Author Topic: Buy and Hold Investor Needs Advice on Selling  (Read 2560 times)

grettman

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Buy and Hold Investor Needs Advice on Selling
« on: July 16, 2014, 04:09:45 PM »
I have been a buy and hold investor for a long time.  The selling I have done has been very minimal and I hardly sell in a taxable account.  I have two mutual funds (in taxable account) which I want to trim a bit but I am afraid of the implications.  I haven't invested new money in the accounts in over a year so its my understanding my gains will be considered long term and hence subjected to a 15% tax hit.  What I am concerned about is the mistake I hear some investors make regarding reinvested dividends.  From what I understand if you reinvested dividends into the same fund, your cost basis goes up and in a sense, your tax hit is greater than it should be.  The problem is that I hear you need to have detailed reports of your purchases to navigate around this risk.  I do not have such reports (face punch?) and until recently, mutual fund managers weren't required to track this level of information.  What should I/Can I do?  I hope I gave you all the information you need to help me.  Thanks!

seattlecyclone

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Re: Buy and Hold Investor Needs Advice on Selling
« Reply #1 on: July 16, 2014, 04:45:50 PM »
Dividend reinvestment will increase your cost basis, which will act in your favor at tax time, since increasing the cost basis causes the difference between your cost and your sale price to go down. If you're concerned about being audited, you could simply ignore the effect of any dividend reinvestment that you no longer have records of and just pay taxes as if the reinvestment never happened.

grettman

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Re: Buy and Hold Investor Needs Advice on Selling
« Reply #2 on: July 16, 2014, 05:31:29 PM »
Thanks Seattlecyclone.  I had it wrong.  I understand now that dividend reinvestment will increase my cost basis and as such, will act in my favor at tax time.  My concern stems from that fact that because I don't have detailed records, I can't use the "Specific Identification" cost basis method.  It seems that the "Average Cost (single category) would be my better choice (over FIFO since I have held the shares for a long time (long for me at least...over  span of 10 years by using DCA).  Do you or anyone foresee problems with using average cost method?  Sorry if my question is very silly.  Just don't want to do a really dumb move after being disciplined for so long!


KingCoin

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Re: Buy and Hold Investor Needs Advice on Selling
« Reply #3 on: July 16, 2014, 06:52:41 PM »
Thanks Seattlecyclone.  I had it wrong.  I understand now that dividend reinvestment will increase my cost basis and as such, will act in my favor at tax time.  My concern stems from that fact that because I don't have detailed records, I can't use the "Specific Identification" cost basis method.  It seems that the "Average Cost (single category) would be my better choice (over FIFO since I have held the shares for a long time (long for me at least...over  span of 10 years by using DCA).  Do you or anyone foresee problems with using average cost method?  Sorry if my question is very silly.  Just don't want to do a really dumb move after being disciplined for so long!

Have you asked your broker if they have a detailed record of your transactions? They should.

RapmasterD

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Re: Buy and Hold Investor Needs Advice on Selling
« Reply #4 on: July 17, 2014, 08:59:47 PM »
Do you have $20,000 or $20 million? The difference will inform your strategy, grasshopper.

grettman

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Re: Buy and Hold Investor Needs Advice on Selling
« Reply #5 on: July 18, 2014, 02:12:08 PM »
More like 50,000.