Author Topic: Help with stock market disaster  (Read 5812 times)

islwynn

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Help with stock market disaster
« on: January 03, 2014, 03:58:41 PM »
My father got all his grandchildren an unrestricted (i.e. non college savings) e-trade account for their college. Unfortunately he put it all in gold and silver and mining. My daughter's account has gone from about 80k down to 20 k in the last 2 - 3 years. My dad was obsessed with these accounts and  pretty much tended them as a full time job during my mother's illness and after her death. However, he now has a new girl friend, gotten happy and has basically neglected taking care of the trading. We are now in charge of it. I don't know whether to just sell it, cut out losses and get an index fund (sell low) or just ignore it and hope for the long term.

Any advice appreciated.

Thanks

KingCoin

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Re: Help with stock market disaster
« Reply #1 on: January 03, 2014, 04:17:12 PM »
Yes, unfortunately, the right thing to do is liquidate and invest in index funds appropriate to your goals.

Your one major consideration is taxes. The 60k loss represents a very valuable offset to future capital gains. I'd discuss with an accountant to see how long those losses can be carried over and how best to monetize this.


clutchy

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Re: Help with stock market disaster
« Reply #2 on: January 03, 2014, 04:27:30 PM »
lol gold and silver... shit man. 

speculative bullshit. 

I don't believe in speculative metals as an asset class so I would sell it right now.  However, some people think 5% or 10% is ok.  Anything above that and it's craziness. 

how much time do you have?  Pick an asset mixture and then about 3 - 5 years out start transitioning to more stable assets.

man this is depressing.

islwynn

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Re: Help with stock market disaster
« Reply #3 on: January 03, 2014, 05:22:56 PM »
No time. She's in college....

Yeah it's depressing.

Khan

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Re: Help with stock market disaster
« Reply #4 on: January 03, 2014, 06:00:41 PM »
Think about it like this:

You guys have 20k you did nothing for.

So no reason to complain, neh? Just use this as a learning experience for you and the grandchildren, precious metals are bullshit as an investment.

Poorman

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Re: Help with stock market disaster
« Reply #5 on: January 03, 2014, 06:09:46 PM »
You're best off pretending that the other 60k was never there.  There's nothing you could have done to prevent the losses if he was managing (gambling) with the accounts.  Now you understand what diversification and other risk management techniques are meant to prevent.  If you need the money immediately for college tuition, you should put it in something that isn't at risk of losing any further principal, so I would avoid a stock index fund.  Stocks have been on a good run and could very easily have a bad correction, just as precious metals have.  Don't let your negative emotions about this event cause you to make bad decisions.

golfer44

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Re: Help with stock market disaster
« Reply #6 on: January 03, 2014, 07:48:31 PM »
Think about it like this:

You guys have 20k you did nothing for.

So no reason to complain, neh? Just use this as a learning experience for you and the grandchildren, precious metals are bullshit as an investment.

Amen!

Khan

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Re: Help with stock market disaster
« Reply #7 on: January 03, 2014, 08:17:46 PM »
You're best off pretending that the other 60k was never there.  There's nothing you could have done to prevent the losses if he was managing (gambling) with the accounts.  Now you understand what diversification and other risk management techniques are meant to prevent.  If you need the money immediately for college tuition, you should put it in something that isn't at risk of losing any further principal, so I would avoid a stock index fund.  Stocks have been on a good run and could very easily have a bad correction, just as precious metals have.  Don't let your negative emotions about this event cause you to make bad decisions.

ITP: Market timing.

wtjbatman

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Re: Help with stock market disaster
« Reply #8 on: January 03, 2014, 08:34:39 PM »
You're best off pretending that the other 60k was never there.  There's nothing you could have done to prevent the losses if he was managing (gambling) with the accounts.  Now you understand what diversification and other risk management techniques are meant to prevent.  If you need the money immediately for college tuition, you should put it in something that isn't at risk of losing any further principal, so I would avoid a stock index fund.  Stocks have been on a good run and could very easily have a bad correction, just as precious metals have.  Don't let your negative emotions about this event cause you to make bad decisions.

ITP: Market timing.

