Author Topic: case study: Almost 500k in stocks... what do i do now?  (Read 1496 times)

i_have_so_much_to_learn

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case study: Almost 500k in stocks... what do i do now?
« on: March 05, 2019, 12:07:45 AM »
I'm hoping to use my portfolio as a case study. It holds most of my net worth but is not shielded from tax, and is extremely exposed to market volatility. I'm up quite a bit overall, and the current financial volatility and uncertainty is a bit scary to me.

Current Holdings:
TSLA: 10k (down 1.5%, or $145)
FB: 7k (down 5%, or $370)
SQ: 37k (up 65%, or 14k)
GOOGL: 27k (up 73%, or 11k)
GOOG: 180k (up 31%, pr 42k)
AAPL: 38k (up 83%, 17k)
AMZN: 169k (up 180%, or 109k)

Total: 468,000 with 190,000 in unrealized gains.

All of the investments are long term investments, and as you can see, they are quite silicon valley heavy. Note that I do have other investments that I'm not listing here. Particularly, my 401k and also a wealthfront account. The 401k is a target retirement 2055 account (approx 185k), and wealthfront is on 10/10 risk (wealthfront is valued at 56, up about 14%, or 7k).

I live in a HCOL area, and typically buy about $10k in stocks every 3 months or so. 

So... What would you do? take some wins? take some losses? do nothing? sell it all, take a massive tax hit, and move to indexes? sell it all, buy bitcoin, and enjoy an early heart attack? Buy a house and hope the market stays strong? Slap myself in the face with a fish because i'm a paranoid freak?

i'm open to advice, roasting, compliments, and other statements. I'm also open to your own stories and anecdotes as well as scientific evidence for why I'm doing something wrong (or right).

Thanks!
« Last Edit: March 05, 2019, 12:39:50 AM by i_have_so_much_to_learn »

Montecarlo

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #1 on: March 05, 2019, 05:30:15 AM »
Your concentration of wealth in just a few stocks is staggering.  Remember how GE turned out to be held together by Welch, and when he left the company basically disintegrated.  You’re basically betting it all on Schmidt, Bezos, and their successors.  You met or profiled the women or men who will be taking the reins when those two are gone?  And you’re putting your entire future in their hands!

I would immediately sell at least 130K of Google and 120K of AMZN and diversify.

What’s your top tax bracket?  It might be worth talking to a CPA to see if there’s any way to shield you from capital gains.  If there’s anything you can do to reduce your ordinary income for this year, there’s a chance you can pay 0 capital gains.

radram

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #2 on: March 05, 2019, 07:19:26 AM »
Congratulations on getting a good outcome. Do you think you can sustain that (apparent) stock picking success over 10-20 years?  Do you feel mostly skilled or mostly lucky?

We really have no idea if this is a "good" outcome or not. Is the $190k in gains through a 20 year period, or 2 months? What did index funds do during this time?

I would base selling on the percentage of your overall net worth this makes up. I think stock picking is just fine for, say 10% or so of a portfolio, more so if you are constantly adding to your stache. Your adding of $40,000 annually makes this:

1. A great problem to have
2. A problem that decreases with time, assuming indexing with your future contributions.

How would it change your life if these went to near 0? If "not much", then I would keep them and slowly migrate to index funds with your new money. If you have a financial event coming up(buying a house, or an iceberg, etc.), you might tap these, or sell slowly only to utilize the amount before hitting the next tax bracket.

ysette9

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #3 on: March 05, 2019, 09:46:46 AM »
I’d be very scared to own that portfolio. You are taking on incredible uncompensated risk by not being diversified. I would immediately put all future investments into a combo of VTSAX and VTIAX (in fact that is what I do now) and work out a plan for selling off what stocks you have and transferring the money to the same two index funds.

i_have_so_much_to_learn

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #4 on: March 05, 2019, 11:11:19 AM »
Your concentration of wealth in just a few stocks is staggering.  Remember how GE turned out to be held together by Welch, and when he left the company basically disintegrated.  You’re basically betting it all on Schmidt, Bezos, and their successors.  You met or profiled the women or men who will be taking the reins when those two are gone?  And you’re putting your entire future in their hands!

I would immediately sell at least 130K of Google and 120K of AMZN and diversify.

What’s your top tax bracket?  It might be worth talking to a CPA to see if there’s any way to shield you from capital gains.  If there’s anything you can do to reduce your ordinary income for this year, there’s a chance you can pay 0 capital gains.

You're entirely right. (Except for schmidt - he has nothing to do with Alphabet's day-to-day leadership since he stopped being CEO in 2011, and has even less to do now that he's not executive chairman for 2+ years - still, i guess it's larry page in this case.) I'm already in a high tax bracket. Living in California doesn't help (i.e. 10% tax rate approx). Taking on more than 100k in an immediately taxable transaction doesn't seem like the best idea. ...And even the best CPA can't reduce my ordinary income by 120k. I appreciate you providing this advice and giving me something to thing about.

i_have_so_much_to_learn

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #5 on: March 05, 2019, 11:42:50 AM »
Congratulations on getting a good outcome. Do you think you can sustain that (apparent) stock picking success over 10-20 years?  Do you feel mostly skilled or mostly lucky?

