Author Topic: Ehhh Should i sell?  (Read 5867 times)

Texan

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Ehhh Should i sell?
« on: January 14, 2015, 12:57:20 PM »
Currently the majority of my investments are in VTSMX and I think they should stay there. But, I took a risk some months ago and have lost:

I invested approx. $1200 in a single company and my current balance is approx $700
I invested aprox 850 in a Vanguard energy ETF and my current balance is approx 600

So my question, should i sell these two and put the balance into VTSMX (where it belongs)?

My losses are about $750 on those 2 investments and I don't see them rising anytime soon. Especially the Energy ETF. VTSMX is very balanced and always praised here, and I love it as well. Should I scratch my losses?

Thank you!

GGNoob

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Re: Ehhh Should i sell?
« Reply #1 on: January 14, 2015, 01:28:23 PM »
Is VTSMX your main investment? Unless you are just starting and that's the only fund you can afford, you should also have an international fund and bond fund.

Write yourself an IPS (investment policy statement). Write down what you want your allocation to be, what accounts you'll invest in, when you'll re-balance, and what your goals are. Then invest according to that and anytime you are tempted to invest outside of your IPS, refer to it to remind yourself why you chose that allocation in the first place.

Once you have an IPS, I would sell that stock and energy ETF and re-invest according to your IPS. Then you can claim the losses on your 2015 tax return.

Texan

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Re: Ehhh Should i sell?
« Reply #2 on: January 14, 2015, 01:55:34 PM »
Is VTSMX your main investment? Unless you are just starting and that's the only fund you can afford, you should also have an international fund and bond fund.

Write yourself an IPS (investment policy statement). Write down what you want your allocation to be, what accounts you'll invest in, when you'll re-balance, and what your goals are. Then invest according to that and anytime you are tempted to invest outside of your IPS, refer to it to remind yourself why you chose that allocation in the first place.

Once you have an IPS, I would sell that stock and energy ETF and re-invest according to your IPS. Then you can claim the losses on your 2015 tax return.

Good advice. Currently I am a college student and Yes VTSMX is it. When I start my career as an engineer I will grab at least one bond fund I believe. IPS seems to be a great idea. With regards to rebalancing, can you link to an article/guide as how to do this? I am assuming I just buy/sell to keep the allocation constant, for example 80% stocks 20% bonds.

Thank you!!

GGNoob

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Re: Ehhh Should i sell?
« Reply #3 on: January 14, 2015, 02:05:25 PM »
Is VTSMX your main investment? Unless you are just starting and that's the only fund you can afford, you should also have an international fund and bond fund.

Write yourself an IPS (investment policy statement). Write down what you want your allocation to be, what accounts you'll invest in, when you'll re-balance, and what your goals are. Then invest according to that and anytime you are tempted to invest outside of your IPS, refer to it to remind yourself why you chose that allocation in the first place.

Once you have an IPS, I would sell that stock and energy ETF and re-invest according to your IPS. Then you can claim the losses on your 2015 tax return.

Good advice. Currently I am a college student and Yes VTSMX is it. When I start my career as an engineer I will grab at least one bond fund I believe. IPS seems to be a great idea. With regards to rebalancing, can you link to an article/guide as how to do this? I am assuming I just buy/sell to keep the allocation constant, for example 80% stocks 20% bonds.

Thank you!!

Remember an international fund too: http://www.bogleheads.org/wiki/Three-fund_portfolio

Yes, you would just rebalance to go back to your preferred allocation. So if you decide 80% stock (56% US and 24% International) and 20% bond is what you want to be, then you would rebalance every so often to go back to that allocation. Basically you sell your gainers and buy more shares of your losers. Some people do this annually, quarterly, or just after a 5% allocation drift. I decided to go with the 5% drift myself.

Is this money in a Roth IRA? If not, you may consider selling it and moving it into one if you have enough earned income. I also ask because you might be better off buying a Target Retirement or Lifestrategy fund at this time and selling in a taxable account will create taxable gains (if you have any). Those funds will give you a 4-fund portfolio (Total US, Total International, US Bond, International Bond). The Target Retirement funds require a $1,000 minimum and Lifestrategy a $3,000 minimum. They automatically rebalance for you. Then once your account is large enough, say $50,000, you could sell the single fund and purchase your own 3-fund portfolio to save money on fees.

