Author Topic: hold a few random stocks for fun or move to index funds?  (Read 1552 times)

mitchm

  • 5 O'Clock Shadow
  • *
  • Posts: 58
hold a few random stocks for fun or move to index funds?
« on: April 06, 2023, 10:12:00 AM »
Hi all, looking for any/all advice!

About five years ago before I was a member of these forums I did something out of character and bought about $1200 worth of shares of an individual stock because I had personally had a positive experience with the company (T-mobile) The value has now more than doubled and I'm still holding them. This is obviously not a huge amount of money in the grand scheme of things but holding these individual stocks does now feel inconsistent with my general investing philosophy which is otherwise VTSAX/VFIAX all the way.

I am thinking about selling and plowing all the money into index funds but as I have literally never sold any of my investments (and thus never paid any capital gains taxes -- only taxes on dividends) I'm unsure of what the tax implications are and whether this would be foolish. Any thoughts?

ATtiny85

  • Pencil Stache
  • ****
  • Posts: 947
  • Location: Midwest
Re: hold a few random stocks for fun or move to index funds?
« Reply #1 on: April 06, 2023, 11:45:41 AM »
I own a handful of individual stock from around 15 - 22 years ago. Once I decided to go all in on low cost broad market index funds, I just shut off dividend reinvesting and route that $2500 or so a year into VTSAX. Some of the stocks (Deere, Microsoft, Starbucks, and a few others) have large gains that I would rather not realize right now. I expect they will be donated down the road.

I do have about 30 shares of HOG that I could sell at a loss. But the loss is only a few hundred dollars, so I leave it there so I can see the red splotch online as a reminder of why every dollar goes into VTSAX now.


Dogastrophe

  • Bristles
  • ***
  • Posts: 434
  • Location: 44.6488° N, 63.5752° W
Re: hold a few random stocks for fun or move to index funds?
« Reply #2 on: April 06, 2023, 12:38:38 PM »
In mid-March 2020, I bought C$12K of a bank stock when it was close to it's eventual low. My dividend yield is around 8% and at one point the stock price had doubled before dropping back to a 50% gain. It's in my TFSA account so all gains / dividends are tax free. I plan to leave it with the DRIP turned on for the foreseeable future.

Rob_bob

  • Bristles
  • ***
  • Posts: 404
  • Location: Oregon
Re: hold a few random stocks for fun or move to index funds?
« Reply #3 on: April 06, 2023, 01:54:37 PM »
It is likely a small % of your portfolio and not going to move the needle if you keep it or sell it.

If you have held it for over one year it is long term cap gains.  If you have been reinvesting dividends then each of those purchases will have there own time frame and some will be short term gains/loses.

What you pay in taxes will be based on your tax bracket, long term gains can be 0-20% and short term 10-37%

I pay 0% LT cap gains federal but my state sees them as ordinary income so I pay according to my state tax bracket.

DrinkCoffeeStackMoney

  • Stubble
  • **
  • Posts: 107
  • Location: Utah
Re: hold a few random stocks for fun or move to index funds?
« Reply #4 on: April 06, 2023, 02:19:25 PM »
We currently have between 125-200 shares of each (3M, Coke, and Apple) in my Roth account. But 85% of our money across all accounts is in index funds.

BicycleB

  • Walrus Stache
  • *******
  • Posts: 5263
  • Location: Coolest Neighborhood on Earth, They Say
  • Older than the internet, but not wiser... yet
Re: hold a few random stocks for fun or move to index funds?
« Reply #5 on: April 08, 2023, 02:58:23 PM »
Hi all, looking for any/all advice!

About five years ago before I was a member of these forums I did something out of character and bought about $1200 worth of shares of an individual stock because I had personally had a positive experience with the company (T-mobile) The value has now more than doubled and I'm still holding them. This is obviously not a huge amount of money in the grand scheme of things but holding these individual stocks does now feel inconsistent with my general investing philosophy which is otherwise VTSAX/VFIAX all the way.

I am thinking about selling and plowing all the money into index funds but as I have literally never sold any of my investments (and thus never paid any capital gains taxes -- only taxes on dividends) I'm unsure of what the tax implications are and whether this would be foolish. Any thoughts?

