Individual stocks

[Hurley82]

Over the last couple years I've dumped some money into individual stocks through scottrade. This was my first attempt at dabbling in the stock market. It started with just play money ($1000) that I told myself I was willing to lose if it all went south. Over the last few years I've made  more deposits,  had decent stock growth and a stock split. I now have around $20k in single company (Cern). I realize this is definitely not the best approach and im trying to figure out the best plan of attack.

1. Keep the money invested -   I feel like this company will continue to see growth as electronic health records/ solutions market continues to grow. They continually beat earnings and have record bookings. If I hang on they will more than likely split again as their stock price gets closer to $100.

2. Sell it all - I have a mix of long and short term holdings. I'm up just under 50% and unsure how this will affect my taxes. If it matters the next two tax years will be lower income years as my wife is taking some time off to raise our kids.

3 - slowly roll it into my Roth. My other  idea is to slowly sell off enough shares to max out my Roth.

4- transfer in kind (if possible ) to my vanguard account which is set up but nothing is invested with them yet. I opened this because my wife and I have too much emergency cash just sitting in our savings not doing much. ($50k)

As a teacher I'll retire around the age of 54 with a pension valued at 80% of the average of my highest 3 earning years. Should be around 50k not accounting for any increases in the pay structure or inflation. The Roth was set up to supplement the pension and is currently not being maxed out. My initial reason for investing in non retirement accounts was becuase I didn't like the idea of not having access to money without paying a penalty, this is also why our savings has ballooned to an amount I feel is higher than necessary.

Really I'm just not sure what the best approach to the issue is. Any advice? 

[nereo]

First, you should absolutely be maxing our your IRA.  Make whatever financial changes necessary, but it's "only" $458/mo.

Regarding your individual stock, you are right that holding a lot of just one stock puts you at a high degree of risk.  Regarding whether to buy/sell/hold, the only real question a person normally has to answer is: Do I believe this company will outperform the market going forward.  Secondary to that is: Do I have a legitimate reason for believing this.  Ignore what you paid for it (that's price-anchoring)

However, you may be in a special case, since you think you are overweighted in this particular stock.  You didn't state how much you have in other investments (and what % of your portfolio CERN is) but I would urge you to go back and look at your AA/IPS and see whether your current holdings match your AA.  If not, re-balance.  If you don't know what I'm talking about, read the link below.

http://www.bogleheads.org/wiki/Investment_policy_statement

[forummm]

Cerner has benefitted from a huge amount of public funds being poured into EHRs due to the MU incentive passed as part of ARRA. Those funds are essentially dried up at this point. There will be further regulatory activity, but the industry is getting close to saturated with EHRs. I would not expect the same kind of growth you've been seeing.

But that's an aside. Generally you're taking a lot of risk being a non-indexer. Good luck.

[Hurley82]

Nereo - thanks for the input and link. I'll check out the link.

Forummm - ya I don't expect them to do quite as well as they have. Although they do have a pretty solid track record when prior to the ACA. I think right now my plan is to begin transferring these funds to a better alternative.

[KBecks2]

Google on capital gains to figure taxes.  I pay 15% on long term cap gains.  Don't let taxes influence your sells.  If you're done w the stock, then sell it.

I agree w maxing a Roth every year.  Good luck!

[Retired To Win]

Hurley 82,

In your original post, the first couple of sentences talk about "dumping" money into individual stocks and "dabbling" in the stock market.  Both expressions don't lead me to believe that you really take individual stock investing very seriously.  And, frankly, I think you just got incredibly lucky with that hot stock that's gone up 50% for you.  Going forward, I think you are looking at a lot more risk than opportunity.

I am a dyed-in-the-wool individual stock investor.  But I never, ever would have any stock in my portfolio represent more than 6% of my portfolio's value.  There's too much risk of some event entirely out of your company's control lousing up their business prospects and crashing your stock's market value.  So, if I were in your shoes, I would immediately adjust my holding of that stock to reduce my exposure to that kind of possibility.  Never mind the tax consequences.  If the money is there now, then take it now and run.

As for what to do going forward, if you don't have a cogent individual stock investing strategy and are not willing to put the time in to analyze individual companies, then take a serious look at index/etf investing.

Good luck.