Should I take short term gains and face the taxes?

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Topic Author
GoldenGoose
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Should I take short term gains and face the taxes?

Post by GoldenGoose »

I am very hesitant in posting this thread.

Background, I was lucky to pull out in time back in March right at the very beginning of the virus. I was able to capture a "small" long term cap gain and most importantly able to preserve my account. Then as the market dropped, I put back in about 60% of my account when the DOW was in the 21K-22K, not quite the bottom. As the market did a V-shape recovery, I got in a little bit more so as of today, I'm about 90% in. I still have cash more than enough for contingencies/emergency funds. So now in September, 6 months later, with the crazy market where it is, I am looking at a short term cap gains of a quarter million dollars at this point (sorry, I am hesitant to put this all this info in the thread in fear of appearing to be boasting but I just want you to know the magnitude I'm facing with so plenty of apologies upfront). I'm a long term investor, buy and hold generally, except for certain exceptions. So now I am torn between wanting to lock in my short term gains and dread of paying a huge tax bill. I am afraid of this crazy market so I do want to get out and take whatever I have but then I know that no matter what, I will be back at this cap gain level even if things do turn bad short term. So should I exit out now because of the crazy market, because I want to lock in the gain but then face the extremely huge tax bill or should I just continue my course? Probably somebody will suggest "reduce your holdings" but my thinking is either completely out or stay completely in. I don't mess around :)

Thanks
mbasherp
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Re: Should I take short term gains and face the taxes?

Post by mbasherp »

There are a lot of aspects to what you bring up: risk tolerance, market timing, asset allocation and many emotions. But I will stick to the one thing that stands out immediately.

You sound like you would prefer to guarantee a loss than continue living in fear of one. Yes, that's what taking $250k in short term capital gains will do. You will lose money, voluntarily, due to taxes to the government. Why this makes sense to you as the best option, I don't know, but I'm sure it relates to all of the things in my first sentence.

Another way to look at it is that you more or less nailed market timing in March. You already won. Why would you now feel compelled to give up tens of thousands of dollars? Are you allergic to making money? There is serious cognitive dissonance at play here.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

mbasherp wrote: Wed Sep 02, 2020 9:54 am There are a lot of aspects to what you bring up: risk tolerance, market timing, asset allocation and many emotions. But I will stick to the one thing that stands out immediately.

You sound like you would prefer to guarantee a loss than continue living in fear of one. Yes, that's what taking $250k in short term capital gains will do. You will lose money, voluntarily, due to taxes to the government. Why this makes sense to you as the best option, I don't know, but I'm sure it relates to all of the things in my first sentence.

Another way to look at it is that you more or less nailed market timing in March. You already won. Why would you now feel compelled to give up tens of thousands of dollars? Are you allergic to making money? There is serious cognitive dissonance at play here.
I don't quite understand "give up tens of thousands of dollars". Are you referring to sell now and pay the taxes? Or are you referring to stay in this "crazy" market and risk losing money if it turns bad? There are risks on both sides. What makes it hard for me to decide was that it is short term cap gain. If it was long term, then I already know what to do.
terran
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Re: Should I take short term gains and face the taxes?

Post by terran »

You got lucky timing the market once. Don't confuse that luck for skill. Stop trying to time the market.
mbasherp
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Re: Should I take short term gains and face the taxes?

Post by mbasherp »

GoldenGoose wrote: Wed Sep 02, 2020 10:02 am
mbasherp wrote: Wed Sep 02, 2020 9:54 am There are a lot of aspects to what you bring up: risk tolerance, market timing, asset allocation and many emotions. But I will stick to the one thing that stands out immediately.

You sound like you would prefer to guarantee a loss than continue living in fear of one. Yes, that's what taking $250k in short term capital gains will do. You will lose money, voluntarily, due to taxes to the government. Why this makes sense to you as the best option, I don't know, but I'm sure it relates to all of the things in my first sentence.

Another way to look at it is that you more or less nailed market timing in March. You already won. Why would you now feel compelled to give up tens of thousands of dollars? Are you allergic to making money? There is serious cognitive dissonance at play here.
I don't quite understand "give up tens of thousands of dollars". Are you referring to sell now and pay the taxes? Or are you referring to stay in this "crazy" market and risk losing money if it turns bad? There are risks on both sides. What makes it hard for me to decide was that it is short term cap gain. If it was long term, then I already know what to do.
You don't know what will happen if you stay in the market. If you sell, you have chosen to give up tens of thousands of dollars via short term capital gains taxes.

You indicate that you have two choices. One is being in the vast unknown of the market. The other is to hand over five figures to uncle Sam. Yes, there are risks on both sides, but there is only a guarantee on one side; a negative one at that. You seem to be preferring the option that has a guarantee of loss. The only reasons I can think of why you would volunteer to do that is that you are either in way over your head asset allocation wise and have some work/exploration to do on that front, or you are using the stock market to gamble and have realized that you want to leave the table.

If the latter, I encourage you to not be the gambler who comes right back to the table after another round of drinks.
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arcticpineapplecorp.
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Re: Should I take short term gains and face the taxes?

Post by arcticpineapplecorp. »

GoldenGoose wrote: Wed Sep 02, 2020 9:45 am I am very hesitant in posting this thread.