If you sell, your broker should make available to you a statement before next year's tax season that accounts for your capital gain, because it counts as 2023 income. I'm assuming you made the purchase in a taxable account, not a 401k or IRA or other tax-advantaged account. If so, the statement will show purchase price, sale price, long term capital gain, short term capital gain. You will need to input the information from the broker's statement into the tax return for 2023 income that you file in 2024.

Re the tax brackets mentioned upthread, if I understand the rules correctly (will accept corrections), the main cutoffs for a single filer in 2023 is $44,725 income. Below that, long term capital gains rate is 0%, so selling would be comfortably consequence-free. Above that, you pay 15% long term capital gains unless your income exceeds $492,300. Bear in mind that the income here is gross income minus certain deductions you can take - standard deduction, whatever amount you put into 401k or traditional IRA from this year's earnings, amounts you put into HSA.

Example for single filer:

60,000 gross salary
-13,850 standard deduction
----
46,150
-5,000 401k contribution
----
41,150
-3000 HSA contribution
----
38,150 income for purpose of determining tax bracket

What if you bought stock for $4000 in 2015 and now you sell for $6000 (50% gain), assuming same example as above?
6000 sale price
-4000 basis
----
2000 capital gain
38,150 other income
----
40,150 total income
-40000 income in zero % capital gains bracket
----
150 income in 15% tax bracket

150 x .15 = $22.50, so your sale produced $22 of income tax.


https://taxfoundation.org/2023-tax-brackets/
« Last Edit: April 08, 2023, 03:00:23 PM by BicycleB »

Chris Pascale

  • Handlebar Stache
  • *****
  • Posts: 1335
Re: hold a few random stocks for fun or move to index funds?
« Reply #6 on: April 16, 2023, 01:59:53 PM »
I have an AmeriTrade account strictly for gambling. Every dollar I throw in there is like tossing the cash over a dumpster fire in an attempt to have it land in soil perfectly fertilized for money trees.

In 2014 I was slowly buying up pot stocks as legalization expanded. Some made THC or CBD products, others leased small-scale farming equipment, another was using kenaf crops to make a HazMat cleanup product. All went to heck.

Right now I'm taking $300 of my teaching paychecks ($4,800) to buy shares of Fannie Mae on the idea that eventually it will go up to something like $5.00 or $25.00 or [pinky to corner of mouth] $1,000,000.

While doing this, I'll invest about $30,000 into long-term retirement, pay my mortgage down by about $18,000, and start a Ph.D so I could move into full-time teaching, making about a 10:1 ratio of smart:dumb ideas.

So, THE ADVICE: If the downside won't hurt you, why not? Lastly, buying single stocks was something my dad got me into. Perhaps you have something like that, too, where having this account is something you did with someone you love - maybe someone who is not around anymore. Now, my dad wasn't a dumbass like I am, but if I told him about it, he'd just wish me the best and maybe let me pick up the tab at the bagel shop if it all worked out.

ddra90n

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: hold a few random stocks for fun or move to index funds?
« Reply #7 on: April 25, 2023, 05:07:12 PM »
If you are not comfortable holding just a few stocks but want to have more control/fun than putting all your money into an index fund, you could create your themed basket and then dollar cost average into that basket (set up a recurring, fixed $amount into that basket). That way you can still have fun investing in something you believe in while being able to diversify. There are apps that help you do all that, personally I use the Share app.

mistymoney

  • Handlebar Stache
  • *****
  • Posts: 2417
Re: hold a few random stocks for fun or move to index funds?
« Reply #8 on: April 25, 2023, 07:22:31 PM »
Fun fun fun!

just with shits and giggle money of course!

ChpBstrd

  • Walrus Stache
  • *******
  • Posts: 6662
  • Location: A poor and backward Southern state known as minimum wage country
Re: hold a few random stocks for fun or move to index funds?
« Reply #9 on: April 26, 2023, 12:45:40 PM »
First of all, unless they're 18 years old I'm VERY impressed by the OP's claim to have never sold an investment and never paid capital gains taxes. That's some seriously brag-worthy shit around here. You should be giving us advice instead of the other way around.

Something you may not have considered: Move the T-Mobile stock into a traditional IRA over the course of a few years, up to the annual limit. You can move shares instead of dollars as long as the shares are worth less than the annual limit. Then sell it and swap for an index fund. No taxes due!