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Re: Over-allocated (70%) to well performing company stock

Post by 000 »

Panky wrote: Wed Aug 19, 2020 5:07 pm
000 wrote: Wed Aug 19, 2020 4:53 pm It it were me I would sell at least half ASAP.

Don't cut your arm off to spite the tax man, especially if these are all long-term gains.

Once could also buy puts to secure the position.
I lean in the same direction, or at least selling off more aggressively now.

Long term gains - most (85%+) is long term gains now, within 4 months it will be 100% long term capital gains.

Puts - I am not very sophisticated in my investing, so need to be more knowledgeable about how I would structure puts to secure the position.
I also then need to make sure that does not violate any trading rules since I am a former employee - I am certain I was not allowed to buy or sell options during my employment, I am not certain what restrictions I may still be bound by.
I assume you can pick the LTCG lots.

Why would being a former employee prohibit someone from buying a protective put? I have never heard of that before.

DOCU options chain

Obviously, the higher the put strike price, the more expensive the option, because there is less being risked.

FYI it may take a few days for your broker to approve an options application...
Last edited by 000 on Wed Aug 19, 2020 5:11 pm, edited 1 time in total.
Topic Author
Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

Brianmcg321 wrote: Wed Aug 19, 2020 5:03 pm I would sell it all. Max out my Roth IRAs for the year and then buy a new Tesla.
ROTH IRA - I am under 50, and we have household income over $206k, so I don't believe we are eligible for a ROTH IRA in 2020 based on that (please correct me if wrong). But this is exactly the type of info and insight I would like to figure how how to best tax structure - please let me know any other ideas like this.

LOL to the Tesla bit - I have eyeballed them and love the cybertruck, but my daily driver is a 20+ year old beater I bought in cash, since I am too darn cheap. Once the used market gets cheaper for them I expect to get one, but still too spendy for now.
jarjarM
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Re: Over-allocated (70%) to well performing company stock

Post by jarjarM »

Maybe your partner should read about GTAT. I was reminded of the company in another thread. A lifetime ago, I worked for a company that was later acquired by GTAT before the whole Apple fiasco, so I have many former co-workers who were burned by the company. A sad story of single stock concentrated risk.

https://web.archive.org/web/20170415110 ... 9/page-499

Figure out your tax situation and slowly bleed away your concentration on the stock of the company that also pays your salary (too much egg in one basket).
Topic Author
Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

Abel wrote: Wed Aug 19, 2020 5:07 pm I don't see what there is to evaluate here. This is not investing. What you propose looks like an emotion based decision: you fear something may happen to take away your paper gains, so you want to pull the trigger now. But you made some sales that in hindsight were premature.

It all comes down to what the future brings. Do you really think our collective crystal ball is any clearer than yours?

If it were me I'd sell it all and pay the taxes due, but that's just me.
My partner has some major FOMO here so its a hard point to battle, I was hoping to point to a spreadsheet to help justify what we should do.

I agree this is too emotional - I am trying to take a step back and go for a more systematic by-the-numbers approach to get rid of that, and was hoping for help on how to structure that analysis.

I also think easy wins (like some way to tax shelter this) are a slam dunk, so I am trying to see if there are any options there I am not yet aware of.
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Callisto
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Re: Over-allocated (70%) to well performing company stock

Post by Callisto »

I think it depends on if you think your LTCG rate will decrease in the coming years.

If you don't, then you should sell a large percentage (or all of it), since, like others have said, unless you have information that leads you to believe the stock will over-perform in the future, you'd just be gambling by having the majority of your money in one stock.

But, if you think your LTCG rate will decrease in the coming years, it may be worth looking into using put options, as suggested earlier. You'd be paying some insurance to guard against the stock tanking. You would then need to calculate how much that insurance is going to cost you, and for how long you plan to pay it, until you dispose of the stock at the lower LTCG rate.
ZWorkLess
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Re: Over-allocated (70%) to well performing company stock

Post by ZWorkLess »

Some reasonable options:

1) How about sell half of it (only long term shares) right now. Then sell the remainder when it's all long term gains (so a few months from now.) That would presumably split your cap gains taxes over 2 years, and maybe next year you'll have some losses to harvest.