Background, I was lucky to pull out in time back in March right at the very beginning of the virus. So now in September, 6 months later, with the crazy market where it is, I am looking at a short term cap gains of a quarter million dollars at this point (sorry, I am hesitant to put this all this info in the thread in fear of appearing to be boasting but I just want you to know the magnitude I'm facing with so plenty of apologies upfront). I'm a long term investor, buy and hold generally, except for certain exceptions. So now I am torn between wanting to lock in my short term gains and dread of paying a huge tax bill. I am afraid of this crazy market so I do want to get out and take whatever I have but then I know that no matter what, I will be back at this cap gain level even if things do turn bad short term. So should I exit out now because of the crazy market, because I want to lock in the gain but then face the extremely huge tax bill or should I just continue my course? Probably somebody will suggest "reduce your holdings" but my thinking is either completely out or stay completely in. I don't mess around :)

Thanks
re-read the parts you wrote in red. it can be illustrative. what would you say to someone else who wrote these things?

what I see is fear. fear. fear.

why did you get back in when the market was lower (and continued as it got higher)? greed. greed. greed.

all in or all out, black and white thinking.

you say you don't "mess around", but that's exactly what you're doing. You're not long term investing, you're messing around with your money. You don't know what to do because you don't have an IPS (https://www.bogleheads.org/wiki/Investm ... _statement) or you do but you're not following it unless as one cheeky poster said last week, your IPS specifically states you should get out of the "crazy market".

what's crazy about the market?

that it's disconnected from what's happening in the economy?

have you read the dozens of posts over the past 6 months from people asking how can the stock market be so disconnected from the economy? Perhaps you should.

that it's at new highs?

doesnt' that happen all the time? see viewtopic.php?p=5417838#p5417838 which illustrates that. that poster (skor99) also asked "Carry on or Take your toys and go home?". Go read that post.

you're also conflicted because you want to "lock in the gain" but not pay the taxes. It seems you want to live in an alternate reality. If you have a gain, you may have taxes to pay (depending upon other factors). So you want it all it seems. But life contains tradeoffs all the time.
deal with that.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Impatience
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Re: Should I take short term gains and face the taxes?

Post by Impatience »

Wow people sure are harsh. There’s no need to feel bad for pulling out a win. IMO you should just hold until your gains are a year old and then rebalance while facing long term gains - assuming your gains are all in broad-based ETFs or mutual funds. You didn’t specify where they are. If they’re in individual stocks, ex. apple or tesla, you should consider taking the short term gains now. If they’re in broad ETFs just hold steady and don’t try and get lucky twice.
delamer
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Re: Should I take short term gains and face the taxes?

Post by delamer »

Have you figured out exactly how much you’d pay in federal/state/local income taxes if you took the gains?
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Re: Should I take short term gains and face the taxes?

Post by delamer »

Impatience wrote: Wed Sep 02, 2020 10:28 am Wow people sure are harsh. There’s no need to feel bad for pulling out a win. IMO you should just hold until your gains are a year old and then rebalance while facing long term gains - assuming your gains are all in broad-based ETFs or mutual funds. You didn’t specify where they are. If they’re in individual stocks, ex. apple or tesla, you should consider taking the short term gains now. If they’re in broad ETFs just hold steady and don’t try and get lucky twice.
Why do you assume that there will still be gains if the OP holds for a year?
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Stinky
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Re: Should I take short term gains and face the taxes?

Post by Stinky »

Over the long term, you’re likely to be more successful if you have a defined asset allocation strategy, and can stick to it.

What you’re describing now is the exact opposite of having a defined strategy. You got out near the March top, got back in as the market dropped, and are now considering getting out again.

You got lucky one time with market timing. It was luck, and your luck may run out next time you try to time the market.

If I were you, I’d sit down and carefully think through an asset allocation strategy. Once that’s defined, I’d reposition your investments to that strategy. If it involves selling some assets now, pay the short term capital gains tax and thank your lucky stars that timing worked out for you once.
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arcticpineapplecorp.
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Re: Should I take short term gains and face the taxes?

Post by arcticpineapplecorp. »

The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.”
— John C. Bogle

source: https://financinglife.org/bogle-quotes/
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Should I take short term gains and face the taxes?

Post by winterfan »

Why would you need to lock in a gain? What is the money for? Right before the Great Recession, we sold the stock holdings in our taxable accounts because the market felt frothy. We paid the capital gains and then used the proceeds to pay off the mortgage on our house. I regret doing that, even though the timing looked pretty good in the short term.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

Thanks for all the inputs.

I have lived through 3 major financial events so far in my adult life so I believe timing should be a part of your investment. To what degree you time it is the factor. I am not a day trader so I don't time the market based on the daily/monthly/yearly normal fluctuation. This March was the first time that I "timed" the market. Living through 9/11 event and the financial meltdown of 2008 and seeing how the market behave afterward lead me to believe that timing should be a part of your tool kit. So if you don't believe in timing, don't use it. Whatever you do in the market always involves "risks", big or small.

As for greed, don't we all have it? We all want to have more money, don't we? That's why we invest. It's just a matter of how much risks we are willing to take. Those people who only invest in CD will look at those who invest in the stock market as greed. I went back into the market because I was greedy and wanted to make money.

So let's focus on the topic. If you were me and you are now in this situation, what would you do?
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McGilicutty
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Re: Should I take short term gains and face the taxes?

Post by McGilicutty »

You might be able to use stock options to lock in the gains without paying taxes. I don't know enough about stock options or tax law to know how to go about it, but maybe a good tax attorney could help? You have enough gainz that it is probably worth consulting one.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

Stinky wrote: Wed Sep 02, 2020 10:32 am Over the long term, you’re likely to be more successful if you have a defined asset allocation strategy, and can stick to it.

