Author Topic: Once in a 401k lifetime opportunity  (Read 3874 times)

gggeek

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Once in a 401k lifetime opportunity
« on: May 06, 2015, 08:30:10 AM »
My 401k recently had a "once in a lifetime" happening.  Our company spun off a REIT shortly after matching our 401k with stock.  That stock split and we now have some shares of the new REIT in our 401ks.  Now; in the future we will not be able to invest further contributions into the REIT and will get our matches in the growth company stock.  Normally I unload my companies stocks as soon as I get my match, but was behind this year (been reading a lot on FIRE via MMM and others so just now starting to make changes towards FI).

So my question is should I keep the REIT shares as this is the only chance I will have to keep them in my 401k?  If I sell them and reinvest, there is no future opportunity to get them back in the 401k.  The REIT shares make up 7% of my 401k now.  There are a lot of analysts looking at the REIT doubling over the next year and I have confidence in the reasoning behind the REIT.

Am I being foolish considering keeping the REIT shares instead of reinvesting across my new defined, Bogleheadish, allocation strategy?

rmendpara

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Re: Once in a 401k lifetime opportunity
« Reply #1 on: May 06, 2015, 08:53:07 AM »
Not sure how big 7% is for you today, or how big it may be in the grand picture of things.

Would you be willing to buy this stock in a taxable account? If so, then may as well keep it in the 401k and let it ride. Of course, don't let it become too large of a position relative to what type of risk you are willing/able to take in single stocks.

I wish I had more options in my 401k, but I also have warmed up to the idea of keeping my 401k and other IRA accounts "boring". Even if everything goes to crap and all my stocks tank, I'd like to know that my retirement is at least somewhat supported with a reasonably allocated portfolio.

Again, the amount is the biggest factor relative to your net worth. Some places would suggest no more than 3% of total assets in a single stock, but you can also project this into the near future if you are investing a lot today.

Up to you, but I see it as a risk decision rather than a return decision.

forummm

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Re: Once in a 401k lifetime opportunity
« Reply #2 on: May 06, 2015, 08:57:13 AM »
There are a lot of analysts looking at the REIT doubling over the next year and I have confidence in the reasoning behind the REIT.

If it were really clear that the REIT would double over the next year, it would instantly increase in value by about 95%. The fact that it hasn't done that tells you how likely it is that it will actually double in that time frame.

If you wouldn't buy this REIT in your IRA, you shouldn't hold it in your 401k. If you have bought into it for some reason, and those reasons are rational, then it's OK to keep it.

I differ from the previous poster about holding it in a "taxable" account being the threshold. REITs are very tax inefficient, so it's often better to hold in a tax advantaged account while in the asset accumulation stage.

Mississippi Mudstache

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Re: Once in a 401k lifetime opportunity
« Reply #3 on: May 06, 2015, 08:57:50 AM »
I would hardly call it a "once-in-a-lifetime" opportunity. You could just as easily purchase shares of the REIT in a traditional IRA, couldn't you? What difference does it make (besides broker fees) which tax-deferred investment vehicle you hold the shares in? If you want to keep the shares because you have good reasons to believe the company will do well, then keep them. A bunch of analysts speculating that the share price may double in a year does not qualify as a good reason, IMO. Also, specifying that they make up 7% of your 401(k) is meaningless. How much of your total invested assets do they comprise?

Mississippi Mudstache

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Re: Once in a 401k lifetime opportunity
« Reply #4 on: May 06, 2015, 09:02:01 AM »
REITs are very tax inefficient, so it's often better to hold in a tax advantaged account while in the asset accumulation stage.

This is generally true, with the exception of timber REITs (WY, PCL, RYN, and PCH) which usually pay out dividends as capital gains.

gggeek

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Re: Once in a 401k lifetime opportunity
« Reply #5 on: May 06, 2015, 09:14:58 AM »
There are a lot of analysts looking at the REIT doubling over the next year and I have confidence in the reasoning behind the REIT.

If it were really clear that the REIT would double over the next year, it would instantly increase in value by about 95%. The fact that it hasn't done that tells you how likely it is that it will actually double in that time frame.

If you wouldn't buy this REIT in your IRA, you shouldn't hold it in your 401k. If you have bought into it for some reason, and those reasons are rational, then it's OK to keep it.

I differ from the previous poster about holding it in a "taxable" account being the threshold. REITs are very tax inefficient, so it's often better to hold in a tax advantaged account while in the asset accumulation stage.
The stock did double on the REIT announcement and the REIT is up 8.5% since the split.  I guess I will need to do some reading about REITs and their tax implication as I am not sure I immediately understand how their dividends figure in when reinvested inside the 401k.