2) Sell all the long term gains right now. Sell the remainder in a few months when it's become long term.

3) Sell it all right now. Because, really, that's the most sensible thing to do.

4) If you have any kids (or whomever, in particular people with less than 39k/yr singly 78k/married in income so they can get the 0% cap gains rate) or charities that you want to give money to, giving highly appreciated stock is a great way to do it. Gift them 10k in stock (each year), then have them sell it and diversify their investment. I did that with smaller numbers with my minor kids a long time ago with fully appreciated (0.02c basis, lol) stock that I had earlier been gifted to me by my own dad some years before and had wildly appreciated. I'd gift them each some amount that was below the threshold for any kiddie tax (it was 20 years ago, so rules may have evolved), and then I'd immediately sell it and put it into a SP500 fund. Was a good way to avoid paying the gain and meet some other objectives. If you have any charities you donate to, gifting appreciated stock also can be a good tax trick. Anyway, that might be a thing to do with some of the appreciated stocks that you are willing to part with and can make your gifts go further.

Definitely verify any info I've given with your tax advisor (worth it, this is serious money you're talking about), as my experience is from a long time ago, and rules and loopholes are always subject to change.
Topic Author
Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

Callisto wrote: Wed Aug 19, 2020 5:19 pm I think it depends on if you think your LTCG rate will decrease in the coming years.
We are at 15% LTCG (long term capital gains - had to look this one up).

We likely will remain at that amount for the forseeable future (~5- 15 years or more) barring tax changes from congress.
Unwinder
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Re: Over-allocated (70%) to well performing company stock

Post by Unwinder »

Panky wrote: Wed Aug 19, 2020 4:50 pm Summary - when/how/if to reduce my tax-able over-allocated position in DOCU (which is currently spiking in value) ?

Details:
I have ~2,500 shares of DOCU stock from previous employment there. I have no future grants of this stock coming.

This is about 70% of my stock/bond/cash assets (not including primary and investment real estate), and is in a tax-able brokerage (other stock/bond assets are pre-tax traditional 401k [which we are maxing out], or simple money market).

COVID related run ups have this stock at $200+, from $75/share at the start of the year.

I am trying to consider how this should relate the pace at which I reduce this position.
My cost basis is very low (<5%) so effectively this is all long term capital gains profit.

On the one hand I want to lock in my windfall, but on the other hand I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.

My investment plan had been to wind down my position in this company by 3% a quarter until DOCU is under 20% of assets, but I am second guessing myself due to this intense run up in valuation.



1. What framework should I use to evaluate how to proceed?

2. What other options should I consider to unwind this position?
(When I was still receiving grants, I often took a neutral position, by selling my oldest X stocks, when my next grant was of X more stocks, to maintain a neutral weighting in terms of shares. Would something like this be worthwhile via options? This seems unneeded and higher risk.)

3. Any way to tax-shelter these long term capital gains further?
We are currently maxing traditional 401ks but not yet taking IRA or other investment options outside of basic brokerage.


I am working on generating a more formal IPS with my (very bullish) partner this month, but this continues to be a sticking point, and I am trying to get more information to help find the optimal approach.

I am adverse to losing what we currently have in market, whereas my partner is always thinking about gains we have missed out on by selling some 'early'.
This is a hard question. I always let my winners run regardless of the size in my portfolio they become or tax incentives, that's how a 200% return becomes a 700% return. What I'd do in your situation is to use a trailing stop loss of somewhere in between 15-25%. This will let you stay in for as long as possible, and get you out without too much pain, although you won't sell at the exact top, but no one ever does.
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emlowe
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Re: Over-allocated (70%) to well performing company stock

Post by emlowe »

jarjarM wrote: Wed Aug 19, 2020 5:15 pm Maybe your partner should read about GTAT. I was reminded of the company in another thread. A lifetime ago, I worked for a company that was later acquired by GTAT before the whole Apple fiasco, so I have many former co-workers who were burned by the company. A sad story of single stock concentrated risk.