What you’re describing now is the exact opposite of having a defined strategy. You got out near the March top, got back in as the market dropped, and are now considering getting out again.

You got lucky one time with market timing. It was luck, and your luck may run out next time you try to time the market.

If I were you, I’d sit down and carefully think through an asset allocation strategy. Once that’s defined, I’d reposition your investments to that strategy. If it involves selling some assets now, pay the short term capital gains tax and thank your lucky stars that timing worked out for you once.
Hmm, asset allocation strategy is different than investment strategy. Right now my asset allocation strategy is 100% in stock b/c I am far away from retirement but that will change when that time nears. I stick to that. As for investment strategy, I am buy and hold and take actions in anticipation to or in reaction to major events that have a financial impact. I stick to that.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

Impatience wrote: Wed Sep 02, 2020 10:28 am Wow people sure are harsh. There’s no need to feel bad for pulling out a win. IMO you should just hold until your gains are a year old and then rebalance while facing long term gains - assuming your gains are all in broad-based ETFs or mutual funds. You didn’t specify where they are. If they’re in individual stocks, ex. apple or tesla, you should consider taking the short term gains now. If they’re in broad ETFs just hold steady and don’t try and get lucky twice.
Thanks for a rational response. You are right. If the market is normal, then I would wait 1 year. But this market is disconnected from reality, as others have posted. Too bad that I am not close to 1 year in holding yet.

Although my holdings are not in ETF, my holdings are spread among a variety of stocks, some big cap, some small cap, some value stock and some growth stock.
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arcticpineapplecorp.
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Re: Should I take short term gains and face the taxes?

Post by arcticpineapplecorp. »

GoldenGoose wrote: Wed Sep 02, 2020 10:46 am Thanks for all the inputs.

I have lived through 3 major financial events so far in my adult life so I believe timing should be a part of your investment. To what degree you time it is the factor. I am not a day trader so I don't time the market based on the daily/monthly/yearly normal fluctuation. This March was the first time that I "timed" the market. Living through 9/11 event and the financial meltdown of 2008 and seeing how the market behave afterward lead me to believe that timing should be a part of your tool kit. So if you don't believe in timing, don't use it. Whatever you do in the market always involves "risks", big or small.

As for greed, don't we all have it? We all want to have more money, don't we? That's why we invest. It's just a matter of how much risks we are willing to take. Those people who only invest in CD will look at those who invest in the stock market as greed. I went back into the market because I was greedy and wanted to make money.

So let's focus on the topic. If you were me and you are now in this situation, what would you do?
stop believing in things that are not true.

just because you believe something, doesn't make it so.

market timing works only if you get it right consistently over time.

it doesn't matter if you're day trading or timing due to a "crazy market" (still don't know what that is. you've never defined it. that's part of your problem, you're using generalities and platitudes without any specifics. How will you know when to market time the next time? You assume you won't do it frequently but there are always reasons to sell (fyi, that doesn't mean it's wise to do so):

Image

Image

people may say you don't have to do market timing perfectly, but you're risking doing worse than if you did nothing at all. the research bears that out. being out of the market for just a few days where the market has gone higher causes you to have far less returns than if you had stayed the course:

Image

read this to see why:
https://www.etf.com/sections/index-inve ... nopaging=1

play these market timing games with fake money:
https://www.prudential.com/cdn/tools/ou ... oolcta=OFF
https://qz.com/487013/this-game-will-sh ... right-now/
https://engaging-data.com/market-timing-game/

did you beat the market? If not, and that was using past, known data, what makes you think you can do it with future, unknown data (and real money to boot)?

the lesson of playing the market timing game is not to play it.

The answer to all your market timing questions:

Q: When should I buy?
A: When you have the money.

Q: When should I sell?
A: When you need the money.

why are you wanting to sell if you don't need the money? fear. nothing more.
Last edited by arcticpineapplecorp. on Wed Sep 02, 2020 11:02 am, edited 2 times in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Should I take short term gains and face the taxes?

Post by abuss368 »

GoldenGoose wrote: Wed Sep 02, 2020 9:45 am I am very hesitant in posting this thread.

Background, I was lucky to pull out in time back in March right at the very beginning of the virus. I was able to capture a "small" long term cap gain and most importantly able to preserve my account. Then as the market dropped, I put back in about 60% of my account when the DOW was in the 21K-22K, not quite the bottom. As the market did a V-shape recovery, I got in a little bit more so as of today, I'm about 90% in. I still have cash more than enough for contingencies/emergency funds. So now in September, 6 months later, with the crazy market where it is, I am looking at a short term cap gains of a quarter million dollars at this point (sorry, I am hesitant to put this all this info in the thread in fear of appearing to be boasting but I just want you to know the magnitude I'm facing with so plenty of apologies upfront). I'm a long term investor, buy and hold generally, except for certain exceptions. So now I am torn between wanting to lock in my short term gains and dread of paying a huge tax bill. I am afraid of this crazy market so I do want to get out and take whatever I have but then I know that no matter what, I will be back at this cap gain level even if things do turn bad short term. So should I exit out now because of the crazy market, because I want to lock in the gain but then face the extremely huge tax bill or should I just continue my course? Probably somebody will suggest "reduce your holdings" but my thinking is either completely out or stay completely in. I don't mess around :)

Thanks
This has me wondering if you are comfortable with your overall asset allocation between stocks and bonds. Perhaps you should start to buy more bonds to increase the allocation.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Should I take short term gains and face the taxes?