Dicey

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Re: Ehhh Should i sell?
« Reply #4 on: January 14, 2015, 07:38:57 PM »
Currently the majority of my investments are in VTSMX and I think they should stay there. But, I took a risk some months ago and have lost:

I invested approx. $1200 in a single company and my current balance is approx $700
I invested aprox 850 in a Vanguard energy ETF and my current balance is approx 600

So my question, should i sell these two and put the balance into VTSMX (where it belongs)?

My losses are about $750 on those 2 investments and I don't see them rising anytime soon. Especially the Energy ETF. VTSMX is very balanced and always praised here, and I love it as well. Should I scratch my losses?

Thank you!
It's only a loss if you sell it, so calling it one is premature. Unless you're positive that the single company is on the verge of bankruptcy, I'd let it ride and consider it a valuable lesson learned. Put your future investments in VTSMX if you wish, but understand that it will have fluctuations over time, too. Note I said fluctuations, not  losses.

Texan

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Re: Ehhh Should i sell?
« Reply #5 on: January 14, 2015, 08:33:01 PM »
Is VTSMX your main investment? Unless you are just starting and that's the only fund you can afford, you should also have an international fund and bond fund.

Write yourself an IPS (investment policy statement). Write down what you want your allocation to be, what accounts you'll invest in, when you'll re-balance, and what your goals are. Then invest according to that and anytime you are tempted to invest outside of your IPS, refer to it to remind yourself why you chose that allocation in the first place.

Once you have an IPS, I would sell that stock and energy ETF and re-invest according to your IPS. Then you can claim the losses on your 2015 tax return.

Good advice. Currently I am a college student and Yes VTSMX is it. When I start my career as an engineer I will grab at least one bond fund I believe. IPS seems to be a great idea. With regards to rebalancing, can you link to an article/guide as how to do this? I am assuming I just buy/sell to keep the allocation constant, for example 80% stocks 20% bonds.

Thank you!!

Remember an international fund too: http://www.bogleheads.org/wiki/Three-fund_portfolio

Yes, you would just rebalance to go back to your preferred allocation. So if you decide 80% stock (56% US and 24% International) and 20% bond is what you want to be, then you would rebalance every so often to go back to that allocation. Basically you sell your gainers and buy more shares of your losers. Some people do this annually, quarterly, or just after a 5% allocation drift. I decided to go with the 5% drift myself.

Is this money in a Roth IRA? If not, you may consider selling it and moving it into one if you have enough earned income. I also ask because you might be better off buying a Target Retirement or Lifestrategy fund at this time and selling in a taxable account will create taxable gains (if you have any). Those funds will give you a 4-fund portfolio (Total US, Total International, US Bond, International Bond). The Target Retirement funds require a $1,000 minimum and Lifestrategy a $3,000 minimum. They automatically rebalance for you. Then once your account is large enough, say $50,000, you could sell the single fund and purchase your own 3-fund portfolio to save money on fees.

About 75% is in a ROTH the rest is in taxable, both are in the Total Stock Market Fund by Vanguard. I am 24 and have 3 semesters left of engineering school, after which my income will rise. I plan to max out 401k and Roth IRA. So you are saying, max out ROTH 5,500 every year into one of the target funds until it accumulates 50,000 and then consider owning the 3 fund portfolio.

Are there any catches with these funds, they have the same funds like VTSMX and VGTSX but just have larger fees? And what did you mean "selling in a taxable account for capital gains"? To collect the gains for some extra money?
« Last Edit: January 14, 2015, 08:41:50 PM by Texan »

Texan

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Re: Ehhh Should i sell?
« Reply #6 on: January 14, 2015, 08:37:23 PM »
Currently the majority of my investments are in VTSMX and I think they should stay there. But, I took a risk some months ago and have lost:

I invested approx. $1200 in a single company and my current balance is approx $700
I invested aprox 850 in a Vanguard energy ETF and my current balance is approx 600

So my question, should i sell these two and put the balance into VTSMX (where it belongs)?