Not even that, just bad advice.

Saverocity

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Re: Help with stock market disaster
« Reply #9 on: January 04, 2014, 10:45:43 AM »
My father got all his grandchildren an unrestricted (i.e. non college savings) e-trade account for their college. Unfortunately he put it all in gold and silver and mining. My daughter's account has gone from about 80k down to 20 k in the last 2 - 3 years. My dad was obsessed with these accounts and  pretty much tended them as a full time job during my mother's illness and after her death. However, he now has a new girl friend, gotten happy and has basically neglected taking care of the trading. We are now in charge of it. I don't know whether to just sell it, cut out losses and get an index fund (sell low) or just ignore it and hope for the long term.

Any advice appreciated.

Thanks

Here's what you need to look at:

Taxes:
For your father

What happened on the gifting side of the initial transaction, in effect what your father did at the time was to gift above the annual limits.  This would impact your father and is worth checking in on- based on what he did.

For your kids

If they are owners of the asset then they can certainly capture a capital loss.  Capital losses can be used to offset capital gains to the extent of the gain - therefore if they have any other investments that have appreciated (other assets in brokerage accounts) it would be good to sell both the losing mining stuff and the appreciated other stuff, allowing them to capture the profit without tax.

Also, capital losses from such transactions can be used to offset regular income up to $3000 per year.  Therefore, assuming that they captured a $60K loss from selling the assets and if they never had any capital gains they could reduce their salary by 3K per year for 20 years, making it similar to the impact of a Traditional IRA on their tax burden.

EG they earn 24K, they would deduct the 3K and then be liable for taxes to the tune of 21K.

So all is far from lost.

As for reallocation...that depends on your plans but I personally would go for an index fund, avoid bonds.  I would suggest putting it in 100% stock allocation, in just one fund such as Vanguard Total Stock Market.  Rather than diversify into more than one fund I would suggest diversifying by investing 50% of the amount today and another in some months from now creating a dollar cost hedge (IE if the market tanks tomorrow you can top it up with the money in reserve).

Jamesqf

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Re: Help with stock market disaster
« Reply #10 on: January 04, 2014, 12:11:04 PM »
Question: do you really need the money right now?  If not, remember the old adage: "buy low, sell high"?  Seems that if you sold now and put the proceeds into an index fund, you would be doing just the opposite.

Saverocity

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Re: Help with stock market disaster
« Reply #11 on: January 04, 2014, 12:17:06 PM »
Question: do you really need the money right now?  If not, remember the old adage: "buy low, sell high"?  Seems that if you sold now and put the proceeds into an index fund, you would be doing just the opposite.

There is another one called 'a stitch in time saves 9' the portfolio allocation is broken, it should be repaired for sustainable growth.

Even if you absolutely must be in that mining stock because you absolutely know its gonna pop one day the very least thing you should do is sell it, capture the loss and jump back in after the wash sale rule.

Tyler

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Re: Help with stock market disaster
« Reply #12 on: January 04, 2014, 01:58:50 PM »
I own quite a bit of gold in my portfolio as part of my diversification strategy.  But 100% precious metals and miners (or 100% any asset class for that matter) is, to put it nicely, unwise. 

Before you do anything, you need to identify a passive asset allocation that you want to move into.  Then you should get some good advice on the most tax efficient way to transition the portfolio from the old one to the new one.  Selling emotionally with no plan will only cause you more problems.

BTW, without knowing the specific trading details, you should also remember that the paper losses off of the highs may not actually represent capital losses in your personal portfolio. It all depends on what he paid for the assets -- gold had quite the run-up before it fell off this year.  So selling now may actually generate a hefty tax bill.  Take your time, do your research, build a plan, and follow through.

Finally, good job by your father to set money aside for the grandchildren.  One can criticize his trading skills, but one should also recognize the gift he has offered.  Be thankful!

Jamesqf

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Re: Help with stock market disaster
« Reply #13 on: January 04, 2014, 02:48:24 PM »
Even if you absolutely must be in that mining stock because you absolutely know its gonna pop one day the very least thing you should do is sell it, capture the loss and jump back in after the wash sale rule.