Post by abuss368 »

Also please do not forget that market timing has been proven time and again to not work.
John C. Bogle: “Simplicity is the master key to financial success."
Topic Author
GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

winterfan wrote: Wed Sep 02, 2020 10:40 am Why would you need to lock in a gain? What is the money for? Right before the Great Recession, we sold the stock holdings in our taxable accounts because the market felt frothy. We paid the capital gains and then used the proceeds to pay off the mortgage on our house. I regret doing that, even though the timing looked pretty good in the short term.
Hmm, maybe this is what I am looking for. If I get out now, maybe I will be facing with maybe 40% tax on my short term gain (our annual combined taxable income is about $200K). 40% of $250 is $100K in taxes, to be simple. What is the % of $100K as compared to my total account? Take that and compare to a possible drop in my account in the event the market drops.

Have to think about this ...
NMBob
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Re: Should I take short term gains and face the taxes?

Post by NMBob »

put options and/or stop or trailing stop orders . use that to cover you or get out if the market tanks. If it does't then at the year mark you can move by pieces out of the position over time that best fit taxes when they are at the long capital gains rate. Why lock in the tax loss before you have to?

i doubled my money in zoom. at that point on its biggest pullback I had a trailing stop that got triggered that sold half, which was my original investment. The remainder, has now doubled again...I have another trailing stop order in place. i sleep well. I did a lot of tax loss harvesting this year, so i will actually not have a cap gains tax on the sale this year as it will be offset.
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arcticpineapplecorp.
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Re: Should I take short term gains and face the taxes?

Post by arcticpineapplecorp. »

GoldenGoose wrote: Wed Sep 02, 2020 10:56 am
Impatience wrote: Wed Sep 02, 2020 10:28 am Wow people sure are harsh. There’s no need to feel bad for pulling out a win. IMO you should just hold until your gains are a year old and then rebalance while facing long term gains - assuming your gains are all in broad-based ETFs or mutual funds. You didn’t specify where they are. If they’re in individual stocks, ex. apple or tesla, you should consider taking the short term gains now. If they’re in broad ETFs just hold steady and don’t try and get lucky twice.
Thanks for a rational response. You are right. If the market is normal, then I would wait 1 year. But this market is disconnected from reality, as others have posted. Too bad that I am not close to 1 year in holding yet.

Although my holdings are not in ETF, my holdings are spread among a variety of stocks, some big cap, some small cap, some value stock and some growth stock.
1. who has said? no one said that in this post. Are you referring to other posts? Did you read the long responses to the initial questions about how the market can "seem" so disconnected from the economy? The answers were more illustrative than the questions, but it seems you were convinced by the question instead.

2. you seem diversified (among stocks anyway), but as was suggested, perhaps you're not diversified between stocks and bonds, and therein lies your problem.

you have a risk tolerance problem and should figure out what is an acceptable level of risk to you. It shouldn't be 100% or 0%.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Impatience
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Re: Should I take short term gains and face the taxes?

Post by Impatience »

GoldenGoose wrote: Wed Sep 02, 2020 10:56 am
Impatience wrote: Wed Sep 02, 2020 10:28 am Wow people sure are harsh. There’s no need to feel bad for pulling out a win. IMO you should just hold until your gains are a year old and then rebalance while facing long term gains - assuming your gains are all in broad-based ETFs or mutual funds. You didn’t specify where they are. If they’re in individual stocks, ex. apple or tesla, you should consider taking the short term gains now. If they’re in broad ETFs just hold steady and don’t try and get lucky twice.
Thanks for a rational response. You are right. If the market is normal, then I would wait 1 year. But this market is disconnected from reality, as others have posted. Too bad that I am not close to 1 year in holding yet.

Although my holdings are not in ETF, my holdings are spread among a variety of stocks, some big cap, some small cap, some value stock and some growth stock.
The market is ALWAYS disconnected from reality in the short term. It only reflects reality when you zoom way out. You need to stop thinking that right now is “special” - right now is always special, which means right now is never special. AKA the short term never seems to make sense. Put that aside and hold the course.

I am generally in favor of holding at least until a year, but maybe consider selling the small caps if they’re highly volatile. I think you’re already considering this having browsed your other responses.
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Re: Should I take short term gains and face the taxes?

Post by wackerdr »

NMBob wrote: Wed Sep 02, 2020 11:04 am put options and/or stop or trailing stop orders . use that to cover you or get out if the market tanks. If it does't then at the year mark you can move by pieces out of the position over time that best fit taxes when they are at the long capital gains rate. Why lock in the tax loss before you have to?

i doubled my money in zoom. at that point on its biggest pullback I had a trailing stop that got triggered that sold half, which was my original investment. The remainder, has now doubled again...I have another trailing stop order in place. i sleep well. I did a lot of tax loss harvesting this year, so i will actually not have a cap gains tax on the sale this year as it will be offset.
Good one.

OP, If you have good use for paying off your debt - student loan, mortgage - you can pay those off.
If you don't have alternative, then you can cash out and sit on cash , bonds or TSM as your risk profile suites you.

There is no free lunch. Options are good insurance but expensive. Selling takes a tax hit. Staying can erode returns. Pick your poison.

