How can I accomplish "Locking in Gains"

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Topic Author
yosemite_mountain
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How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 2:30 pm

**EDIT**

I plan on having a fixed asset allocation of 80:20 stocks/bonds for the next 15 years. Twice a month when I get paid, I direct new contributions to lower-performing portions of my portfolio. Using new contributions to buy under-weighted portions has been enough to maintain my desired asset allocation as my contributions are high.

Question
I’m worried that I am not "realizing gains". All my gains are unrealized for as long as I rebalance by adding new contributions. I have never had to sell a higher performing asset class to re-balance. Using new contributions to buy under-weighted portions has been enough to maintain my desired asset allocation as my contributions are high. The question is that if I never need to rebalance by actually selling off assets to maintain my asset allocation how do I ever have realized gains. If I never sell, I could potentially end up at baseline 15+ years from now, essentially not harvesting the gain before it reverts to the mean.

Stats
-31, single, no kids, CA
-Asset allocation: 80% stocks / 20% bonds. All in a 3 fund portfolio of Vanguard Total International Stock, Vanguard Total Stock and Vanguard Total Bond

Annual Contributions to portfolio: 143k
Last edited by yosemite_mountain on Tue Aug 13, 2019 4:58 pm, edited 9 times in total.

mhalley
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Re: How do I "Lock in Gains"?

Post by mhalley » Tue Aug 13, 2019 2:32 pm

Locking in gains isn’t required. That implies some type of market timing. Rebalancing once a year or so will do that for you if the market is up.

02nz
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Re: How can I accomplish "Locking in Gains"

Post by 02nz » Tue Aug 13, 2019 2:34 pm

What do you mean exactly by "locking in gains"?

Topic Author
yosemite_mountain
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Re: How do I "Lock in Gains"?

Post by yosemite_mountain » Tue Aug 13, 2019 2:35 pm

mhalley wrote:
Tue Aug 13, 2019 2:32 pm
Rebalancing once a year or so will do that for you if the market is up.
Using new contributions to buy under-weighted portions has been enough to maintain my desired asset allocation.

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Tue Aug 13, 2019 2:35 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 2:30 pm
I plan on having a fixed asset allocation of 80:20 stocks/bonds for the next 15 years. Twice a month when I get paid, I direct new contributions to lower-performing portions of my portfolio.

Question
I’m worried that I am not locking in gains. I have never had to sell a higher performing asset class to re-balance. How can I accomplish "locking in gains" with a fixed asset allocation if I never sell high performing assets? Using new contributions to buy under-weighted portions has been enough to maintain my desired asset allocation.
You can't. To lock in gains you have to sell out the portfolio. That makes sense if you decide you don't need to invest anymore, but makes no sense if you want to continue to invest.

Where are you getting the idea that you should "lock in gains"?

TurksandCaicos01
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Re: How do I "Lock in Gains"?

Post by TurksandCaicos01 » Tue Aug 13, 2019 2:38 pm

This is exactly what I do. Every month or so I make new contributions to the lower asset and usually I am right around my asset allocation. I also have never had to sell an asset and have several more years 30+ of investing and will likely keep the same asset allocation for the next 10.

I've really struggled with the same concept as you. Do I keep buying and never lock in the gains?

For example if you look at an international etf or fund, such as VXUS. It goes up and down over the past 10-15 years basically fluctuating between $40 and $60. If you never sell, you could potentially end up at baseline 20+ years from now. Confused about this concept!

mhalley
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Re: How can I accomplish "Locking in Gains"

Post by mhalley » Tue Aug 13, 2019 2:39 pm

Should have been more clear, rebalancing once a year IF ADDING NEW MONEY to underperforming assets does not maintain your aa within 5% of desired aa.

dbr
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Re: How do I "Lock in Gains"?

Post by dbr » Tue Aug 13, 2019 2:41 pm

TurksandCaicos01 wrote:
Tue Aug 13, 2019 2:38 pm

I've really struggled with the same concept as you. Do I keep buying and never lock in the gains?
Yes. The other choice is to stop investing. That could be reasonable depending on your situation, but my guess is that is not your situation. Where are you getting the idea that you should lock in gains?

TurksandCaicos01
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Re: How can I accomplish "Locking in Gains"

Post by TurksandCaicos01 » Tue Aug 13, 2019 2:42 pm

mhalley wrote:
Tue Aug 13, 2019 2:39 pm
Should have been more clear, rebalancing once a year IF ADDING NEW MONEY to underperforming assets does not maintain your aa within 5% of desired aa.