My losses are about $750 on those 2 investments and I don't see them rising anytime soon. Especially the Energy ETF. VTSMX is very balanced and always praised here, and I love it as well. Should I scratch my losses?

Thank you!
It's only a loss if you sell it, so calling it one is premature. Unless you're positive that the single company is on the verge of bankruptcy, I'd let it ride and consider it a valuable lesson learned. Put your future investments in VTSMX if you wish, but understand that it will have fluctuations over time, too. Note I said fluctuations, not  losses.

This is good advice. I see what you are saying, I might actually ride out the single company, as I believe in it still, but the ETF, maybe not.

Fluctuations are different from losses, very good point, thanks!

GGNoob

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Re: Ehhh Should i sell?
« Reply #7 on: January 15, 2015, 06:51:40 AM »
About 75% is in a ROTH the rest is in taxable, both are in the Total Stock Market Fund by Vanguard. I am 24 and have 3 semesters left of engineering school, after which my income will rise. I plan to max out 401k and Roth IRA. So you are saying, max out ROTH 5,500 every year into one of the target funds until it accumulates 50,000 and then consider owning the 3 fund portfolio.

Are there any catches with these funds, they have the same funds like VTSMX and VGTSX but just have larger fees? And what did you mean "selling in a taxable account for capital gains"? To collect the gains for some extra money?

Basically I'm just saying that instead of being only invested in VTSMX, you may want to consider the target date funds for the time being because you will be much more diversified. VTSMX costs 0.17% and the Target Retirement 2055 fund costs 0.18%. The TRD funds basically cost the same as their underlying funds. The thought is to use the TRD funds until it would be cheaper to purchase multiple Admiral Shares funds (minimum of $10k each) or at least until you can purchase the underlying funds at the allocation you want.

As far as the capital gains comment, I'm just saying that if you have VTSMX in your taxable account, you may not want to sell because if you have gains, you might be taxed on them.

Honestly, if you don't mind sharing the amount you have invested (in Roth and taxable), we could help you with your allocation if you would like to be more diversified. But if you don't care at this point, then it doesn't really matter and you can purchase your other funds after you graduate and start working full-time.

Texan

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Re: Ehhh Should i sell?
« Reply #8 on: January 15, 2015, 08:30:37 AM »
About 75% is in a ROTH the rest is in taxable, both are in the Total Stock Market Fund by Vanguard. I am 24 and have 3 semesters left of engineering school, after which my income will rise. I plan to max out 401k and Roth IRA. So you are saying, max out ROTH 5,500 every year into one of the target funds until it accumulates 50,000 and then consider owning the 3 fund portfolio.

Are there any catches with these funds, they have the same funds like VTSMX and VGTSX but just have larger fees? And what did you mean "selling in a taxable account for capital gains"? To collect the gains for some extra money?

Basically I'm just saying that instead of being only invested in VTSMX, you may want to consider the target date funds for the time being because you will be much more diversified. VTSMX costs 0.17% and the Target Retirement 2055 fund costs 0.18%. The TRD funds basically cost the same as their underlying funds. The thought is to use the TRD funds until it would be cheaper to purchase multiple Admiral Shares funds (minimum of $10k each) or at least until you can purchase the underlying funds at the allocation you want.

As far as the capital gains comment, I'm just saying that if you have VTSMX in your taxable account, you may not want to sell because if you have gains, you might be taxed on them.

Honestly, if you don't mind sharing the amount you have invested (in Roth and taxable), we could help you with your allocation if you would like to be more diversified. But if you don't care at this point, then it doesn't really matter and you can purchase your other funds after you graduate and start working full-time.

I am under the impression that VTSMX will return more than a target fund. I want the most returns obviously,  and I am comfortable with large fluctuations as it comes with larger returns in the end. So, that is why I am 100% in stocks.

So, once I get steady income, I plan to stick to stock indexes.. I thought this was a MMM mentality. But diversification is understandable, I just don't mind the inevitable fluctuations for higher returns that I thought would result in a 100% stock index. Does that make sense?

