I have an opportunity to do some tax loss harvesting in a non tax advantaged brokerage account. The account has a few index mutual funds from Vanguard, a couple of index ETFs, and about 25 individual stock positions. The account has significant unrealized capital gains (over half of the value) but also has some unrealized capital losses that I would like to capture and use to offset some of the gains and restructure the portfolio toward more index funds.
I am trying to decide if I should sell my smaller positions in individual equities to simplify the portfolio (many of these positions represent less than 1% of the overall portfolio) or sell a portion of my largest individual stock (XOM), which represents about 17% of the overall portfolio, to "derisk" my exposure to this one stock. I have enough losses to offset the gains in about half of my position in XOM.
Any suggestions?
Tax loss harvesting
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Hyperchicken
- Posts: 1799
- Joined: Mon Mar 02, 2020 4:33 pm
Re: Tax loss harvesting
Seems like not a tax question but a question of what you want to be invested in.
Once you decide that, you can figure out how to get there with the most tax efficiency.
Are you looking at selling all your individual stock positions? What's the net of unrealized gains/losses in these?
Once you decide that, you can figure out how to get there with the most tax efficiency.
Are you looking at selling all your individual stock positions? What's the net of unrealized gains/losses in these?
Re: Tax loss harvesting
It probably doesn't matter which way you go, so why not do both? -> Get rid of some XOM and get rid of some of the little positions, too.
This signature message sponsored by sscritic: Learn to fish.Re: Tax loss harvesting
The long term plan would be to exit all individual stock positions over time. Until I start drawing down the portfolio in retirement, I would reinvest dividends and mutual fund capital gains distributions in index funds. I would also use tax loss harvesting, if available, to reduce holdings in individual stocks. Once I start drawing down the portfolio in retirement I would first sell any remaning individual stock positions as needed to fund my retirement and take advantage of (assuming continued favorable tax rates for capital gains) lower capital gains rates before I start drawing down 401k/IRA/Roth.
On average, the overall value of the individual stocks is about half basis and half unrealized gains.
On average, the overall value of the individual stocks is about half basis and half unrealized gains.
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MRinvestor
- Posts: 10
- Joined: Thu Sep 22, 2022 2:17 pm
Re: Tax loss harvesting
I have a similar situation and am going through it right now. At first I thought I would just dump trivial positions (I had a few that resulted from corporate spinoffs). Their LT gains were small compared to the LT loss that I wanted to offset, so I went ahead and sold them.
Then I researched each of the remaining stocks in my portfolio, looking especially at their 10-year history, dividend yield, analyst reviews & basic financials. From that I (fairly quickly) developed a short list of 4-5 stocks to potentially sell, keeping in mind the cash that would be freed up and the aggregate LT loss that I wanted to offset.
In the end, the research yielded a surprise ... a stock that I would not otherwise have chosen for disposal ... its value in my portfolio was almost entirely LT gain, yield was only about 1.5%, analysts were very bearish on it and I wasn't impressed by its financials. So that became my stock to sell.
Although in your case, if XOM actually does represent 17% of your entire portfolio, I'd take a hard look at trimming that position. In my own case my target is 10% maximum in any individual investment, stocks or funds.
Then I researched each of the remaining stocks in my portfolio, looking especially at their 10-year history, dividend yield, analyst reviews & basic financials. From that I (fairly quickly) developed a short list of 4-5 stocks to potentially sell, keeping in mind the cash that would be freed up and the aggregate LT loss that I wanted to offset.
In the end, the research yielded a surprise ... a stock that I would not otherwise have chosen for disposal ... its value in my portfolio was almost entirely LT gain, yield was only about 1.5%, analysts were very bearish on it and I wasn't impressed by its financials. So that became my stock to sell.
Although in your case, if XOM actually does represent 17% of your entire portfolio, I'd take a hard look at trimming that position. In my own case my target is 10% maximum in any individual investment, stocks or funds.