Neither? That is to say that I performed significant research when building this portfolio but I wouldn't hold out to be this "correct" over a long period of time. Warren buffet has a contest on whether stock pickers can beat the market and I believe that the answer has always been "no".

With that said, exposing yourself to *some* picking does give you the ability to rise (or fall) behind the crowds.

I think with Square and Amazon I was able to pick them well, but this doesn't necessarily mean I'm good at anything. I research stocks for months until I decide what is a good price for me to get into them. Until I *realize* my gains, I haven't earned anything, as scary as it is to think about - it's true.
« Last Edit: March 05, 2019, 11:44:29 AM by i_have_so_much_to_learn »

i_have_so_much_to_learn

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #6 on: March 05, 2019, 11:49:18 AM »
Quote
We really have no idea if this is a "good" outcome or not. Is the $190k in gains through a 20 year period, or 2 months? What did index funds do during this time?

You're right. Good questions.

The Google and Amazon have been acquired consistently over 5 years. Tesla and FB were purchased in around November 2018. AAPL was about 3ish years ago. the SQ was  purchased just over a year ago. There were others of course those that I have already pruned, but losses over the past 4 years were less than 10k or so. (2.5k in losses per year on average). Almost no gains have been realized.

Indexes in this time period have gone up almost as well: vstax approximately 48.9%, and s&p (.inx) approximately 48.6%. Meanwhile, I'm up 70% while still dollar cost averaging quarterly.  This is not to say that this is sustainable, simply adding some data.

Quote
I would base selling on the percentage of your overall net worth this makes up. I think stock picking is just fine for, say 10% or so of a portfolio, more so if you are constantly adding to your stache.


This is interesting, thanks. 10% seems like a fine "risk" number. I was actually considering the TSLA, FB, and SQ to be my higher risk, and my AMZN, APPL, GOOG/L to be "not my highest" risk. They are heavily concentrated in tech but they are also massive companies that have excellent momentum and are safer than many other places right now. So if my first stock cohort listed was a 9 risk out of 10, I would consider AMZN/AAPL/GOOG/L to be something like a 8 out of 10. Now, having all three of them probably bumps me to a 8.5 :).

Having almost 50+k in wealthfront meants that I"m already exposed to indexes and foreign markets, bonds, etc.


Quote
Your adding of $40,000 annually makes this:

1. A great problem to have
2. A problem that decreases with time, assuming indexing with your future contributions.

How would it change your life if these went to near 0? If "not much", then I would keep them and slowly migrate to index funds with your new money. If you have a financial event coming up(buying a house, or an iceberg, etc.), you might tap these, or sell slowly only to utilize the amount before hitting the next tax bracket.

More great questions, thanks for asking. It wouldn't change my day to day life at all, but it would change my ability to invest in other vehicles. I.e. having 400k in stocks is fairly liquid - i can wait a few days and get all the cash out to buy a house, etc. But if the market collapsed and this was only worth 100k - I would simply have less buying power (but I'm already earning enough to cover my bills, pay myself first, have an emergency fund, max out my pretax 401k and some aftertax, etc.)

I really like the idea of moving _new_ money to an index fund. I'll have to think about this for a bit, but it allows me to not take a tax hit, retain my current risk level, and decrease it over time.  Thanks so much for this, I'll try to think about this a bit more.

MrThatsDifferent

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #7 on: March 05, 2019, 06:32:21 PM »
This isn’t really a case study and would do better in the investor section

i_have_so_much_to_learn

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #8 on: March 05, 2019, 06:43:28 PM »
This isn’t really a case study and would do better in the investor section

I'm happy to move it if that's possible, but I actually disagree with your assessment. It's not a traditional case study in terms of the template for this topic, but it is IMHO a case study by definition.

How do I move it?

BicycleB

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #9 on: March 05, 2019, 06:56:49 PM »

I really like the idea of moving _new_ money to an index fund. I'll have to think about this for a bit, but it allows me to not take a tax hit, retain my current risk level, and decrease it over time.  Thanks so much for this, I'll try to think about this a bit more.

One variant I would consider in your shoes:
1. Yes, direct all new money into an index fund. Or two or three, for reasons below.
2. Make your purchases via the "specific identification" method. This means each purchase you make is specifically identified as to date of purchase, share price of purchase, and (I believe) specific shares purchased.
https://www.bogleheads.org/wiki/Specific_identification_of_shares
3. In future, at some point one or more purchase will decline in value. You can then sell "in the money" stock (TSLA or whatever) at the same time as the fund or stock that has declined. If the details are handled properly, the loss on one offsets the gain on the other, avoiding the need to actually pay capital gains tax. If enough years pass, eventually you will have enough losses from the "noise" in the markets to gradually sell the individual stocks, and end up in an all-index portfolio.