So what if you never have to rebalance? You are always adding new money to maintain your asset allocation within 5%?

milktoast
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Re: How can I accomplish "Locking in Gains"

Post by milktoast » Tue Aug 13, 2019 2:43 pm

You lock in gains when your heirs get a step up basis.

Topic Author
yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 2:44 pm

mhalley wrote:
Tue Aug 13, 2019 2:39 pm
Should have been more clear, rebalancing once a year IF ADDING NEW MONEY to underperforming assets does not maintain your aa within 5% of desired aa.
ADDING NEW MONEY to underperforming assets does maintain my aa

rkhusky
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Re: How can I accomplish "Locking in Gains"

Post by rkhusky » Tue Aug 13, 2019 2:53 pm

Eventually your portfolio will be big enough that contributions will not suffice for rebalancing. Then you will need to sell to rebalance.

You could also lower your threshold for rebalancing to 1% or 0.5% and check your AA every few days. You should see more rebalancing opportunities.

Frank Grimes
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Re: How can I accomplish "Locking in Gains"

Post by Frank Grimes » Tue Aug 13, 2019 3:02 pm

What's wrong with rebalancing via contributions? that's the way I do it too, as do lots of folks in the accumulation stage.

If you "locked in the gains" right now by selling your entire stock allocation, you would then have an allocation of 80% cash and 20% bonds. At which point you'd have to turn around and re-buy your stocks at the same price to get back to 80/20 stocks/bonds. So not sure what is being accomplished.

I mean maybe you could theoretically sell all your stocks to lock in the gains at the top of the rollercoaster then the bottom falls out of the market and you get to buy in again at low prices but that is market timing, will probably not be successful and if you have any sure tips about when that is going to occur please let the rest of us know.

TurksandCaicos01
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Re: How can I accomplish "Locking in Gains"

Post by TurksandCaicos01 » Tue Aug 13, 2019 3:23 pm

rkhusky wrote:
Tue Aug 13, 2019 2:53 pm
Eventually your portfolio will be big enough that contributions will not suffice for rebalancing. Then you will need to sell to rebalance.
This makes sense. Thanks!

chevca
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Re: How can I accomplish "Locking in Gains"

Post by chevca » Tue Aug 13, 2019 3:27 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 2:30 pm
Annual Contributions to portfolio: 143k
Why in the heck do you care about locking in gains when you save that much per year?? Your contributions are your gains.

You don't need to lock in gains. Just let things continue gaining... or, go down... or, stay the same. Just let the market be the market.

Even though it's talked about often, I tend to doubt rebalancing is really needed that often for most folks. It takes quite a bit of market movement to change AA that much.

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Tue Aug 13, 2019 3:28 pm

I don't know if it clarifies or confuses but I would say that technically selling a high position to rebalance is commonly considered to be locking in gains but adding to a low position to rebalance is not. While the asset allocation remains the same in both cases, in the case of adding money to a risk free position the dollars at risk remain the same, while in the case of selling the high and risky position the dollars at risk become less. Locking in gains is supposed to refer to removing money from a position at risk. I hope I said that right.

TurksandCaicos01
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Re: How can I accomplish "Locking in Gains"

Post by TurksandCaicos01 » Tue Aug 13, 2019 3:39 pm

dbr wrote:
Tue Aug 13, 2019 3:28 pm
I don't know if it clarifies or confuses but I would say that technically selling a high position to rebalance is commonly considered to be locking in gains but adding to a low position to rebalance is not. While the asset allocation remains the same in both cases, in the case of adding money to a risk free position the dollars at risk remain the same, while in the case of selling the high and risky position the dollars at risk become less. Locking in gains is supposed to refer to removing money from a position at risk. I hope I said that right.

This makes sense. So then the question remains, how are you supposed to do this when your "rebalancing" means adding to lower positions and no selling is required?