My 2 cents: If your gains are based on individual stocks like Tesla, Zoom, Kodak - it is prudent to lock in some or all gains. If it is based on aggressive funds like QQQ, you are more diversified ( but less so than a TSM) and you can stay and ride along.
If this one time fling that you got lucky with, you should reevaluate your risk tolerance and adjust the AA.
mbasherp
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Re: Should I take short term gains and face the taxes?

Post by mbasherp »

I think it's funny that rational responses were called harsh, and one who sympathizes with emotion based market timing is called rational.

Investing based on feelings is not rational. Selling to lock in $100k of short term capital gains taxes when you don't even need the money (and you say you plan to invest for decades more) is not rational. But pointing out these things is harsh. :confused

Not sure what to tell you. I am in my mid 30's and 100% stock. I get all the gains and I'm willing to get punched in the mouth once in a while as part of the process. I think the market is nuts right now, but if I've learned anything, it's that I know I don't know much. If I were you I would be happy about my good market timing experience and be invested as I plan to stay for decades to come.

But I'm not you, and this is a forum, so it's all worth what you paid for it.
Last edited by mbasherp on Wed Sep 02, 2020 11:29 am, edited 1 time in total.
Nowizard
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Re: Should I take short term gains and face the taxes?

Post by Nowizard »

One factor is your age. Though unlikely, if you are receiving Medicare, a huge increase could affect IRMAA. Another approach is that a tax burden is a positive in that it reflects substantial gains. Fear of taxation is one of the reasons that it is said the way to have a substantial portfolio is to start with a huge one and make poor decisions. However, the part of your post that appears most significant to me is the comment about being all in or all out of the market. Either/or decisions with complex situations are not always the only alternatives. Selling some, for example, after determining your marginal tax rate to ascertain the best positioning is a consideration. There are others that will be suggested.

Tim
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Re: Should I take short term gains and face the taxes?

Post by kabob »

Cant have a Loss if ya take your profits!!! - tax doesn't take it All...
I goofed today and sold the wrong lot(oops) - got off plan - so just SoldItAll (BigProfits++)
Didn't really want/intend to, but twas Too much unrealized $$$ vulnerable to an overbought correction.
Oh well - a new day for that acct - Rinse & Repeat!
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

As I pointed out, I have cash to cover contingencies and emergency funds still so I don't need the cash. I am still "young" (50) and my risk tolerance is medium-high so yeah, I'm 100% in stocks. My holdings are diversified and are not companies that are penny stocks or speculative (except for one :) ).

Despite our disagreements on asset allocations (stocks/bonds/CD), investment strategies (buy-hold/timing) and risk tolerance, we all have a common goal: making money. Some just makes more than others. Some just loses more than others (if you don't make as much as others, then you are in a way losing money).

I think after reading so many inputs, my chosen course of action is to sell it all, pay the big tax bill and go all in TSLA. :) Just kidding. I'm going to stay the course and do nothing. Why? It is because I got the timing right luckily and got in near the bottom of the market. So if the stock market drops really big time like it did in March again, at least I will be back to my original balance and haven't lost anything. Of course as history has shown, the market will go back up and at that time I will be back here asking you the same question again! :)
milktoast
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Re: Should I take short term gains and face the taxes?

Post by milktoast »

Do you have any tax advantaged accounts with equity holdings? You could reduce your risk without tax by rebalancing in those accounts.
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Stinky
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Re: Should I take short term gains and face the taxes?

Post by Stinky »

GoldenGoose wrote: Wed Sep 02, 2020 10:50 am Hmm, asset allocation strategy is different than investment strategy. Right now my asset allocation strategy is 100% in stock b/c I am far away from retirement but that will change when that time nears. I stick to that. As for investment strategy, I am buy and hold and take actions in anticipation to or in reaction to major events that have a financial impact. I stick to that.
So, to summarize -

You’re 100% invested in the stock market. Except when you’re not due to market timing.


I don’t even know how to advise you to implement that strategy. I agree that 100% stock might work for some folks early in their investing lifetimes.

But I don’t know how to lay market timing on top of that.
It's a GREAT day to be alive - Travis Tritt
Outer Marker
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Re: Should I take short term gains and face the taxes?

Post by Outer Marker »

If you want to be 100% stocks, step back and leave it alone. Realizing unnecessary capital gains is a sure way to reduce your returns.

A study by Fidelity revealed that the most successful account holders were those that had forgotten they had an account at Fidelity -- or were dead. https://wealthydiligence.com/best-investors-are-dead/
humblecoder
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Re: Should I take short term gains and face the taxes?

Post by humblecoder »

OP, I think you need to look at this through a different lens.

I know you said that your desired asset allocation is 100% stocks, but given how you are antsy about taking your gains, you may want to consider whether a more conservative asset allocation would help you sleep at night. The idea is to have an asset allocation that allows you to relax and not worry about the short term market ups and downs.

What happens when you have assets split between stocks and bonds is that when the stock market goes up, it forces you to sell to rebalance your asset allocation. Likewise, if the stock market goes down, it forces you to buy. In one sense, you can consider this to be the functional equivalent of market timing. However, it is based upon a more rational criteria of asset allocation than that "feeling" in the pit of your stomach that if you don't buy/sell now, you are missing out (I think the cool kids call this FOMO).

So, if it were me, I'd settle on what you want your asset allocation to be based upon your time horizons and risk tolerance. Then re-balance into that asset allocation. So if that is 80/20, then you sell 20% of your stock and put it into bonds.