https://web.archive.org/web/20170415110 ... 9/page-499

Figure out your tax situation and slowly bleed away your concentration on the stock of the company that also pays your salary (too much egg in one basket).
Oy vey, reading that is very sad... A shorter version:

https://www.joshuakennon.com/gt-advance ... ankruptcy/
Ferri Core 4: 40% Bonds | 6% Reit | 18% Total i18n | 36% Total US
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Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

emlowe wrote: Wed Aug 19, 2020 5:41 pm
jarjarM wrote: Wed Aug 19, 2020 5:15 pm Maybe your partner should read about GTAT. I was reminded of the company in another thread. A lifetime ago, I worked for a company that was later acquired by GTAT before the whole Apple fiasco, so I have many former co-workers who were burned by the company. A sad story of single stock concentrated risk.

https://web.archive.org/web/20170415110 ... 9/page-499

Figure out your tax situation and slowly bleed away your concentration on the stock of the company that also pays your salary (too much egg in one basket).
Oy vey, reading that is very sad... A shorter version:

https://www.joshuakennon.com/gt-advance ... ankruptcy/
Thank you @jarjarM and @emlowe - maybe this can help show the risk of future pain if we don't lock in our wins.
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geerhardusvos
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Re: Over-allocated (70%) to well performing company stock

Post by geerhardusvos »

Panky wrote: Wed Aug 19, 2020 4:50 pm Summary - when/how/if to reduce my tax-able over-allocated position in DOCU (which is currently spiking in value) ?

Details:
I have ~2,500 shares of DOCU stock from previous employment there. I have no future grants of this stock coming.

This is about 70% of my stock/bond/cash assets (not including primary and investment real estate), and is in a tax-able brokerage (other stock/bond assets are pre-tax traditional 401k [which we are maxing out], or simple money market).

COVID related run ups have this stock at $200+, from $75/share at the start of the year.

I am trying to consider how this should relate the pace at which I reduce this position.
My cost basis is very low (<5%) so effectively this is all long term capital gains profit.

On the one hand I want to lock in my windfall, but on the other hand I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.

My investment plan had been to wind down my position in this company by 3% a quarter until DOCU is under 20% of assets, but I am second guessing myself due to this intense run up in valuation.



1. What framework should I use to evaluate how to proceed?

2. What other options should I consider to unwind this position?
(When I was still receiving grants, I often took a neutral position, by selling my oldest X stocks, when my next grant was of X more stocks, to maintain a neutral weighting in terms of shares. Would something like this be worthwhile via options? This seems unneeded and higher risk.)

3. Any way to tax-shelter these long term capital gains further?
We are currently maxing traditional 401ks but not yet taking IRA or other investment options outside of basic brokerage.


I am working on generating a more formal IPS with my (very bullish) partner this month, but this continues to be a sticking point, and I am trying to get more information to help find the optimal approach.

I am adverse to losing what we currently have in market, whereas my partner is always thinking about gains we have missed out on by selling some 'early'.
Sell immediately. Reinvest in broad based index funds per your desired asset allocation. Move on.
VTSAX and chill
jarjarM
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Re: Over-allocated (70%) to well performing company stock

Post by jarjarM »

emlowe wrote: Wed Aug 19, 2020 5:41 pm
jarjarM wrote: Wed Aug 19, 2020 5:15 pm Maybe your partner should read about GTAT. I was reminded of the company in another thread. A lifetime ago, I worked for a company that was later acquired by GTAT before the whole Apple fiasco, so I have many former co-workers who were burned by the company. A sad story of single stock concentrated risk.

https://web.archive.org/web/20170415110 ... 9/page-499

Figure out your tax situation and slowly bleed away your concentration on the stock of the company that also pays your salary (too much egg in one basket).
Oy vey, reading that is very sad... A shorter version:

https://www.joshuakennon.com/gt-advance ... ankruptcy/
Thanks, I remember there were TLDR version out there somewhere :beer
bikesandbeers
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Re: Over-allocated (70%) to well performing company stock

Post by bikesandbeers »

I sold some Tesla stock earlier in this year and feel the fomo pain. However it was just enough to max my Roth Ira for the year. I have to keep telli g myself if was the right move at the time.