Topic Author
yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 3:43 pm

TurksandCaicos01 wrote:
Tue Aug 13, 2019 3:39 pm

This makes sense. So then the question remains, how are you supposed to do this when your "rebalancing" means adding to lower positions and no selling is required?
+1

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Tue Aug 13, 2019 3:45 pm

TurksandCaicos01 wrote:
Tue Aug 13, 2019 3:39 pm
dbr wrote:
Tue Aug 13, 2019 3:28 pm
I don't know if it clarifies or confuses but I would say that technically selling a high position to rebalance is commonly considered to be locking in gains but adding to a low position to rebalance is not. While the asset allocation remains the same in both cases, in the case of adding money to a risk free position the dollars at risk remain the same, while in the case of selling the high and risky position the dollars at risk become less. Locking in gains is supposed to refer to removing money from a position at risk. I hope I said that right.

This makes sense. So then the question remains, how are you supposed to do this when your "rebalancing" means adding to lower positions and no selling is required?
The answer is you don't. Locking in gains is not something ongoing investors do. To lock in gains you have to quit your investments, in whole or in part. Where are you getting the idea this is something you should do?

KyleAAA
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Re: How can I accomplish "Locking in Gains"

Post by KyleAAA » Tue Aug 13, 2019 3:47 pm

Locking in gains isn't a thing one does as part of a long-term portfolio. You could move 100% to cash, I guess. But that wouldn't be a good idea.

Topic Author
yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 3:50 pm

dbr wrote:
Tue Aug 13, 2019 3:45 pm
The answer is you don't. Locking in gains is not something ongoing investors do. To lock in gains you have to quit your investments, in whole or in part. Where are you getting the idea this is something you should do?
Thanks dbr!
So in a sense we should buy and hold forever, and hope that over long periods of time the stock market should go up.

TSR
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Re: How can I accomplish "Locking in Gains"

Post by TSR » Tue Aug 13, 2019 3:54 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 2:30 pm
Stats
-31, single, no kids, CA
Here's your problem. You've been investing during a period where the market has never really gone down. So now you're using a vague, non-technical term like "locking in gains" to describe a strategy that you think you ought to have. Don't let that bother you. Over the period of your investing, your portfolio will have occasionally gotten out of whack by enough to mean you have to rebalance. I don't know what "rebalancing bands" you use, but if it's a typical 5%, then surely your portfolio has gotten 5% out of whack sometimes, and over the last decade it was surely over-weighted in stocks rather than bonds. One thing you could have done to remedy the situation is sold stocks to buy bonds. This would have "locked in gains" in the traditional sense. But you didn't do that. Instead you used new money to buy bonds. Do you see how this is the same thing? Like, it would not have made sense to sell stocks to buy bonds (presumably "locking in gains"), only to then use your new money to buy those same stocks at the same prices you sold them at all in order to get back to your asset allocation, right? You just skipped one unnecessary step to accomplish the same result. You are already locking in gains.

The point is that vague terms like "locking in gains" are describing more precise terms like "maintaining your asset allocation." You've done the latter well, which has arguably accomplished the former. You're in great shape.

chevca
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Re: How can I accomplish "Locking in Gains"

Post by chevca » Tue Aug 13, 2019 3:56 pm

To the OP and others not grasping this, it's called compounding.

Let's make it super simple. You have money in a savings account... whatever amount and rate that pays out $1000/year in interest. At the end of the year, do you "lock in" that gain, take the money out, and stick it under your mattress? No, right? You leave it where it is to keep growing.

It can really be as simple as, if there's nothing to do with your portfolio, then don't do anything with your portfolio. :happy

Topic Author
yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 4:31 pm

dbr wrote:
Tue Aug 13, 2019 3:28 pm
The answer is you don't. Locking in gains is not something ongoing investors do. To lock in gains you have to quit your investments, in whole or in part. Where are you getting the idea this is something you should do?
That makes sense dbr. The idea came from "potentially end up at baseline 15+ years from now" if I never sell

TurksandCaicos01
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Re: How can I accomplish "Locking in Gains"

Post by TurksandCaicos01 » Tue Aug 13, 2019 4:41 pm

dbr wrote:
Tue Aug 13, 2019 3:45 pm
TurksandCaicos01 wrote:
Tue Aug 13, 2019 3:39 pm
dbr wrote:
Tue Aug 13, 2019 3:28 pm
I don't know if it clarifies or confuses but I would say that technically selling a high position to rebalance is commonly considered to be locking in gains but adding to a low position to rebalance is not. While the asset allocation remains the same in both cases, in the case of adding money to a risk free position the dollars at risk remain the same, while in the case of selling the high and risky position the dollars at risk become less. Locking in gains is supposed to refer to removing money from a position at risk. I hope I said that right.

