Author Topic: Hold Single Stock or transfer to Index Fund  (Read 475 times)

newbiemustachian

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Hold Single Stock or transfer to Index Fund
« on: April 03, 2020, 03:05:50 PM »
The gist of it:

Initial Investment: $100 of stock on my behalf at birth
Recent Value: $60,000
Current Value: $40,000
Question(s): Because this investment is in a single stock managed by the company's brokerage, should I transfer management to Vanguard? Do I convert this single stock to an index fund? Is the downturn a good time to do so because of reduced fees? Or would I be better off leaving this single stock alone and focusing on diversifying my future investments in index funds?

The Background:

I have a sizable chunk of a single stock that has grown from a $100 investment to $60,000 before the recent drop to $40,000. I am 28 years old and very newly learning about investing and getting a handle on my finances (better late than never!). I've got a new Roth IRA set up through Betterment with $1,100 in it and recurring $100 deposits twice a month. Otherwise I do not have investments as of yet.

I've been working on an emergency fund and have 3 months of expenses saved, which I am now drawing from as I have been laid off with the Coronavirus outbreak. My income was $3000+ a month and I have been saving 50% of that. I have continued making contributions to my retirement fund. I have $2600 in credit card debt that I have been paying down, and I was able to put a freeze on the $1600 credit card with no interest accruing until June (then at a 9.75%APR), and take out a personal loan for $1000 at 3% APR to pay off the other credit card, and will begin making payments on the personal loan again in June as well.

The income I expect to receive in the next 4 months is just shy of $3000 from unemployment and self employment combined, with an additional one time $1200 stimulus check. My plan is to have $10,000 in cash in the bank saved by June, and hopefully a remote job lined up. We'll see about the job with the record shattering unemployment! My larger question is about the best way to approach savings/investments at this point in my life. I'm committed to saving aggressively, and want to put my money in the best spot for the long-term. I need a safety net for this volatile year, and am thinking of the best places to keep my cash safety net since savings accounts are not interest earners. I'm also wondering about the best approach for tackling debt/investments during this time, and the best ways to diversify.

Any and all thoughts/advice are welcome to this new Mustachian.

nht

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Re: Hold Single Stock or transfer to Index Fund
« Reply #1 on: April 04, 2020, 04:48:24 PM »
Depends on the stock I guess.

Selling it means tax unless you have other losses you can TLH.

MDM

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Re: Hold Single Stock or transfer to Index Fund
« Reply #2 on: April 04, 2020, 05:40:58 PM »
newbiemustachian, welcome to the forum.

As nht said, it depends on your expectations for this one stock vs. an index fund holding many stocks.  In other words, regarding holding this single stock you've got to ask yourself one question: "Do I feel lucky?"  Well, do you?

If you decide to sell, given what else is going on you may be able to do Tax gain harvesting.  See that for more.

jim555

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Re: Hold Single Stock or transfer to Index Fund
« Reply #3 on: April 04, 2020, 07:03:19 PM »
The gist of it:

Initial Investment: $100 of stock on my behalf at birth
Recent Value: $60,000
Current Value: $40,000
Question(s): Because this investment is in a single stock managed by the company's brokerage, should I transfer management to Vanguard? Do I convert this single stock to an index fund? Is the downturn a good time to do so because of reduced fees? Or would I be better off leaving this single stock alone and focusing on diversifying my future investments in index funds?
I'm not clear on what you mean by "single stock managed by the company's brokerage".  Do you have the stock held in a brokerage?  There is no such thing as converting to an index fund.  You can sell and buy something else.  Then taxes become an issue.

acepedro45

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Re: Hold Single Stock or transfer to Index Fund
« Reply #4 on: April 06, 2020, 01:44:43 PM »
Interesting question. In your situation, all but the original $100 of your investment is subject to the capital gains tax and probably state capital gains tax. So of course it would be good to get out of a single stock and into something safer, but not so nice to surrender money to the government.

The federal capital gains rate is 0%, 15% or 20%. Given the employment situation you described, I would sell as much of your stock as you can while remaining in the 0% capital gains range. You might have to do some fairly detailed number crunching, including some guesses about income for the rest of this year, to do that.

Given the other facts the OP describes, I am seeing it as unlikely he/she has gobs of offsetting tax losses to harvest.

I would also repost this in the Tax section as there will likely be good insight there, plus people who can help you figure how to squeak in at the 0% capital gains rate.