My uncle lost a huge % of his retirement in a single stock. 70% is way to high. Evaluate the tax impacts, but you could try selling a chunk ever 6 months for the next few years.
Like the idea of setting a limit on at least some shares to help protect the gain

DAF is a great way to take a deduction without paying gains
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Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

bikesandbeers wrote: Wed Aug 19, 2020 5:57 pm I sold some Tesla stock earlier in this year and feel the fomo pain. However it was just enough to max my Roth Ira for the year. I have to keep telli g myself if was the right move at the time.

My uncle lost a huge % of his retirement in a single stock. 70% is way to high. Evaluate the tax impacts, but you could try selling a chunk ever 6 months for the next few years.
Like the idea of setting a limit on at least some shares to help protect the gain

DAF is a great way to take a deduction without paying gains
I have an email to a family member where we are debating buying Tesla in 2012 - had I put the $5k in Tesla I was considering in the email, I would have $300k+ now.... I did not.

What does DAF stand for?
Silverado
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Re: Over-allocated (70%) to well performing company stock

Post by Silverado »

geerhardusvos wrote: Wed Aug 19, 2020 5:48 pm
Panky wrote: Wed Aug 19, 2020 4:50 pm Summary - when/how/if to reduce my tax-able over-allocated position in DOCU (which is currently spiking in value) ?

Details:
I have ~2,500 shares of DOCU stock from previous employment there. I have no future grants of this stock coming.

This is about 70% of my stock/bond/cash assets (not including primary and investment real estate), and is in a tax-able brokerage (other stock/bond assets are pre-tax traditional 401k [which we are maxing out], or simple money market).

COVID related run ups have this stock at $200+, from $75/share at the start of the year.

I am trying to consider how this should relate the pace at which I reduce this position.
My cost basis is very low (<5%) so effectively this is all long term capital gains profit.

On the one hand I want to lock in my windfall, but on the other hand I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.

My investment plan had been to wind down my position in this company by 3% a quarter until DOCU is under 20% of assets, but I am second guessing myself due to this intense run up in valuation.



1. What framework should I use to evaluate how to proceed?

2. What other options should I consider to unwind this position?
(When I was still receiving grants, I often took a neutral position, by selling my oldest X stocks, when my next grant was of X more stocks, to maintain a neutral weighting in terms of shares. Would something like this be worthwhile via options? This seems unneeded and higher risk.)

3. Any way to tax-shelter these long term capital gains further?
We are currently maxing traditional 401ks but not yet taking IRA or other investment options outside of basic brokerage.


I am working on generating a more formal IPS with my (very bullish) partner this month, but this continues to be a sticking point, and I am trying to get more information to help find the optimal approach.

I am adverse to losing what we currently have in market, whereas my partner is always thinking about gains we have missed out on by selling some 'early'.
Sell immediately. Reinvest in broad based index funds per your desired asset allocation. Move on.
Yeah, you’ve already spent too much stress energy on this, ditto for your partner.
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Ged
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Re: Over-allocated (70%) to well performing company stock

Post by Ged »

You didn't specify what percentage of your retirement number this is, or what percentage of your portfolio the quantity of shares that you cannot sell is.

However I would certainly sell everything that you can up until you hit your retirement number.

If you have amounts above your retirement number, they won't affect you except for luxury budget so you could be more aggressive there.
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Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

Ged wrote: Wed Aug 19, 2020 6:20 pm You didn't specify what percentage of your retirement number this is, or what percentage of your portfolio the quantity of shares that you cannot sell is.

However I would certainly sell everything that you can up until you hit your retirement number.