This makes sense. So then the question remains, how are you supposed to do this when your "rebalancing" means adding to lower positions and no selling is required?
The answer is you don't. Locking in gains is not something ongoing investors do. To lock in gains you have to quit your investments, in whole or in part. Where are you getting the idea this is something you should do?

If I could speak for the OP for a second. I think they confused others by saying "locking in gains" ...I think he means more so that all his gains are unrealized for as long as he rebalances by adding new contributions. The question is that if you never need to rebalance by actually selling off assets to maintain your asset ratio how do you ever have realized gains.

Everyone seems to be perseverating on the term locking in gains. By saying this we do not mean timing the market or selling all investments to cash.

CoastalWinds
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Re: How can I accomplish "Locking in Gains"

Post by CoastalWinds » Tue Aug 13, 2019 4:46 pm

I used to think the same way too, when I started out. The concept of re-balancing was clear to me if one was retired or not contributing, but I too wondered about accumulators.

I thought to myself: “How do I get the re-balancing bonus if I’m never selling? If the fund goes up, shouldn’t I harvest the gain before it reverts to the mean?”

The answer is you are getting the re-balancing bonus by buying the under-represented asset class. You are doing it correctly for an accumulator.

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Tue Aug 13, 2019 4:50 pm

TurksandCaicos01 wrote:
Tue Aug 13, 2019 4:41 pm

If I could speak for the OP for a second. I think they confused others by saying "locking in gains" ...I think he means more so that all his gains are unrealized for as long as he rebalances by adding new contributions. The question is that if you never need to rebalance by actually selling off assets to maintain your asset ratio how do you ever have realized gains.

Everyone seems to be perseverating on the term locking in gains. By saying this we do not mean timing the market or selling all investments to cash.
It's still the same answer. You don't have realized gains until you sell something. My question is still the same. What is the reason to want realized gains?

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yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 5:02 pm

dbr wrote:
Tue Aug 13, 2019 4:50 pm
My question is still the same. What is the reason to want realized gains?
The reason to want realized gains is so as to put away the gains in a safer asset like bonds and not end up back at square one

KyleAAA
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Re: How can I accomplish "Locking in Gains"

Post by KyleAAA » Tue Aug 13, 2019 5:23 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 5:02 pm
dbr wrote:
Tue Aug 13, 2019 4:50 pm
My question is still the same. What is the reason to want realized gains?
The reason to want realized gains is so as to put away the gains in a safer asset like bonds and not end up back at square one
But so long as you maintain the same asset allocation, that doesn't actually accomplish anything. Money is fungible, meaning it doesn't matter where it comes from. If you're saying you want to decrease your stock allocation as your portfolio grows larger, that would be a form of "locking in your gain," at least to an extent. But again, whether the bond money came from realizing capital gains on appreciated stock or new contributions is irrelevant.

tlk59
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Re: How can I accomplish "Locking in Gains"

Post by tlk59 » Tue Aug 13, 2019 5:29 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 2:30 pm
If I never sell, I could potentially end up at baseline 15+ years from now, essentially not harvesting the gain before it reverts to the mean.
Reversion to the mean? It may well be that the returns of the next 15 years are nowhere near as spectacular as the last 15 (okay let's say last 10 or so). But that doesn't mean the market will be lower 15 years from now. Why the assumption that you will lose all your gains?
Last edited by tlk59 on Tue Aug 13, 2019 5:32 pm, edited 2 times in total.

CoastalWinds
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Re: How can I accomplish "Locking in Gains"

Post by CoastalWinds » Tue Aug 13, 2019 5:30 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 5:02 pm
dbr wrote:
Tue Aug 13, 2019 4:50 pm
My question is still the same. What is the reason to want realized gains?
The reason to want realized gains is so as to put away the gains in a safer asset like bonds and not end up back at square one
Why would u think that you’ll end up at square one? Over (in some cases long periods of) time, equities always go up in value. Otherwise, why would u take a risk for a zero growth investment?

To your example, yes international equities by and large have had a relatively “meh” decade, but still has gone up and it will continue to do so, on average (maybe even more than US equities).

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Tue Aug 13, 2019 5:33 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 5:02 pm
dbr wrote:
Tue Aug 13, 2019 4:50 pm
My question is still the same. What is the reason to want realized gains?
The reason to want realized gains is so as to put away the gains in a safer asset like bonds and not end up back at square one
Sure. Then you sell some stocks and invest the proceeds in bonds.