GGNoob

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Re: Ehhh Should i sell?
« Reply #9 on: January 15, 2015, 09:11:43 AM »
About 75% is in a ROTH the rest is in taxable, both are in the Total Stock Market Fund by Vanguard. I am 24 and have 3 semesters left of engineering school, after which my income will rise. I plan to max out 401k and Roth IRA. So you are saying, max out ROTH 5,500 every year into one of the target funds until it accumulates 50,000 and then consider owning the 3 fund portfolio.

Are there any catches with these funds, they have the same funds like VTSMX and VGTSX but just have larger fees? And what did you mean "selling in a taxable account for capital gains"? To collect the gains for some extra money?

Basically I'm just saying that instead of being only invested in VTSMX, you may want to consider the target date funds for the time being because you will be much more diversified. VTSMX costs 0.17% and the Target Retirement 2055 fund costs 0.18%. The TRD funds basically cost the same as their underlying funds. The thought is to use the TRD funds until it would be cheaper to purchase multiple Admiral Shares funds (minimum of $10k each) or at least until you can purchase the underlying funds at the allocation you want.

As far as the capital gains comment, I'm just saying that if you have VTSMX in your taxable account, you may not want to sell because if you have gains, you might be taxed on them.

Honestly, if you don't mind sharing the amount you have invested (in Roth and taxable), we could help you with your allocation if you would like to be more diversified. But if you don't care at this point, then it doesn't really matter and you can purchase your other funds after you graduate and start working full-time.

I am under the impression that VTSMX will return more than a target fund. I want the most returns obviously,  and I am comfortable with large fluctuations as it comes with larger returns in the end. So, that is why I am 100% in stocks.

So, once I get steady income, I plan to stick to stock indexes.. I thought this was a MMM mentality. But diversification is understandable, I just don't mind the inevitable fluctuations for higher returns that I thought would result in a 100% stock index. Does that make sense?

VTSMX might have a better return because the Target Retirement Funds (like 2050 for example) are 90% stock and 10% bond. So yes, 100% stock should have a better return. The Target Retirement Funds are made up of 4 index funds, so it is in line with the MMM and Boglehead mentality.

Again, if you don't have much invested, sticking with VTSMX right now is probably fine as you can then add an international index fund once you start a full-time job. But personally, I would just prefer to be split between US and international at all times.

Sorry for bringing this thread off topic. As for the main question, I go back to my original post:

Write yourself an IPS (investment policy statement). Write down what you want your allocation to be, what accounts you'll invest in, when you'll re-balance, and what your goals are. Then invest according to that and anytime you are tempted to invest outside of your IPS, refer to it to remind yourself why you chose that allocation in the first place.

Once you have an IPS, I would sell that stock and energy ETF and re-invest according to your IPS. Then you can claim the losses on your 2015 tax return.

Kaspian

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Re: Ehhh Should i sell?
« Reply #10 on: January 15, 2015, 12:15:41 PM »
Would you buy $1300 more of these two investments?  If the answer is "no", why are you keeping your money there?  It's loss aversion--part of you doesn't want to lose $750.  But if you seriously expected a 36% rebound, you would put more there, wouldn't you?   

SunshineGirl

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Re: Ehhh Should i sell?
« Reply #11 on: January 15, 2015, 12:19:30 PM »

[/quote]

I am under the impression that VTSMX will return more than a target fund. I want the most returns obviously,  and I am comfortable with large fluctuations as it comes with larger returns in the end. So, that is why I am 100% in stocks.

So, once I get steady income, I plan to stick to stock indexes.. I thought this was a MMM mentality. But diversification is understandable, I just don't mind the inevitable fluctuations for higher returns that I thought would result in a 100% stock index. Does that make sense?
[/quote]

But clearly you're not comfortable with fluctuations, because you're wanting to sell now that you see a loss.

goodrookie

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Re: Ehhh Should i sell?
« Reply #12 on: January 18, 2015, 05:11:27 AM »
You should sell VTSMX; I don't know about the other stock.

adamwoods137

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Re: Ehhh Should i sell?
« Reply #13 on: January 22, 2015, 06:16:12 PM »
Currently the majority of my investments are in VTSMX and I think they should stay there. But, I took a risk some months ago and have lost:

I invested approx. $1200 in a single company and my current balance is approx $700
I invested aprox 850 in a Vanguard energy ETF and my current balance is approx 600

So my question, should i sell these two and put the balance into VTSMX (where it belongs)?