As Tyler points out, from the information given, we don't know that there will be a loss.  Grandad might have invested $10K, run it up to $80K, and then down to $20K.  Also, the OP implied that much of the fund is in actual gold & silver.  Unlike a mining company, which may fail & wipe out the entire investment, those will always have some value.  It's also fairly reasonable, given recent history, to expect that prices will rise again.

Or to make things simple, look at graphs of gold price and stock price over say the last 10-20 years.

Saverocity

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Re: Help with stock market disaster
« Reply #14 on: January 04, 2014, 02:58:32 PM »
Even if you absolutely must be in that mining stock because you absolutely know its gonna pop one day the very least thing you should do is sell it, capture the loss and jump back in after the wash sale rule.

As Tyler points out, from the information given, we don't know that there will be a loss.  Grandad might have invested $10K, run it up to $80K, and then down to $20K.  Also, the OP implied that much of the fund is in actual gold & silver.  Unlike a mining company, which may fail & wipe out the entire investment, those will always have some value.  It's also fairly reasonable, given recent history, to expect that prices will rise again.

Or to make things simple, look at graphs of gold price and stock price over say the last 10-20 years.

I think Tyler raised a great point, and worth exploring.  And I am not averse to Gold, I personally think it will go up again fairly soon as an inflationary hedge.  But I still think that if the entire investable assets of these people are solely in this sector then they are unbalanced and a strategic rebalancing will be the most prudent course of action.

Poorman

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Re: Help with stock market disaster
« Reply #15 on: January 06, 2014, 11:58:07 AM »
You're best off pretending that the other 60k was never there.  There's nothing you could have done to prevent the losses if he was managing (gambling) with the accounts.  Now you understand what diversification and other risk management techniques are meant to prevent.  If you need the money immediately for college tuition, you should put it in something that isn't at risk of losing any further principal, so I would avoid a stock index fund.  Stocks have been on a good run and could very easily have a bad correction, just as precious metals have.  Don't let your negative emotions about this event cause you to make bad decisions.

ITP: Market timing.

Not even that, just bad advice.

Ok, care to elaborate?  I'm open to constructive criticism but your post doesn't add any value to the discussion.

By definition the advice I gave isn't market timing.  I'm advising staying out of ANY asset class that has the possibility of losing principal.  (Maybe I didn't make that clear.)  The reason being that the funds are needed immediately for college costs.

The posters advising to either stay 100% in gold or 100% in stocks are both offering terrible advice IMO.  It's too risky for this individual's goal of paying for a college education in the short term.

Jamesqf

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Re: Help with stock market disaster
« Reply #16 on: January 06, 2014, 12:09:06 PM »
By definition the advice I gave isn't market timing.  I'm advising staying out of ANY asset class that has the possibility of losing principal.  (Maybe I didn't make that clear.)  The reason being that the funds are needed immediately for college costs.

Now where does it say that the money is needed immediately?  All I see is that grandpa's original intention in setting up the funds was to help with college.  The OP doesn't, as far as I can see, say whether the kid is going to college this fall, or 5 years from now.  Or wheher she wants to go at all, could get scholarships or reasonable rate loans, does a hiitch in the military first...  We just don't know.

dragoncar

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Re: Help with stock market disaster
« Reply #17 on: January 06, 2014, 12:10:30 PM »
Put it in bitcoins


J/K -- As other have said, don't worry about the account's former value.  Just treat it as $20k in found money

Poorman

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Re: Help with stock market disaster
« Reply #18 on: January 06, 2014, 12:15:49 PM »
lol gold and silver... shit man. 

speculative bullshit. 

I don't believe in speculative metals as an asset class so I would sell it right now.  However, some people think 5% or 10% is ok.  Anything above that and it's craziness. 

how much time do you have?  Pick an asset mixture and then about 3 - 5 years out start transitioning to more stable assets.

man this is depressing.

No time. She's in college....

Yeah it's depressing.

RaveOregon

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Re: Help with stock market disaster
« Reply #19 on: January 06, 2014, 12:45:24 PM »
Do you know which mining stocks are held in the account?