Is this a decent time to "sell high"?

[renata ricotta]

If this forum can forgive what is certainly a market-timing post . . . is it a crazy time to sell a little bit of VTSAX for a bit of liquidity?

My taxable brokerage account, which is almost all VTSAX, is currently valued at about $372,000. When the market tanked in March, I swept the fat in my checking account into that account. Now, the pandemic has caused my salary to decrease 20% and my rent to increase 100% (roommate moved out, and I don't want another one until we've got a vaccine). I should be able to cash flow this fine, absent a layoff. But, it would be nice to have a little bit more of a cash cushion in case of job loss, at a time when I could realize some pretty impressive gains. I'm not thinking about anything enormous - maybe just $5-7k.

I know I'll have to pay capital gains taxes on whatever I sell. Anything else obvious I'm missing?

For what it's worth, I am more or less coast FIRE with my tax-advantaged accounts alone (i.e., if I leave them alone until I am 65 I will more than have enough to retire at the traditional age, even if I never contribute another penny. I am 30 now, and will continue to max out my 401(k).)

[Metalcat]

That is such a small sum in the long run, and circumstances are pretty extreme right now. I think it's totally reasonable to liquidate a small emergency fund.

[BikeFanatic]

I did the same recently I made sure that I liquidated the older stock that I held for a year. You need an emergency fund these days.

[Greystache]

I don't know if it is smart or not, but I just re-balanced  my portfolio and sold $100K of VTSAX on Aug. 5.  I had re-balanced and bought $50K of VTSAX in back March near the bottom of the market. The gains in the market since then have made my equity holdings a little higher than I would like.  If I had to guess, I think there will be an opportunity to buy again soon.

[renata ricotta]

I did the same recently I made sure that I liquidated the older stock that I held for a year. You need an emergency fund these days.

This is a dumb question, but how does one pick which stocks to sell? I have literally never sold any stock I have invested before, and I've been investing for 10 years - I always just operated on the principle that invested money was untouchable. My brokerage account just has a total lump sum amount in there.

I don't know if it is smart or not, but I just re-balanced  my portfolio and sold $100K of VTSAX on Aug. 5.  I had re-balanced and bought $50K of VTSAX in back March near the bottom of the market. The gains in the market since then have made my equity holdings a little higher than I would like.  If I had to guess, I think there will be an opportunity to buy again soon.

Me too - which is market timing - but it's why I'd rather liquidate now rather than cross my fingers that I don't get laid off in a couple months and am forced to sell at another "bottom" or at least a low swing.

To be clear, I do have emergency funds; I keep about a $10k cushion just from cash flowing, which is enough to float me for 3-4 months, so I could have some flexibility if in when I sold later down the line if forced to. I'm also just on a month-to-month lease, so if things really hit the fan work-wise I'd probably pack up and move to my LCOL home state, where I have lots of family who would love to host me through the rest of the pandemic.

[salt cured]

For the last month or so, I've been creeping up from 15% bonds/cash toward 20%, mostly by changing the mix of new contributions but also selling some stock. I feel more comfortable with more bonds/cash right now, though I think I would plow most of it back into stocks if the market drops 20%+ again.

[BiggerFishToFI]

Do you have an existing emergency fund? How long would it take for you to contribute an additional $5k-$7k to a savings account?

Personally I am contributing about half of my after-tax dollars to a savings account instead of brokerage to beef it up in these times.

[renata ricotta]

Do you have an existing emergency fund? How long would it take for you to contribute an additional $5k-$7k to a savings account?

Personally I am contributing about half of my after-tax dollars to a savings account instead of brokerage to beef it up in these times.

I don't have a separate fund as such, but have about $10k of a cushion which I could make last a few months if all of my income vanished tomorrow. Since the market has more than recovered, I'm also diverting extra cash to that cushion rather than investing (aside from my regular 401(k) contributions each paycheck, which continue regardless).

With the pay decrease and rent increase, I can save about $2,000 a month, so it would take me 3-4 months to save that much. Whereas my brokerage account jumped like, $20k in the last week, so locking in that gain seems easier than saving, honestly :)

[ixtap]

Do you have an existing emergency fund? How long would it take for you to contribute an additional $5k-$7k to a savings account?

Personally I am contributing about half of my after-tax dollars to a savings account instead of brokerage to beef it up in these times.

I don't have a separate fund as such, but have about $10k of a cushion which I could make last a few months if all of my income vanished tomorrow. Since the market has more than recovered, I'm also diverting extra cash to that cushion rather than investing (aside from my regular 401(k) contributions each paycheck, which continue regardless).

With the pay decrease and rent increase, I can save about $2,000 a month, so it would take me 3-4 months to save that much. Whereas my brokerage account jumped like, $20k in the last week, so locking in that gain seems easier than saving, honestly :)

So your plan is to pay taxes on those gains, then add new monies in at the now higher prices? Or to just keep amassing more and more cash until...until what? We have people still holding cash from the 2018 market dip.