As far as the tax question goes, do you have a tax deferred account as well. If so, you can sell stock and buy bonds in that account to meet your new asset allocation so you don't have a tax bill.

If you don't have a tax deferred account, then start one.... now! NO EXCUSES!!!! That way, you can use that for rebalancing purposes in the future. Not to mention, tax deferred growth is a wonderful thing. Then if it were me, I'd pay the short term tax bill in order to rebalance. I"d rather be in my ideal asset allocation than worried about the tax bill. And if you opened that tax deferred account like I said to, you'll have a bit of a tax deduction to offset your gain.

Not a accountant, lawyer, or financial advisor, so consider that if you take this advice.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

Stinky wrote: Wed Sep 02, 2020 12:10 pm
GoldenGoose wrote: Wed Sep 02, 2020 10:50 am Hmm, asset allocation strategy is different than investment strategy. Right now my asset allocation strategy is 100% in stock b/c I am far away from retirement but that will change when that time nears. I stick to that. As for investment strategy, I am buy and hold and take actions in anticipation to or in reaction to major events that have a financial impact. I stick to that.
So, to summarize -

You’re 100% invested in the stock market. Except when you’re not due to market timing.


I don’t even know how to advise you to implement that strategy. I agree that 100% stock might work for some folks early in their investing lifetimes.

But I don’t know how to lay market timing on top of that.
Yup, 100% stocks. No bonds. The only time when I'm 100% in cash is this last March.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

Outer Marker wrote: Wed Sep 02, 2020 12:17 pm If you want to be 100% stocks, step back and leave it alone. Realizing unnecessary capital gains is a sure way to reduce your returns.

A study by Fidelity revealed that the most successful account holders were those that had forgotten they had an account at Fidelity -- or were dead. https://wealthydiligence.com/best-investors-are-dead/
Of course if they invested in some "durable" stocks/ETF, not 100% in cash. But yes it is true. Quite a few times I have been burned already by bailing on a stock only to watch it zoom higher after the fact. And the converse is true, getting burned by a few stocks I bought and decided to let it grow, like Black Berry.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

humblecoder wrote: Wed Sep 02, 2020 12:32 pm OP, I think you need to look at this through a different lens.

I know you said that your desired asset allocation is 100% stocks, but given how you are antsy about taking your gains, you may want to consider whether a more conservative asset allocation would help you sleep at night. The idea is to have an asset allocation that allows you to relax and not worry about the short term market ups and downs.

What happens when you have assets split between stocks and bonds is that when the stock market goes up, it forces you to sell to rebalance your asset allocation. Likewise, if the stock market goes down, it forces you to buy. In one sense, you can consider this to be the functional equivalent of market timing. However, it is based upon a more rational criteria of asset allocation than that "feeling" in the pit of your stomach that if you don't buy/sell now, you are missing out (I think the cool kids call this FOMO).

So, if it were me, I'd settle on what you want your asset allocation to be based upon your time horizons and risk tolerance. Then re-balance into that asset allocation. So if that is 80/20, then you sell 20% of your stock and put it into bonds.

As far as the tax question goes, do you have a tax deferred account as well. If so, you can sell stock and buy bonds in that account to meet your new asset allocation so you don't have a tax bill.

If you don't have a tax deferred account, then start one.... now! NO EXCUSES!!!! That way, you can use that for rebalancing purposes in the future. Not to mention, tax deferred growth is a wonderful thing. Then if it were me, I'd pay the short term tax bill in order to rebalance. I"d rather be in my ideal asset allocation than worried about the tax bill. And if you opened that tax deferred account like I said to, you'll have a bit of a tax deduction to offset your gain.

Not a accountant, lawyer, or financial advisor, so consider that if you take this advice.
I don't have sleepless nights over what I have in my holdings or my current short term cap gain. It would be sad to see the $250K cap gain get smaller if you could have done something about it, that's all. If I could save that $250K gain and then later come out ahead as compared to doing nothing, why wouldn't anyone want to do that?
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

winterfan wrote: Wed Sep 02, 2020 10:40 am Why would you need to lock in a gain? What is the money for? Right before the Great Recession, we sold the stock holdings in our taxable accounts because the market felt frothy. We paid the capital gains and then used the proceeds to pay off the mortgage on our house. I regret doing that, even though the timing looked pretty good in the short term.
Rereading, I saw this post. You only regret because the market went up again, not because you pulled out of the market. If you left your money in the market and did nothing, you would only got back what you had plus a few percentages more when the market recovered and shot upward. This compared to pulling out, and then getting back in somewhere in the trough. My account was the do-nothing case so I know. But hey, don't regret, you got your house paid off at that time so that was an accomplishment. You slept better at nights with peace of mind back then during all the turmoils.
The_G_Fund
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Re: Should I take short term gains and face the taxes?

Post by The_G_Fund »

OP,

You got lucky. Not only is the market untethered to the economy, but it is also untethered to any rational logic or notion of skill you may believe you possess to justify shifting to 100% cash in the future based on market conditions. The people who went 100% cash after the Great Recession missed out on the longest bull market in history.

Your time horizon and risk tolerance should dictate any personal asset allocation changes, and if you at least go 90/10 at your “young age” of 50, you can rebalance and smartly leverage future changes to the market.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

arcticpineapplecorp. wrote: Wed Sep 02, 2020 10:57 am
GoldenGoose wrote: Wed Sep 02, 2020 10:46 am Thanks for all the inputs.