But there are two ways to look at that. You can count everything up in dollars and as the dollars in stocks increase you can "take the profits" and put the money in bonds. Another way you can do that is think of risk in terms of the fraction of your assets in stocks/bonds. In that case it is possible that the dollars in stocks are increasing but the dollars in bonds are increasing faster and therefore even though there is more money at risk the fraction of your assets at risk is less. What you do depends on your objectives.

Probably the most common thing is to try for (and succeed) at growing total wealth and as time goes on reduce the proportion that is at risk while the total number of dollars at risk is actually increasing.

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yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Tue Aug 13, 2019 6:14 pm

dbr wrote:
Tue Aug 13, 2019 5:33 pm
Probably the most common thing is to try for (and succeed) at growing total wealth and as time goes on reduce the proportion that is at risk while the total number of dollars at risk is actually increasing.
So essentially as total wealth increases, change asset allocation from 80:20 stocks/bonds to say 70:30 stocks/bonds to reduce the portion that is at risk, right? Essentially "take the profits" and put the money in bonds

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Tue Aug 13, 2019 7:45 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 6:14 pm
dbr wrote:
Tue Aug 13, 2019 5:33 pm
Probably the most common thing is to try for (and succeed) at growing total wealth and as time goes on reduce the proportion that is at risk while the total number of dollars at risk is actually increasing.
So essentially as total wealth increases, change asset allocation from 80:20 stocks/bonds to say 70:30 stocks/bonds to reduce the portion that is at risk, right? Essentially "take the profits" and put the money in bonds
More people here would say adjust the portfolio risk appropriate to age and wealth. I don't think taking profits, realizing gains, or locking in gains is now most people here think of this though it might be helpful to hear from some who might.

There is a process referred to as "winning the game" meaning that when an investor reaches a critical level of wealth that one removes investments from being at risk. But again this is about how much wealth there is and what the risk is rather than "taking the profits."

rkhusky
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Re: How can I accomplish "Locking in Gains"

Post by rkhusky » Wed Aug 14, 2019 7:17 am

yosemite_mountain wrote:
Tue Aug 13, 2019 6:14 pm
dbr wrote:
Tue Aug 13, 2019 5:33 pm
Probably the most common thing is to try for (and succeed) at growing total wealth and as time goes on reduce the proportion that is at risk while the total number of dollars at risk is actually increasing.
So essentially as total wealth increases, change asset allocation from 80:20 stocks/bonds to say 70:30 stocks/bonds to reduce the portion that is at risk, right? Essentially "take the profits" and put the money in bonds
You can also invest in a target date fund that will do this for you. Not only will they rebalance your portfolio on a regular basis, but also gradually lower the stock portion as you get closer to retirement. In essence, they are locking in the gains for you and buying when stocks are cheap. All you need to do is contribute.

Although, I admit feeling a bit of satisfaction when the market is at an all-time high to sell some stock to rebalance back to my AA. But I also derive some satisfaction when rebalancing causes me to buy some stock at a local minimum.

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Re: How can I accomplish "Locking in Gains"

Post by blaugranamd » Wed Aug 14, 2019 7:52 am

There's some good points here and I'll add (hopefully) one more. You're making the mental accounting error that realizing gains is when you've actually made money. IE: mutual fund has gone up $1000 in value, if I sell and put that money in bonds I officially have made $1000. That's not the case. You've simply swapped all that money from one asset that has risen in value from when you bought it to a different asset that is currently valued differently. You still have the same portfolio value, just with reduced prospects/risk going forward. There's no reason to view $2000 worth of a mutual fund that is $1000 cost basis and $1000 capital gains any differently than $2000 in the same fund that is just basis if you still plan to hold it for a long time.

Realizing gains, in reality, should be AVOIDED, at least in a taxable account. In a tax exempt account realizing gains and losses is meaningless. Best of luck! :sharebeer
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

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DanMahowny
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Re: How can I accomplish "Locking in Gains"

Post by DanMahowny » Wed Aug 14, 2019 7:58 am

OP- you're killing it, man. $143k p/year. I'm impressed.
Funding secured

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Wed Aug 14, 2019 8:21 am

"Locking in gains" looks backwards at what has happened and ignores what is going to happen next. That is nonsensical.

I also agree with a previous poster that the idea may just be fallacious mental accounting in which one imagines that the gain needs to be "locked in" or it isn't real.

