I've seen a few threads on how to convert a portfolio of individual stocks to a simple Bogle-style portfolio (e.g, this one), but I haven't seen an answer to this specific question. Suppose one has around 200 stocks purchased over the last 8 years or so, up until 1 year ago, so they all have either long-term gains or losses. Collectively, they have a net gain of 31%, with most stocks having a gain. The ratio of the market values of gainers to losers is about 7:1. An example would be something like this:
Total market value: $200,000
Market value of stocks with a capital gain: $175,000; basis: $111,500
Market value of stocks with a loss: $25,000; basis: $27,300
Net profit: $61,200
Simply selling everything off at once would therefore incur capital gains taxes on $61k at 15%, or around $9,000. What is the best strategy for selling the stocks off that balances (a) minimizing capital gains taxes with (b) minimizing the risk of having a significant chunk of one's portfolio invested in a small number of stocks?
I can think of 4 strategies (in all cases, proceeds of stock sales are used to buy the 3-fund portfolio immediately):
1. Once a year for the next 3 or 4 years, sell off all losing stocks and just enough gaining stocks to bring the net loss to $0.
2. Regularly (every month? or week? or day?) check if any stocks would sell at a loss, and if so, sell them and just enough gaining stocks to bring the net loss to $0. Continue this for 1 to 4 years, then sell everything and take the (now reduced) tax it.
3. Regularly check for losses and sell those stocks as in #2, but wait until the end of each year to sell off just enough stocks with gains to bring the net loss to $0 for the year.
4. Do nothing until the market takes a big dive and the proportion of losers is much higher; then sell everything.
Or is there a better way than any of these?
Total market value: $200,000
Market value of stocks with a capital gain: $175,000; basis: $111,500
Market value of stocks with a loss: $25,000; basis: $27,300
Net profit: $61,200
Simply selling everything off at once would therefore incur capital gains taxes on $61k at 15%, or around $9,000. What is the best strategy for selling the stocks off that balances (a) minimizing capital gains taxes with (b) minimizing the risk of having a significant chunk of one's portfolio invested in a small number of stocks?
I can think of 4 strategies (in all cases, proceeds of stock sales are used to buy the 3-fund portfolio immediately):
1. Once a year for the next 3 or 4 years, sell off all losing stocks and just enough gaining stocks to bring the net loss to $0.
2. Regularly (every month? or week? or day?) check if any stocks would sell at a loss, and if so, sell them and just enough gaining stocks to bring the net loss to $0. Continue this for 1 to 4 years, then sell everything and take the (now reduced) tax it.
3. Regularly check for losses and sell those stocks as in #2, but wait until the end of each year to sell off just enough stocks with gains to bring the net loss to $0 for the year.
4. Do nothing until the market takes a big dive and the proportion of losers is much higher; then sell everything.
Or is there a better way than any of these?
Statistics: Posted by snic — Sat Mar 09, 2024 4:46 pm — Replies 0 — Views 14