I have lived through 3 major financial events so far in my adult life so I believe timing should be a part of your investment. To what degree you time it is the factor. I am not a day trader so I don't time the market based on the daily/monthly/yearly normal fluctuation. This March was the first time that I "timed" the market. Living through 9/11 event and the financial meltdown of 2008 and seeing how the market behave afterward lead me to believe that timing should be a part of your tool kit. So if you don't believe in timing, don't use it. Whatever you do in the market always involves "risks", big or small.

As for greed, don't we all have it? We all want to have more money, don't we? That's why we invest. It's just a matter of how much risks we are willing to take. Those people who only invest in CD will look at those who invest in the stock market as greed. I went back into the market because I was greedy and wanted to make money.

So let's focus on the topic. If you were me and you are now in this situation, what would you do?
why are you wanting to sell if you don't need the money? fear. nothing more.
It's not fear. It's more of a desire to preserve my gain. if I get out, save my money and then get back in at a lower point, wouldn't that be great? After all, buy low sell high, right? If I fear losing money, I wouldn't invest. My mattress would look mighty appealing.

Let me ask all of you this. If you know with certainty that an event about to happen, like the financial meltdown in 2008. Let's just say somehow you have information to foresee that coming and know the impact it would have to your account, would you not get out and preserve your capital? Or you would stay in and "let it ride the course"?
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

The_G_Fund wrote: Wed Sep 02, 2020 2:07 pm OP,

You got lucky. Not only is the market untethered to the economy, but it is also untethered to any rational logic or notion of skill you may believe you possess to justify shifting to 100% cash in the future based on market conditions. The people who went 100% cash after the Great Recession missed out on the longest bull market in history.

Your time horizon and risk tolerance should dictate any personal asset allocation changes, and if you at least go 90/10 at your “young age” of 50, you can rebalance and smartly leverage future changes to the market.
Not disputing that. I am lucky ... twice. First, for getting out at the right time and more importantly second, for getting back in at the right time. But the fact that I took actions mattered. If I didn't take any action, do you think you would call me lucky? You need some luck in investing. The more luck you have, the more gains you make.
The_G_Fund
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Re: Should I take short term gains and face the taxes?

Post by The_G_Fund »

GoldenGoose wrote: Wed Sep 02, 2020 2:15 pm You need some luck in investing. The more luck you have, the more gains you make.
Perhaps this is where you may need to reevaluate your risk tolerance soon or in the future. Many retirees or soon-to-be retirees cannot rely on luck, or a roll of the stock market dice, to secure their retirement. Their retirement and financial well-being are literally at stake. This is where the Boglehead philosophy shines. Staying the course and being disciplined with your asset allocation has nothing to do with luck, but it will lead to very successful investing that is timeless (instead of requiring timing).
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

The_G_Fund wrote: Wed Sep 02, 2020 2:32 pm
GoldenGoose wrote: Wed Sep 02, 2020 2:15 pm You need some luck in investing. The more luck you have, the more gains you make.
Perhaps this is where you may need to reevaluate your risk tolerance soon or in the future. Many retirees or soon-to-be retirees cannot rely on luck, or a roll of the stock market dice, to secure their retirement. Their retirement and financial well-being are literally at stake. This is where the Boglehead philosophy shines. Staying the course and being disciplined with your asset allocation has nothing to do with luck, but it will lead to very successful investing that is timeless (instead of requiring timing).
In the future, I'll re-evaluate but right now I can afford the risks because I want the gains. If I am afraid of the risks then I would have CD my money. A little bit more risk, I'll go EFT. If I really want to win, I'll go the lottery or penny stocks.

So by your saying, I am going to stay the course of doing nothing and let my holdings ride. Sounds good.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

Let me post this question again

Let me ask all of you this. If you know with certainty that an event about to happen, like the financial meltdown in 2008. Let's just say somehow you have information to foresee that coming and know the impact it would have to your account, would you not get out and preserve your capital? Or you would stay in and "let it ride the course"?
RCL
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Re: Should I take short term gains and face the taxes?

Post by RCL »

OP, glad to hear you are going to stay the course and do nothing.

I was going to offer the possibility of taking your original purchase $$ increased by a 10% profit and selling that amount, while keeping the remaining $$ invested.
Kind of like a gambling theory of playing with the house's money; ...Then I saw you wanted all or nothing :|
KyleAAA
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Re: Should I take short term gains and face the taxes?

Post by KyleAAA »

Don't try to time the market.
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Re: Should I take short term gains and face the taxes?

Post by humblecoder »

GoldenGoose wrote: Wed Sep 02, 2020 1:56 pm I don't have sleepless nights over what I have in my holdings or my current short term cap gain. It would be sad to see the $250K cap gain get smaller if you could have done something about it, that's all. If I could save that $250K gain and then later come out ahead as compared to doing nothing, why wouldn't anyone want to do that?
It would also be sad if you took your gains with the associated tax bill and then the stock market went up. However, the fear of losing because markets are going down are outweighing your fear of selling and having the market goes up. That tells me that you should consider a less risky asset allocation. But it's your money, not mine. :happy

That said, even if you don't re-evaluate your asset allocation, I would strongly consider investing in a tax-deferred account. If you had made these moves in a tax deferred account, you wouldn't have had to worry about the tax bill in this scenario.
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

KyleAAA wrote: Wed Sep 02, 2020 2:40 pm Don't try to time the market.
So your answer to my question would be "do nothing and let your account take a beating".
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GoldenGoose
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Re: Should I take short term gains and face the taxes?