My losses are about $750 on those 2 investments and I don't see them rising anytime soon. Especially the Energy ETF. VTSMX is very balanced and always praised here, and I love it as well. Should I scratch my losses?

Thank you!

There are a couple points here that are missing.  If you have significant income and you don't have any reason to believe these investments will do better you then want to sell immediately and reinvest.  This is because the tax deduction you get from selling in effect provides additional capital which you could reinvest in VTSMX, you would therefore end up with more money in the long run if the performance of all three securities was the same.  It seems to me that it is unlikely that this is the case, as you are a college student and might not have tax liability in 2015. 

Regarding the single company, assuming you can gain no advantage from the tax code then you should ask yourself "What was my thesis when I bought this stock?"  As a first pass if you didn't go to www.sec.gov and pull the most recent few 10-K's you were gambling.  The efficient market hypothesis suggests that your gamble should on average make you money, on average about as much as an index of equities with similar characteristics (beta, size, PE, etc.)  However, because the money is invested in an undiversified way you are taking an uncompensated risk.  Other people investing in this company can avoid some of its risk because they are invested in many other companies.  Therefore, they are willing to bid the price up to an amount that does not compensate for this risk.  If you wanted to take on a similar level of risk you could sell this company and buy an index with a little margin.  This increases your volatility, but this volatility is compensated for with extra returns. (I would strongly advise against doing this).  If this idea concerns you, you ought to keep in mind that this is precisely what you are doing (by taking on uncompensated risk), except that you don't get extra returns! 

If you weren't gambling and you researched this company in detail and are quite certain (understatement #1) that the firm is worth (or has an expected value) substantially more than it is trading at right now, you should certainly keep it.  In which case do please tell us the name.  :-)

Regarding the energy ETF, you should keep in mind that the market which you are trying to estimate a more accurate value is highly competitive (understatement #2).

Also, this bit concerns me:
I am under the impression that VTSMX will return more than a target fund. I want the most returns obviously,  and I am comfortable with large fluctuations as it comes with larger returns in the end. So, that is why I am 100% in stocks.

So, once I get steady income, I plan to stick to stock indexes.. I thought this was a MMM mentality. But diversification is understandable, I just don't mind the inevitable fluctuations for higher returns that I thought would result in a 100% stock index. Does that make sense?

There is no law that says the stock market has to go up, even over the course of 30 years, and certainly no law that it will definitely do better than bonds.  Adding a small bond component to your portfolio will probably not impact returns very much, but will almost certainly reduce your risk of doing worse than you expect. (This is the risk that matters in my view).  If you plan on early retirement you aren't investing for 60 years from now.  The US stock market has had a good run over the last hundred years, if you want to look at the next 30 and say it'll probably be similar to the last hundred, well I think you're right.  But there's no way we have an appropriate amount of data to conclude that from historical results. (Using firecalc's methodology and saying that you're testing over 70 independent 30-year periods is pretty specious if you ask me.)

You may want to think of it this way If all that mattered was your ability to wait for the "long term" stock returns would be similar to very long term treasuries.  They are not, therefore either the market is acting irrationally (possible) or you are taking a risk beyond simply being willing to wait until "fluctuations" work themselves out.  The first rule of investing is understand the risks you are taking.

tl;dr. Indexing isn't always the answer, but it probably is if you're asking the question.  Diversify among asset classes.

KBecks2

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Re: Ehhh Should i sell?
« Reply #14 on: January 22, 2015, 07:23:36 PM »
Which two company stocks did you buy? What are the tickets? You know you were asking for advice from a bunch of strangers on the Internet. It's going to be better for you to do some reading and get some education about investing for yourself. You have a very long time horizon. And there's a lot of time for your investments to go up. Try not to sweat it.

KBecks2

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Re: Ehhh Should i sell?
« Reply #15 on: January 22, 2015, 07:25:25 PM »
Sorry which company stock did you buy? Who is it? Also you said you've been invested for just a few months. Don't ever think in months, think in years.