That said there is nothing wrong with selling assets that have been at risk and replacing them with assets that are less risky, if that is the plan looking forward. This can even include spending the gains if that makes sense to the investor.

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yosemite_mountain
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Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Wed Aug 14, 2019 12:31 pm

Thanks everyone for the responses. Although I must admit I'm now even more confused than I was before I asked the question

dbr
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Re: How can I accomplish "Locking in Gains"

Post by dbr » Wed Aug 14, 2019 12:39 pm

yosemite_mountain wrote:
Wed Aug 14, 2019 12:31 pm
Thanks everyone for the responses. Although I must admit I'm now even more confused than I was before I asked the question
You said "I’m worried that I am not "realizing gains"."

Have you figured out why anyone would need to realize their gains and therefore why you would worry about it? Where did that idea come from in your mind?

Maybe it would help to say that when one saves and invests for retirement one "realizes the gains" when one sells some to the asset to spend the money in retirement. That is all there is to it.

ReadyOrNot
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Re: How can I accomplish "Locking in Gains"

Post by ReadyOrNot » Wed Aug 14, 2019 4:01 pm

Re-phrasing what has already been said,
you can lock in or realize gains by cashing in your winnings and getting out of the game when you have won, or cashing in your gains to spend. You don't need to, and should not want to do either yet.

hudson
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Re: How can I accomplish "Locking in Gains"

Post by hudson » Wed Aug 14, 2019 4:24 pm

yosemite_mountain wrote:
Tue Aug 13, 2019 5:02 pm
dbr wrote:
Tue Aug 13, 2019 4:50 pm
My question is still the same. What is the reason to want realized gains?
The reason to want realized gains is so as to put away the gains in a safer asset like bonds and not end up back at square one
If you are like me and don't like stocks, bond funds and CDs are the place to go.
You'll miss out on the gains that stocks can deliver. For me, bond funds and CDs are just fine.

chevca
Posts: 2723
Joined: Wed Jul 26, 2017 11:22 am

Re: How can I accomplish "Locking in Gains"

Post by chevca » Wed Aug 14, 2019 4:29 pm

yosemite_mountain wrote:
Wed Aug 14, 2019 12:31 pm
Thanks everyone for the responses. Although I must admit I'm now even more confused than I was before I asked the question
Are you familiar with compounding? That can't happen if you 'lock in' a gain.

Made up numbers here... But, say you buy a share of something for $100 today. A year from now, that share is worth $110. You lock in that gain and made $10. Twenty years from now that share could be worth $500. Are you glad you locked in that $10 gain, but missed out on the $390 you could have in gains if you just left it be?

There's no real reason to lock in gains, other than maybe needing money for something very soon. Otherwise, let it grow!

Topic Author
yosemite_mountain
Posts: 92
Joined: Tue Oct 02, 2018 8:44 pm

Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Wed Aug 14, 2019 5:20 pm

chevca wrote:
Wed Aug 14, 2019 4:29 pm
Are you familiar with compounding? That can't happen if you 'lock in' a gain.

Made up numbers here... But, say you buy a share of something for $100 today. A year from now, that share is worth $110. You lock in that gain and made $10. Twenty years from now that share could be worth $500. Are you glad you locked in that $10 gain, but missed out on the $390 you could have in gains if you just left it be?

There's no real reason to lock in gains, other than maybe needing money for something very soon. Otherwise, let it grow!
Great explanation. Thanks!

retire2022
Posts: 880
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Location: NYC

Re: How can I accomplish "Locking in Gains"

Post by retire2022 » Wed Aug 14, 2019 5:47 pm

DanMahowny wrote:
Wed Aug 14, 2019 7:58 am
OP- you're killing it, man. $143k p/year. I'm impressed.
I agree with DanMahowny

checkout my projections until you turn 67 or 31-67=36 years of projected investing

http://www.moneychimp.com/calculator/co ... ulator.htm

if your annual contributions are 143K each year for the next 36 years @5% compounded it will be $15,218,053.56

if you save 143k for the next 36 years it will be $5,291,000.00

No need to lock in any gains you could be at zero compound interest rate and still have 5 million

Are you sure your annual legal contributions are 143k? what is your annual contribution each year, please state the figure, if I am misinterpreting. For most 401Ks it is 19,000 per year.

