$30k in stocks? Keep or sell and reinvest in index funds?

[jeromedawg]

Yeah, I know... it's a pretty rhetorical question but just wanted to get some feedback. Most of these stocks were passed onto me from my dad, who I felt like just dabbled in it. Since inheriting it, which was a while ago, I've dabbled in it here and there buying some stocks at pretty low volume. I haven't really tracked my performance over time but I don't think I've lost anything from it.

I just checked and earlier this year I was at $27k so a $3k growth over the year (and that increase didn't come from me investing more from another account and buying more stocks). At this point though, I'm not sure I want to keep dabbling especially if I can get a better return elsewhere. That $3k increase over the course of the year doesn't seem *too* bad but I'm probably missing the bigger picture too.

Do you guys think I should just transfer all the assets to my Fidelity taxable account and reinvest in the index at this point? The more I think about it, the more I get apprehensive about dabbling with individual stocks. Yeah, it's fun sometimes with small amounts (e.g. I got into some GoPro early but have also did emotional investing in VMWare and Netsuite back in the day - luckily those have turned out to be more or less OK/break-even). I don't think I know enough to take full-advantage of and strategize accordingly though, which makes me lean towards reinvesting. The downside is dealing with all the capital gains taxes if I do go this route...

[Spondulix]

I'd be interested to know if the decision was clearer if you saw a comparison of your portfolio's performance against S&P. I had a stock I've been holding onto for almost 20 years - it wasn't a significant amount of money, but I thought I was doing well (it had gone up over 10x) but it was severely underperforming vs the S&P. it was a bit painful to pull the plug (are there fees in addition to the tax?) If you're planning on keeping it in long term, then the capital gains taxes might be small vs the difference in earnings.

[jeromedawg]

I'd be interested to know if the decision was clearer if you saw a comparison of your portfolio's performance against S&P. I had a stock I've been holding onto for almost 20 years - it wasn't a significant amount of money, but I thought I was doing well (it had gone up over 10x) but it was severely underperforming vs the S&P. it was a bit painful to pull the plug (are there fees in addition to the tax?) If you're planning on keeping it in long term, then the capital gains taxes might be small vs the difference in earnings.

I've been tracking it in mint and it seems like it's been underperforming pretty much all year. It's hard to interpret/read the mint charts but it's pretty clear that most of the time the portfolio is in the red compared to the S&P. I think the only fees might be the $7.95 transaction fee. Otherwise, I think that's it. I'm not sure I'd plan to keep this portfolio long-term but I feel somewhat paralyzed or stuck between a rock & a hard place in trying to determine what I should do with it. It's a pretty good chunk of change and I wouldn't want to do anything that kills me on taxes. I think one of my goals for next year though is to try to get us into the 15% tax bracket. I think it might be doable with various adjustments (e.g maxing out the 401k, making more charitable contributions at church, etc). Presumably, if I can do this and get into the 15% bracket, that would mean I should be able to trade all the funds I don't want or intend to hold in my taxable accounts without getting hit with capital gains taxes, right?

Oh and one other thing - I have probably around $14-15k of stocks from my company's ESPP over the past couple years. I'm also thinking it might be good to cash out on those at some point and reinvest in index funds. I'm thinking if I can get myself into the 15% bracket, that would put me in a more favorable position to trade these as well (I'm assuming capital gains taxes can also be avoided with ESPP sales if in the 15% bracket or lower?)

[thecornercat]

I am not well versed in investing and not in a position to advise, but I do index investing myself. Canadian here, and I follow the philosophies/explanations from Canadian Couch Potato: http://canadiancouchpotato.com/
You might find some of the information useful and transferrable.

[schoenbauer]

Your stock has the same return as any broad stock index, yet a much higher volatility and risk (they are different things). So ask yourself: Do you want to be a rational investor? If yes, sell and reinvest in MSCI World, S&P500, whatever suits your IPS. If you answer the question with a no, you could hold on to this stock. And try to be happy. But definately you should be satisfied with yourself in this case ;)

[Gomo]

The stocks you inherited have a step up cost basis to the day your father passed away, so that should help with taxes a little. Also, if you held the stocks for longer than twelve months, that would be long term and the tax would be 15% fed. Play around with a tax calculator to see where you would be.

[jeromedawg]

The stocks you inherited have a step up cost basis to the day your father passed away, so that should help with taxes a little. Also, if you held the stocks for longer than twelve months, that would be long term and the tax would be 15% fed. Play around with a tax calculator to see where you would be.

Actually, my dad is still alive. He just handed me all these stocks (presumably to avoid cap gains taxes on them or what not).

[James]

I would personally sell them and put them in with the rest of my index funds. Unless you have a really good reason to believe the stocks are better than index funds, there is no reason to keep them there.

[jeromedawg]

I would personally sell them and put them in with the rest of my index funds. Unless you have a really good reason to believe the stocks are better than index funds, there is no reason to keep them there.

Agreed. At this point I do intend to sell. I'm just trying to also figure how I might avoid or minimize capital gains taxes as much as possible.

[sabertooth3]

You need to find out the costs basis for those stocks and then estimate what your capital gains tax would be if you sold/reinvested them. 15% for long-term gains (positions held for >1 year), your marginal income tax rate for short-term gains (<1 year). Something to think about before selling would be if you have very low cost bases and it would cost you thousands of dollars in taxes to move them over.

If you or your father bought the stocks with the broker that you have now, you probably have the cost bases. If you or he transferred assets in from another broker, you'll need to go to the old broker and get the cost bases for the assets transferred in, unless they came with the transfer. I had to do that with some of mine, and it can be a bit of a pain.

[GizmoTX]

"At this point I do intend to sell. I'm just trying to also figure how I might avoid or minimize capital gains taxes as much as possible."

Actually, capital gains tax is lower & preferable to ordinary income rates.
 
Since these stocks are not an inheritance, they will have your dad's cost basis & will have to be re-titled in your name with your SSN for you to sell them, & your dad will likely have the gift tax issue.

[Wile E. Coyote]

I too would bite the bullet and sell them as I prefer to avoid concentration in a few stocks. I may think about waiting until January simply to defer the tax cost. Particularly if you think you will be in a lower bracket next year through planning. Since you mentioned charitable contributions, you can avoid the capital gains by donating shares and still get a FMV deduction.  You can also think about spreading the sales out across years if the sale of all in one year would push you into a higher bracket.

[jeromedawg]

I too would bite the bullet and sell them as I prefer to avoid concentration in a few stocks. I may think about waiting until January simply to defer the tax cost. Particularly if you think you will be in a lower bracket next year through planning. Since you mentioned charitable contributions, you can avoid the capital gains by donating shares and still get a FMV deduction.  You can also think about spreading the sales out across years if the sale of all in one year would push you into a higher bracket.

Great idea! I think I'll have to concede to a 'long-term' rebalancing strategy as far as the stocks go. I still have a bunch of money in Mutual Funds as well that I need to figure out what to do with although the capital gains shouldn't be as crazy on those (well, those that my dad didn't pass down to me that have now grown a lot)