Author Topic: Please help me decide!  (Read 1260 times)

focals

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Please help me decide!
« on: June 25, 2021, 07:17:19 AM »
Hi,
I'm sitting on about $200k of my former employer's (Paypal) company stock (1/3 of investments). Estimated Long-term Capital Gains Tax is $12k.

I'm debating if I should sell right away (to avoid Concentration Risk) or wait for a year or two until I plan to retire (and have less enough income so can most likely avoid this tax).

I would really appreciate any advice!

Thanks in advance,
AH

omachi

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Re: Please help me decide!
« Reply #1 on: June 25, 2021, 07:40:13 AM »
I'd be nervous sitting on that much, but I'm not honestly sure how likely it is to do something that isn't in line with the broader market. Part of the joy of index investing is not having to know.

If you're asking because you're concerned you're overconcentrated, I'd take steps to reduce that. If you acquired this over time, you could sell the shares that have the least appreciation to bring yourself down to a quantity that fits your risk tolerance. Make such a sale each year on your way to retirement, then convert the remaining shares with the most gains once your income is low to avoid higher capital gains taxes. Given the current state of the market you'll almost certainly have gains, but you might get a good amount out now without too much tax.

But it's really about your risk tolerance. If you can tolerate whatever risk there is and don't want to pay those taxes, you could just hold on to the shares. Who knows, it could outperform or crater. But if it isn't keeping you up at night, what you stand to gain in tax avoidance might be more than what you lose even if it slightly underperforms. If any of us could predict the future we wouldn't need to diversify our portfolios... but alas, we just get to deal with our own tolerance for risk.

Watchmaker

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Re: Please help me decide!
« Reply #2 on: June 25, 2021, 08:35:39 AM »
I would be nervous having that much tied up in a single stock. It isn't hard for me to imagine something happening to crash Paypal's stock: a fraud scandal, loss of some big contracts, a competitor succeeding wildly. I'm not say those things are likely, but that's what you get with the risk of a single stock. I'd sell it all right now. If that feels too drastic to you, I'd advocate selling 2/3rds of the stock now, which would eliminate most of the risk while leaving you with some of the upside.
« Last Edit: June 25, 2021, 10:09:27 AM by Watchmaker »

MustacheAndaHalf

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Re: Please help me decide!
« Reply #3 on: June 25, 2021, 08:55:32 AM »
I'm sitting on about $200k of my former employer's (Paypal) company stock (1/3 of investments). Estimated Long-term Capital Gains Tax is $12k.
With a $600k portfolio, $200k is a large chunk.  How much sooner can you retire if PYPL continues it's dramatic performance?  (were you retiring in 10 years, but with PYPL you could retire sooner?)

Professionals don't concentrate this much in one stock - even those fast growing ARC ETFs limit their holdings to 10%.  So if PYPL stock suffers a dramatic event where it drops by 1/3rd and stays there... how much would that delay your retirement?

I'm more on the fence - diversification is good, but this isn't some unknown company.  It's the #20 company in the S&P 500 ($340 billion market cap), and may still have some innovations in front of them.  In your shoes, I'd draw up several scenarios that I thought were about equally likely (worst case, best case, average case), and see how those impact your retirement date.

Financial.Velociraptor

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Re: Please help me decide!
« Reply #4 on: June 25, 2021, 05:13:20 PM »
I think mustache and a half has given the best advice so far.  My advice?  Sell covered calls one strike out of the money to raise some cash (which reduces your risk by lowering your effective basis) and position yourself to sell only on an upward move.  You could do this with 1/3 of your position, sell another third with calls further out of the money so you only sell 2/3 in the event a nice uptrend.  Keep 1/3 long term.

marty998

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Re: Please help me decide!
« Reply #5 on: June 25, 2021, 08:38:26 PM »
$12k doesn't seem so much in the grand scheme of things.

If Paypal stock goes down then you lose. If Paypal stock goes up then you'll have a bigger tax headache to deal with.

Sell down progressively over a number of years and move on with your life.

focals

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Re: Please help me decide!
« Reply #6 on: June 26, 2021, 11:30:41 AM »
Dear Marty998, Financial.Velociraptor, MustacheAndaHalf, Watchmaker, and omachi,

Thank you so much for your reply. I really appreciate it!
I've decided to gradually unload my holding so as not to cause a big tax bill pre-retirement.

Your replies help me decide that :)

Thanks,
AH

BicycleB

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Re: Please help me decide!
« Reply #7 on: June 26, 2021, 01:44:33 PM »
You might possibly also be able to reduce your concentration risk for the first couple of years by buying options that pay off in the event of significant decline in stock price. That would make you safer while implementing the tax-efficient strategy.

I'm not one of the skilled forumers who can say more exactly how. I believe the procedure would start by signing your broker's (Vanguard's?) agreement for being able to sell options, then you buy ones appropriate for your goals (I guess PYPL puts).

focals

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Re: Please help me decide!
« Reply #8 on: June 26, 2021, 06:44:21 PM »
Thanks, BicycleB.
Do you know of any resources to learn about put options?

ChpBstrd

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Re: Please help me decide!
« Reply #9 on: June 26, 2021, 09:39:28 PM »
Can you move the shares (not the proceeds of a sale, the actual shares) into an IRA? If you move some of the shares into a traditional IRA, you’ll pay capital gains but more than offset that with savings on the taxes for your regular earnings.

BicycleB

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Re: Please help me decide!
« Reply #10 on: June 28, 2021, 04:32:47 PM »
Thanks, BicycleB.
Do you know of any resources to learn about put options?

I see you started a thread a few seconds later and got good answers! Those guys  know more than I do. :)

https://forum.mrmoneymustache.com/investor-alley/put-options-how-learn/msg2863730/#new