Post by GoldenGoose »

humblecoder wrote: Wed Sep 02, 2020 2:46 pm
GoldenGoose wrote: Wed Sep 02, 2020 1:56 pm I don't have sleepless nights over what I have in my holdings or my current short term cap gain. It would be sad to see the $250K cap gain get smaller if you could have done something about it, that's all. If I could save that $250K gain and then later come out ahead as compared to doing nothing, why wouldn't anyone want to do that?
It would also be sad if you took your gains with the associated tax bill and then the stock market went up. However, the fear of losing because markets are going down are outweighing your fear of selling and having the market goes up. That tells me that you should consider a less risky asset allocation. But it's your money, not mine. :happy

That said, even if you don't re-evaluate your asset allocation, I would strongly consider investing in a tax-deferred account. If you had made these moves in a tax deferred account, you wouldn't have had to worry about the tax bill in this scenario.
I already have tax deferred accounts with their own problems! :)

You are right. If the market is not as crazy as this, then I would have not posed the question. But it is crazy and I am not fearful of losing but more fearful of not being able to take advantage of a pullback if there is one. That's all. If I let it ride and it drops, I will be back to the same spot someday. If I get out and it drops, I will definitely go back in and be higher than where I am today.
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arcticpineapplecorp.
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Re: Should I take short term gains and face the taxes?

Post by arcticpineapplecorp. »

GoldenGoose wrote: Wed Sep 02, 2020 2:11 pm
arcticpineapplecorp. wrote: Wed Sep 02, 2020 10:57 am
GoldenGoose wrote: Wed Sep 02, 2020 10:46 am Thanks for all the inputs.

I have lived through 3 major financial events so far in my adult life so I believe timing should be a part of your investment. To what degree you time it is the factor. I am not a day trader so I don't time the market based on the daily/monthly/yearly normal fluctuation. This March was the first time that I "timed" the market. Living through 9/11 event and the financial meltdown of 2008 and seeing how the market behave afterward lead me to believe that timing should be a part of your tool kit. So if you don't believe in timing, don't use it. Whatever you do in the market always involves "risks", big or small.

As for greed, don't we all have it? We all want to have more money, don't we? That's why we invest. It's just a matter of how much risks we are willing to take. Those people who only invest in CD will look at those who invest in the stock market as greed. I went back into the market because I was greedy and wanted to make money.

So let's focus on the topic. If you were me and you are now in this situation, what would you do?
why are you wanting to sell if you don't need the money? fear. nothing more.
It's not fear. It's more of a desire to preserve my gain. if I get out, save my money and then get back in at a lower point, wouldn't that be great? After all, buy low sell high, right? If I fear losing money, I wouldn't invest. My mattress would look mighty appealing.

Let me ask all of you this. If you know with certainty that an event about to happen, like the financial meltdown in 2008. Let's just say somehow you have information to foresee that coming and know the impact it would have to your account, would you not get out and preserve your capital? Or you would stay in and "let it ride the course"?
few thoughts:
1. you're name is interesting, GoldenGoose. You do realize that investments, namely stocks and bonds are the proverbial "golden goose" right (or better said the goose that lays the golden eggs)? Investments are the goose that lay the golden eggs (cap. appreciation and dividends/interest).

Selling your investments actually kills that goose. You won't be laying any golden eggs selling your investments which will then be sitting in cash. think about it.

2. you can preserve gains by rebalancing. This assumes you have a predetermined asset allocation. If you do, then you would sell stocks when the percentage of stocks is greater than your predetermined amount (and move those gains over to bonds). That's selling high. Then when stocks fall, you'd be selling bonds and buying stocks to get the allocation back to its predetermined amount. That's buying low.

why don't you just determine an asset allocation and rebalance when necessary rather than trying to time the market by being all in or all out.

3. Regarding "having information to foresee" the problem is you don't. If you think the market's going to fall, you might be right. Problem is, you might be wrong too. There's no way to know for sure. So to ask in 2020 about what would one do in 2008 is irrelevant and meaningless because you don't want to know what to do in 2008 in 2020. You need to know what to do in 2008 in any time before, not after 2008. The question makes no sense as you pose it except to say you somehow believe the market will fall, which it might or might not.

investing involves uncertainty. uncertainty is risk. that's why you get a return, for taking the risk of uncertainty. If you want certainty, put your money in a bank, but you know you get no return because there is no risk. You want certainty, but you don't want to take risk. Can't have it both ways. wanting it doesn't make it so.

you keep getting the answers you don't want to hear, but all you need to do is set up an IPS and rebalance according to your desired AA. Not having one is your fault and there's no way around.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
klondike
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Re: Should I take short term gains and face the taxes?

Post by klondike »

GoldenGoose wrote: Wed Sep 02, 2020 2:39 pm Let me post this question again

Let me ask all of you this. If you know with certainty that an event about to happen, like the financial meltdown in 2008. Let's just say somehow you have information to foresee that coming and know the impact it would have to your account, would you not get out and preserve your capital? Or you would stay in and "let it ride the course"?
Only if I also know when it's time going to get back in. But if everyone knows these, we are going to earn risk free return.
000
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Re: Should I take short term gains and face the taxes?

Post by 000 »

I'd rather pay 60% in taxes on $100 than 0% on $0.
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