Quote
Also, specifying that they make up 7% of your 401(k) is meaningless. How much of your total invested assets do they comprise?
It would be 1% of total.

Quote
Would you be willing to buy this stock in a taxable account?
I wouldn't buy single stocks.

Mississippi Mudstache

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Re: Once in a 401k lifetime opportunity
« Reply #6 on: May 06, 2015, 09:20:36 AM »
There are a lot of analysts looking at the REIT doubling over the next year and I have confidence in the reasoning behind the REIT.

If it were really clear that the REIT would double over the next year, it would instantly increase in value by about 95%. The fact that it hasn't done that tells you how likely it is that it will actually double in that time frame.

If you wouldn't buy this REIT in your IRA, you shouldn't hold it in your 401k. If you have bought into it for some reason, and those reasons are rational, then it's OK to keep it.

I differ from the previous poster about holding it in a "taxable" account being the threshold. REITs are very tax inefficient, so it's often better to hold in a tax advantaged account while in the asset accumulation stage.
The stock did double on the REIT announcement and the REIT is up 8.5% since the split.  I guess I will need to do some reading about REITs and their tax implication as I am not sure I immediately understand how their dividends figure in when reinvested inside the 401k.

Quote
Also, specifying that they make up 7% of your 401(k) is meaningless. How much of your total invested assets do they comprise?
It would be 1% of total.

Quote
Would you be willing to buy this stock in a taxable account?
I wouldn't buy single stocks.

If the stock is less than 1% of your total net worth, then it's not going to matter much if you choose to hang onto it. However, I'm curious why you would consider owning a single stock, but not buying a single stock. That doesn't make sense to me. Are you saying that you wouldn't buy a single stock in a taxable account, or in any account?

forummm

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Re: Once in a 401k lifetime opportunity
« Reply #7 on: May 06, 2015, 09:31:37 AM »
There are a lot of analysts looking at the REIT doubling over the next year and I have confidence in the reasoning behind the REIT.

If it were really clear that the REIT would double over the next year, it would instantly increase in value by about 95%. The fact that it hasn't done that tells you how likely it is that it will actually double in that time frame.

If you wouldn't buy this REIT in your IRA, you shouldn't hold it in your 401k. If you have bought into it for some reason, and those reasons are rational, then it's OK to keep it.

I differ from the previous poster about holding it in a "taxable" account being the threshold. REITs are very tax inefficient, so it's often better to hold in a tax advantaged account while in the asset accumulation stage.
The stock did double on the REIT announcement and the REIT is up 8.5% since the split.  I guess I will need to do some reading about REITs and their tax implication as I am not sure I immediately understand how their dividends figure in when reinvested inside the 401k.

Quote
Also, specifying that they make up 7% of your 401(k) is meaningless. How much of your total invested assets do they comprise?
It would be 1% of total.

Quote
Would you be willing to buy this stock in a taxable account?
I wouldn't buy single stocks.

Since it already doubled, congratulations on the gains! Since it hasn't re-doubled, that tells you how likely it is to re-double in the next year. Other investors are looking at the REIT too, and the current value is how they value it, including the growth they expect. It sounds like there was a one-time valuation adjustment due to some structural change made with the REIT.

Since you wouldn't buy single stocks, then why would you buy this one?

It is 1%, so you can just keep it if you want to. But why deviate from what you would otherwise do?

Dodge

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Re: Once in a 401k lifetime opportunity
« Reply #8 on: May 06, 2015, 10:17:44 AM »
There are a lot of analysts looking at the REIT doubling over the next year

I'd sell immediately, and do some more reading about investing.

gggeek

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Re: Once in a 401k lifetime opportunity
« Reply #9 on: May 06, 2015, 01:43:06 PM »
There are a lot of analysts looking at the REIT doubling over the next year

I'd sell immediately, and do some more reading about investing.
I should state; I completely understand the "OMG newb" nature of that statement.  The reading I have done and will continue on is down the path of MMM and others.  Seeing the replies reinforces the actions I am taking.  This oddity sort of just landed in the middle of my adjustment period to this line of thinking.  Again, I have always sold my company's stock 401k match and reinvested in the balanced funds it was previously choosing (and that I am now choosing myself based on advice from this forum and principals from the Boglehead wiki, MMM, and elsewhere).

Also its good to see this response.  Sometimes need that blunt answer.