Topic Author
yosemite_mountain
Posts: 92
Joined: Tue Oct 02, 2018 8:44 pm

Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Wed Aug 14, 2019 6:10 pm

retire2022 wrote:
Wed Aug 14, 2019 5:47 pm


I agree with DanMahowny

checkout my projections until you turn 67 or 31-67=36 years of projected investing

http://www.moneychimp.com/calculator/co ... ulator.htm

if your annual contributions are 143K each year for the next 36 years @5% compounded it will be $15,218,053.56

if you save 143k for the next 36 years it will be $5,291,000.00

No need to lock in any gains you could be at zero compound interest rate and still have 5 million

Are you sure your annual legal contributions are 143k? what is your annual contribution each year, please state the figure, if I am misinterpreting. For most 401Ks it is 19,000 per year.
retire2022, I'm hoping to be financially independent in 15 years time (at Age 45). My job is unstable due to agesim and several other factors, so I'm trying to stash away as much as possible while I still can.

Contributions:
401k: 19k
401k match: 7k
Backdoor Roth: 6k
Mega backdoor Roth: 13k
Taxable account: 98k

Total: 143k

retire2022
Posts: 880
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: How can I accomplish "Locking in Gains"

Post by retire2022 » Wed Aug 14, 2019 6:20 pm

yosemite_mountain wrote:
Wed Aug 14, 2019 6:10 pm

retire2022, I'm hoping to be financially independent at 45. My job is unstable due to agesim and several other factors, so I'm trying to stash away as much as possible while I still can.

Contributions:
401k: 19k
401k match: 7k
Backdoor Roth: 6k
Mega backdoor Roth: 13k
Taxable account: 98k

Total: 143k
ok if you are targeting 45 or 31-45=14 years into the future then the projections are

http://www.moneychimp.com/calculator/co ... ulator.htm

current principal $143,000.00
annual contributions $143,000.00

14 years to grow

at 3% = $ 2,732,945.02

you should factor in your expenses, I think if you can keep up the savings rate for the next 14 years at 3% compound interest or annual average return you will be set for life.

Topic Author
yosemite_mountain
Posts: 92
Joined: Tue Oct 02, 2018 8:44 pm

Re: How can I accomplish "Locking in Gains"

Post by yosemite_mountain » Wed Aug 14, 2019 6:33 pm

retire2022 wrote:
Wed Aug 14, 2019 6:20 pm
yosemite_mountain wrote:
Wed Aug 14, 2019 6:10 pm

retire2022, I'm hoping to be financially independent at 45. My job is unstable due to agesim and several other factors, so I'm trying to stash away as much as possible while I still can.

Contributions:
401k: 19k
401k match: 7k
Backdoor Roth: 6k
Mega backdoor Roth: 13k
Taxable account: 98k

Total: 143k
ok if you are targeting 45 or 31-45=14 years into the future then the projections are

http://www.moneychimp.com/calculator/co ... ulator.htm

current principal $143,000.00
annual contributions $143,000.00

14 years to grow

at 3% = $ 2,732,945.02

you should factor in your expenses, I think if you can keep up the savings rate for the next 14 years at 3% compound interest or annual average return you will be set for life.
Thanks. Makes sense

tesuzuki2002
Posts: 766
Joined: Fri Dec 11, 2015 12:40 pm

Re: How can I accomplish "Locking in Gains"

Post by tesuzuki2002 » Wed Aug 14, 2019 6:42 pm

I would keep doing what you are doing! I have a very similar approach to yours and I think it is working well.

RCL
Posts: 367
Joined: Sat Jul 05, 2014 2:48 am

Re: How can I accomplish "Locking in Gains"

Post by RCL » Thu Aug 15, 2019 12:30 pm

chevca wrote:
Wed Aug 14, 2019 4:29 pm



Are you familiar with compounding? That can't happen if you 'lock in' a gain.

Made up numbers here... But, say you buy a share of something for $100 today. A year from now, that share is worth $110. You lock in that gain and made $10. Twenty years from now that share could be worth $500. Are you glad you locked in that $10 gain, but missed out on the $390 you could have in gains if you just left it be?

There's no real reason to lock in gains, other than maybe needing money for something very soon. Otherwise, let it grow!

I was thinking alone the same lines since the OP made mention of a fund that had a range of x dollars over x years. (and going back to square one)
Sounds like they are just considering the NAV prices and not total growth due to compounding and re-invested dividends.
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