I don't know if this offset works for state tax. Research all this carefully.


civil4life

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #11 on: March 15, 2019, 05:35:12 PM »
You could do some tax harvesting offset some of the gains with your current losses in FB and TLSA.

blingwrx

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #12 on: March 15, 2019, 09:36:30 PM »
I'm also in a similar situation with a 400k taxable portfolio and 120k in unrealized gains and I started off with mostly tech FAANG stocks, the past few years have been great for us who have followed those FAANG stocks, but it definitely has been a scare a few months back with the corrections taking a big hit on the portfolio temporarily, it's a reminder of how volatile and how easy these tech stocks can come crashing down, but of course I'm staying the course and things have recovered mostly.

My strategy has been to dilute the shares rather than pay a big tax bill right now. I about 50k a year to my portfolio so in due time things should dilute. Though my biggest holdings only represent 16% of my portfolio so it's bit easier for me to dilute than for you. I also wasn't maxing out my 401k at the time which was before i discovered MMM, so now I max out the 401k first and invest in VTSAX with that money. Any extra money goes into my taxable portfolio and I mostly steer away from tech and pick stocks in other sectors to diversify. I only sell stocks that are down now to pare some gains.

Next step for me would be to eventually FIRE and have a much lower income and tax bracket, then I could get away with not paying any capital gains tax on the gains as long as I don't earn more than 78k for married filing jointly. But if you do think your income will be a lot more even in retirement or if you lose faith in these companies then I'd start sell slowly and pay the long term capital gains on them which isn't too extreme compared to ordinary income tax. I would not sell everything all in one year though and slowly do it, but I'd definitely talk to an accountant to see the best strategy to realize these gains over time with the least tax impact.

K-ice

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #13 on: March 15, 2019, 11:54:57 PM »
I was in a similar situation with 2 Jr. oil field company stocks.

At one point I even moved one in kind into a tax advantages account where it would “grow”.

3 years ago all new investments were put into Vanguard ETFs. I was waiting for my Vanguard funds to grow so these risky stocks became a small part of my portfolio.

Guess what? Today they are a small part, just not the way I planned.

K-ice

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #14 on: March 16, 2019, 12:04:51 AM »
Just to add. I wish I had had an exit strategy. I was blindly buy & hold.

Maybe this does belong in the investing section with a when to sell question.

I’m not sure of the tax consequences but I wish I had a rule like:

If they gain xx% sell off that gain.

If my xx had been 20%, 50% or even 200% I wouldn’t be sitting with a loss today.



nyfireguy

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #15 on: March 17, 2019, 06:45:47 PM »
I agree with some others above to some degree.

I say some degree because you do need to diversify. However you didn't mention how old you are so that could play into this a bit.

I had a situation where I worked for a company and invested ALL of my 401k in their stock. I was in my 20's and was there for over 10yrs. When I left I had 3000 shares of stock and the first thing I did was diversify.

I will tell you that had I not done so I'd have more money but it's a gamble and had that stock plummeted I'd be in deep trouble. I kept 1000 shares and put the rest into funds so I was better leveraged. Over time the return has been good, the 1000 shares have gone up about 70% and the rest of it has gone up about 20-22% over time.

It's a matter of risk vs reward. When I was younger I was totally ok with the risk because I figured I had a lot of time ahead. As I got older I became a little more risk averse because I had goals and more of a strategy around protecting the investments

OrchardTree

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #16 on: March 17, 2019, 07:06:09 PM »
I am interested in your Amazon research. What made you want to own it?

ysette9

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Re: case study: Almost 500k in stocks... what do i do now?
« Reply #17 on: Today at 11:30:06 AM »
I agree with some others above to some degree.

I say some degree because you do need to diversify. However you didn't mention how old you are so that could play into this a bit.

I had a situation where I worked for a company and invested ALL of my 401k in their stock. I was in my 20's and was there for over 10yrs. When I left I had 3000 shares of stock and the first thing I did was diversify.

I will tell you that had I not done so I'd have more money but it's a gamble and had that stock plummeted I'd be in deep trouble. I kept 1000 shares and put the rest into funds so I was better leveraged. Over time the return has been good, the 1000 shares have gone up about 70% and the rest of it has gone up about 20-22% over time.

It's a matter of risk vs reward. When I was younger I was totally ok with the risk because I figured I had a lot of time ahead. As I got older I became a little more risk averse because I had goals and more of a strategy around protecting the investments
My father knew people who had most of their 401k in company stock. Then the company went though bankrupt and those people lost most of the value of their 401ks and many also lost their jobs (and therefore stopped accruing pension). Don’t concentrate your risk like that.