If you have amounts above your retirement number, they won't affect you except for luxury budget so you could be more aggressive there.
Retirement number - I don't have a retirement number as of yet - While single I had previously considered $3 million to be that number, but an extreme run up in property values (at one point 20% annually) in our local area, and getting married, has shifted that. I am hoping to revisit this with my partner as part of discussing this sale.
This is roughly 2 years of total annual income for us, or about all of our outstanding residential mortgage, for context.
We are under 35 so have a long time horizon still.
(I am still a little embarrassed to not have this data point together, since it seems required to really have a rational debate here.)


I can sell 100% of these ~2500 shares, which are all in taxable accounts - not sure I follow your comment about what I cannot sell.
All other stocks/bonds (mostly Vanguard VINIX) are in tax advantaged 401k.
magicrat
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Re: Over-allocated (70%) to well performing company stock

Post by magicrat »

Panky wrote: Wed Aug 19, 2020 6:02 pm
bikesandbeers wrote: Wed Aug 19, 2020 5:57 pm I sold some Tesla stock earlier in this year and feel the fomo pain. However it was just enough to max my Roth Ira for the year. I have to keep telli g myself if was the right move at the time.

My uncle lost a huge % of his retirement in a single stock. 70% is way to high. Evaluate the tax impacts, but you could try selling a chunk ever 6 months for the next few years.
Like the idea of setting a limit on at least some shares to help protect the gain

DAF is a great way to take a deduction without paying gains
I have an email to a family member where we are debating buying Tesla in 2012 - had I put the $5k in Tesla I was considering in the email, I would have $300k+ now.... I did not.

What does DAF stand for?
Donor Advised Fund
gougou
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Re: Over-allocated (70%) to well performing company stock

Post by gougou »

There's a 3.8% NIIT tax if your total income is over $250K per year. So if you make $200K salary and realize $200K of LTCG you'll pay an extra 3.8% NIIT tax on $150K of LTCG.

I would try to stay below that threshold. If possible, harvest some capital losses elsewhere and then realize the gains in DOCU.

You could also consider selling some out of money calls and buying some out of money puts to limit both the upside and downside at no cost.
RocketShipTech
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Re: Over-allocated (70%) to well performing company stock

Post by RocketShipTech »

gougou wrote: Wed Aug 19, 2020 8:34 pm There's a 3.8% NIIT tax if your total income is over $250K per year. So if you make $200K salary and realize $200K of LTCG you'll pay an extra 3.8% NIIT tax on $150K of LTCG.

I would try to stay below that threshold. If possible, harvest some capital losses elsewhere and then realize the gains in DOCU.

You could also consider selling some out of money calls and buying some out of money puts to limit both the upside and downside at no cost.
There is also CA state tax if OP lives in CA
MathIsMyWayr
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Re: Over-allocated (70%) to well performing company stock

Post by MathIsMyWayr »

If you are an MFC resident of California, you are facing 15%+3.8%+9.3%=28.1% minimum tax on the gain.
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Ged
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Re: Over-allocated (70%) to well performing company stock

Post by Ged »

Panky wrote: Wed Aug 19, 2020 6:29 pm
Ged wrote: Wed Aug 19, 2020 6:20 pm You didn't specify what percentage of your retirement number this is, or what percentage of your portfolio the quantity of shares that you cannot sell is.

However I would certainly sell everything that you can up until you hit your retirement number.

If you have amounts above your retirement number, they won't affect you except for luxury budget so you could be more aggressive there.
Retirement number - I don't have a retirement number as of yet - While single I had previously considered $3 million to be that number, but an extreme run up in property values (at one point 20% annually) in our local area, and getting married, has shifted that. I am hoping to revisit this with my partner as part of discussing this sale.
This is roughly 2 years of total annual income for us, or about all of our outstanding residential mortgage, for context.
We are under 35 so have a long time horizon still.
(I am still a little embarrassed to not have this data point together, since it seems required to really have a rational debate here.)


I can sell 100% of these ~2500 shares, which are all in taxable accounts - not sure I follow your comment about what I cannot sell.
All other stocks/bonds (mostly Vanguard VINIX) are in tax advantaged 401k.
Restrictions on what you can sell might be part of something your employer imposes with the grant of the shares.

