Author Topic: How to deal with a concentrated investment in a pair of stocks  (Read 1310 times)

gcolins

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Greeting all,


I'm looking for advice and thoughts on whether or not (and if so how) to correct for a situation in my portfolio.

Some details (happy to provide more):

Age: 43
Total Portfolio: 1.5M (90/10 stocks/bonds)
Goal: Retire in 12 years

My specific question relates to a pair of stocks I have (ADP and CDK) which currently comprise about 13% of my total portfolio. The rest of the portfolio is in index funds. My position in these stock built up over the course of a decade of ESPPs and stock awards. They are held in a DRIP style account. This is a taxable account.

Thankfully, these stocks have done very well over the years, but now that I'm trying to more specifically target retirement - I feel like this is too much risk. The issue is that to sell them (and rebalance), I'll pay 15% LTCG tax on ~$124k in gains. That's over $18k that *could* be earning me additional growth over the next 12 years (of course the stock could also take a dive...).

I'm not sure if I'm looking at this right, or even exactly how to determine if selling is the right move. Any thoughts, advice, or clarifying questions are welcome!

Thanks,

-G

marty998

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Re: How to deal with a concentrated investment in a pair of stocks
« Reply #1 on: March 06, 2017, 12:19:28 AM »
If you have a portion of your index funds that have gone down by the same/similar amount (unlikely I know with markets at all time highs) then you could sell that simultaneously with the 2 stocks and have an overall nil gain/loss.

Reinvest everything immediately in desired portfolio, taking note of wash sale rules.

Heckler

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Re: How to deal with a concentrated investment in a pair of stocks
« Reply #2 on: March 06, 2017, 04:07:16 AM »
Turn off DRIP immediately?  Use the dividends to buy the right thing but keep the stocks as they will become a smaller portion of your portfolio.  Then use them for tax loss harvesting elsewhere when the time is right?


Caveat - I know little about taxable investing.  Just some thoughts frm my jetlagged brain which is wide awake at 3 am.

Monkey Uncle

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Re: How to deal with a concentrated investment in a pair of stocks
« Reply #3 on: March 06, 2017, 04:40:00 AM »
Yes, turn off the DRIP.  When your portfolio needs to be rebalanced, sell a little of the individual stocks rather than the index funds.  If/when they go down, consider harvesting tax losses on the individual stocks and replacing the sold shares with more of the index funds.  This little-at-a-time approach should spread the tax burden out some.  But unless we have a major decline that wipes out your gains, the only way to completely dodge the tax man is to hold the positions until you FIRE, then hope your FIRE income (from cap gains only) is low enough to put your gains into the 0% tax bracket.

Retire-Canada

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Re: How to deal with a concentrated investment in a pair of stocks
« Reply #4 on: March 06, 2017, 06:46:14 AM »
If you have $1.5M now and want to retire in 12yrs you'll likely have over $3M after inflation without any new additions. If you are continuing to add every year [say $25K] you'll likely have over $7M after inflation.

So the question I have is how much money do you need to FIRE?

If you will have significantly more in 12yrs than you actually need your lack of diversity in that part of your portfolio isn't really a risk.
« Last Edit: March 06, 2017, 08:06:58 AM by Retire-Canada »

Heckler

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Re: How to deal with a concentrated investment in a pair of stocks
« Reply #5 on: March 06, 2017, 07:14:08 AM »
With 3 or 12 million at 55, taxable income will be high. Retire now or pay the taxman!