[Proud Foot]

I did the same recently I made sure that I liquidated the older stock that I held for a year. You need an emergency fund these days.

This is a dumb question, but how does one pick which stocks to sell? I have literally never sold any stock I have invested before, and I've been investing for 10 years - I always just operated on the principle that invested money was untouchable. My brokerage account just has a total lump sum amount in there.

When you go to sell you should have the option to select the method of calculating your capital gains. Typically this is either average cost or specific identification. If you chose specific ID you can then select which shares to sell based upon the date they were purchased. You should be able to call your brokerage and they can help walk you through the process.

[renata ricotta]

I did the same recently I made sure that I liquidated the older stock that I held for a year. You need an emergency fund these days.

This is a dumb question, but how does one pick which stocks to sell? I have literally never sold any stock I have invested before, and I've been investing for 10 years - I always just operated on the principle that invested money was untouchable. My brokerage account just has a total lump sum amount in there.

When you go to sell you should have the option to select the method of calculating your capital gains. Typically this is either average cost or specific identification. If you chose specific ID you can then select which shares to sell based upon the date they were purchased. You should be able to call your brokerage and they can help walk you through the process.

Thanks - I was looking into this a bit this morning. It sounds like if I do Specific ID, I would want to choose the highest-valued shares (to minimize capital gains) that were purchased more than 1 year ago (so it's long term rather than short). Sound right?

Do you have an existing emergency fund? How long would it take for you to contribute an additional $5k-$7k to a savings account?

Personally I am contributing about half of my after-tax dollars to a savings account instead of brokerage to beef it up in these times.

I don't have a separate fund as such, but have about $10k of a cushion which I could make last a few months if all of my income vanished tomorrow. Since the market has more than recovered, I'm also diverting extra cash to that cushion rather than investing (aside from my regular 401(k) contributions each paycheck, which continue regardless).

With the pay decrease and rent increase, I can save about $2,000 a month, so it would take me 3-4 months to save that much. Whereas my brokerage account jumped like, $20k in the last week, so locking in that gain seems easier than saving, honestly :)

So your plan is to pay taxes on those gains, then add new monies in at the now higher prices? Or to just keep amassing more and more cash until...until what? We have people still holding cash from the 2018 market dip.

I think so?? When you put it like that it sounds like you're suggesting it's a bad idea (which it might be! I just kind of need to walk through it because I've only ever been in accumulation phase prior to now).

I would pay capital gains on that money, but I understand that tax rate is lower than ordinary income. My 401(k) distributions would be made with pre-tax money out of my paycheck, so I think that overall if I "need" cash now it would be better to get it out of the taxable brokerage account rather than to keep it from my paycheck at the expense of 401(k) contributions.

I wouldn't keep amassing cash forever - I'd just build up a bigger emergency fund than I found necessary to have pre-pandemic. Any future money I have in excess over and above the larger e-fund could yes, then go back into the brokerage account - either at a higher price if the market keeps climbing or a lower price if it dips (my strong guess is that it will dip again, but either way I'll contribute -- if it dips I'll conveniently sell higher than I buy).

[MissPeach]

I'm in a high tax bracket in a high tax state so take this for what it's worth but for me personally, I just split my savings between accounts when I want to build my emergency fund. For example, if I am investing $2k/month after tax to investing, I'll send $1k to my brokerage and $1k to a high interest rate savings account. Over time I'll build it up.

For me personally I would hate to pay the taxes just for it to sit in a low interest account unless I thought I would need it soon. The market has been up a lot in the last month or so and has been most of this year outside of March/April so at this point I personally would feel more comfortable letting it grow and take it out when I need it and build the emergency fund out of new funds. There is a risk you'll sell in a low if you sell when you need it. You'll have to figure out which gives aligns with your comfort level and goals more.

[renata ricotta]

Update in case anyone is interested: I ended up just building my e-fund slowly from my reduced paychecks. I got a ton of breathing room all at once because 1) my company is doing unexpectedly well and both restored our full pay and gave us a make-up payment for the months it was reduced, and 2) I finished maxing out my 401(k) for the tax year so my paychecks got even larger. My e-fund is now more in the 20k range, which feels good given the present uncertainty, and I'll go back to putting extra cash in . . . my brokerage account. :)

[WSUCoug1994]

I know that everyone is different but I don't keep an emergency fund per se - I do have a budget and keep some money in savings for the daily cost of living but if I need access to cash I utilize a PAL (Pledged Asset Line) which allows me to borrow against my taxable investment portfolio.  It is 1 month Libor +1.75%.

It is not meant to be a long term solution but if I need an unexpected appliance or auto/home repair - it works out really well in a pinch and I don't end up paying any capital gains and ultimately I don't take any equity out of the market.  I do pay interest but it is minimal but I almost always put an expense on my credit card which gives me a 30 day interest free loan.  In most cases I can move some things around where I don't even need to use the PAL but it is a great back-up plan for large unexpected expenses.