From what you are saying I would work on a strategy of selling the shares as rapidly as possible without excessively increasing your tax bracket.
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Panky
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Re: Over-allocated (70%) to well performing company stock

Post by Panky »

So I have learned a stop-loss order is not available to me with my plan currently, due to employeer restrictions.

I could try to jump through some hoops to transfer from employeer plan to brokerage, but former co workers imply that is rarely offered.

For now I do have a sell order at a price above current market for a good size of shares, and am further discussing time to unload the remainder - likely at the start of next calendar year for tax reasons.

Thank you all for your help!
balbrec2
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Re: Over-allocated (70%) to well performing company stock

Post by balbrec2 »

Panky wrote: Wed Aug 19, 2020 4:50 pm Summary - when/how/if to reduce my tax-able over-allocated position in DOCU (which is currently spiking in value) ?

Details:
I have ~2,500 shares of DOCU stock from previous employment there. I have no future grants of this stock coming.

This is about 70% of my stock/bond/cash assets (not including primary and investment real estate), and is in a tax-able brokerage (other stock/bond assets are pre-tax traditional 401k [which we are maxing out], or simple money market).

COVID related run ups have this stock at $200+, from $75/share at the start of the year.

I am trying to consider how this should relate the pace at which I reduce this position.
My cost basis is very low (<5%) so effectively this is all long term capital gains profit.

On the one hand I want to lock in my windfall, but on the other hand I have 'lost out' on six figures of paper gains so far from sub-optimal sales earlier in the year.

My investment plan had been to wind down my position in this company by 3% a quarter until DOCU is under 20% of assets, but I am second guessing myself due to this intense run up in valuation.



1. What framework should I use to evaluate how to proceed?

2. What other options should I consider to unwind this position?
(When I was still receiving grants, I often took a neutral position, by selling my oldest X stocks, when my next grant was of X more stocks, to maintain a neutral weighting in terms of shares. Would something like this be worthwhile via options? This seems unneeded and higher risk.)

3. Any way to tax-shelter these long term capital gains further?
We are currently maxing traditional 401ks but not yet taking IRA or other investment options outside of basic brokerage.


I am working on generating a more formal IPS with my (very bullish) partner this month, but this continues to be a sticking point, and I am trying to get more information to help find the optimal approach.

I am adverse to losing what we currently have in market, whereas my partner is always thinking about gains we have missed out on by selling some 'early'.
keep 500. sell 500 at a time over the next 4 qtrs. 70% is way too much in any one investment. redeploy
the proceeds into VTSAX. Good luck.
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Sandi_k
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Re: Over-allocated (70%) to well performing company stock

Post by Sandi_k »

Panky wrote: Wed Aug 26, 2020 5:04 pm So I have learned a stop-loss order is not available to me with my plan currently, due to employeer restrictions.

I could try to jump through some hoops to transfer from employeer plan to brokerage, but former co workers imply that is rarely offered.

For now I do have a sell order at a price above current market for a good size of shares, and am further discussing time to unload the remainder - likely at the start of next calendar year for tax reasons.

Thank you all for your help!
Well done! I would have advised exactly this: sell the shares that have LTCG now, and the remainder once they have aged sufficiently to be LTCG, in the next tax year. No easy way for tax sheltering other than a Donor Advised Fund, where you donate the appreciated shares and take a Charitable Donation write-off.

You say that you make too much for Roth accounts - you need to learn about the Back Door Roth. If all of your retirement savings are in a 401(k)/employer fund (and you have NO IRAs), you can do a backdoor Roth easily each year for both you and your spouse. It's a great way to start shoving retirement funds into post-tax vehicles, so you can control your income more precisely in retirement.

https://www.bogleheads.org/wiki/Backdoo ... view,taxed)%20to%20a%20Traditional%20IRA.&text=For%20example%3A%20If%20your%20nondeductible,amount%20will%20be%20tax%2Dfree.
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