individual stocks question

[DMdoc]

Hi! This is a great site and I have learned so much...I wish I knew about this a few years ago, thus my question.

After residency, I worked in academics for 2 years before going to fellowship. I was excited about the increased income and had a friend who was big into buying (and selling) individual stocks. I was excited to do it too and started buying $5000 worth of stocks (mostly all blue chip) until I had about 8-10 different stocks. This was in 2009-2010 so you can probably guess what happened - this acct in capitalone (was ING) is now close to 6 figures and I don't know what do to with it. I'm a bit nervous having so much in individual stocks but they are all pretty good quality ones. I also recently bought some more stocks with the brexit but I haven't really sold many because of how well they have done.

1. Should I just keep em going or sell and put into a vanguard acct (taxable since I max out retirement options) for index funds?

2. If I keep them, should I change the dividends to stop automatically investing them? I like the idea of just letting them snowball but it's gonna be an issue when I sell, right?

 

 

[Zaphod]

So you have a taxable account with a bunch of dividend paying stocks in it? You bought at an opportune time for sure, but tax wise thats a bad spot for those types of stocks, as theyd be better off in your deferred accounts. Usually in your taxable you want to avoid any large dividend type stocks/indexes as they will become a huge drag at our income level. You want tax efficient vehicles there, indices, muni bonds, or those without dividends.

Whether you sell or keep is entirely up to you of course, you will luckily have quite the capital gains taxes to deal with and should be part of your overall consideration. Whether to drip or not doesnt make too much difference, you've already got tons of reinvestments so its going to be a mess anyway.

[DMdoc]

Thank for your reply - I figured as much and now I don't know how to get out of this mess. I was just buying stocks in this taxable acct but not even contributing to any Roth and just doing min in 401k to get the match - ugh, really had no idea what I was doing then but now I'm catching up and trying to get this figured out and saving 40%.

I'm thinking I will just slowly sell them off to avoid a huge tax burden all at once.

[jfoxcpacfp]

DMdoc wrote:

Hi! This is a great site and I have learned so much…I wish I knew about this a few years ago, thus my question.

After residency, I worked in academics for 2 years before going to fellowship. I was excited about the increased income and had a friend who was big into buying (and selling) individual stocks. I was excited to do it too and started buying $5000 worth of stocks (mostly all blue chip) until I had about 8-10 different stocks. This was in 2009-2010 so you can probably guess what happened – this acct in capitalone (was ING) is now close to 6 figures and I don’t know what do to with it. I’m a bit nervous having so much in individual stocks but they are all pretty good quality ones. I also recently bought some more stocks with the brexit but I haven’t really sold many because of how well they have done.

1. Should I just keep em going or sell and put into a vanguard acct (taxable since I max out retirement options) for index funds?

2. If I keep them, should I change the dividends to stop automatically investing them? I like the idea of just letting them snowball but it’s gonna be an issue when I sell, right?

Click to expand...

Congratulations on your accidental fortune.

Question 1:

1. First look at your financial plan, resources, and goals.


2. If you don't need the $ in the next 5 years, you should liquidate the account and rebalance into an appropriately-diversified equity index mutual fund portfolio. Yes, you'll have LTCG taxes, hopefully at 15% but, over the long term, you will almost certainly do better with the diversified portfolio.


3. Any $ you need from the account in the next 5 years should go into a money market account.

Question 2: No problem with reinvesting dividends. You are paying taxes on them as they are paid to you and reinvesting gives you basis. Don't overemphasize the taxes, net growth and income are the priority; after that, paying the least amount of taxes on total growth and income.

[PhysicianOnFIRE]

It's a good problem to have. If the values hadn't gone up, you wouldn't have the tax burden. But I agree, you will be much better off from a tax perspective to have low-dividend index funds in a taxable account.

If you are inclined to give to charitable causes, you could start building a up a Donor Advised Fund by donating the appreciated funds to it. The capital gains (and the principle) are off your hands. Of course, from the DAF, you can only give to qualified charities, so you need to be willing to part with the money. If you are already donating cash or checks to charity, I would definitely go this route. Fidelity has the best DAF in my opinion, with low fees, only $5,000 to open and minimum grants of only $50.

The other "best" way to avoid capital gains is to pass them on to your heirs, but I'm guessing you would like to live a very long time and don't want to pay taxes on those dividends all that time.

Best,

PoF

 

 

[Docbeans]

DMdoc wrote:

Thank for your reply – I figured as much and now I don’t know how to get out of this mess. I was just buying stocks in this taxable acct but not even contributing to any Roth and just doing min in 401k to get the match – ugh, really had no idea what I was doing then but now I’m catching up and trying to get this figured out and saving 40%.

I’m thinking I will just slowly sell them off to avoid a huge tax burden all at once.

Click to expand...

I could've almost written this! Though i suspect my numbers are less staggering since I started later (2012'ish). I just started liquidating. It was hard to let go and I still have a chunk left. Purchased a car (it was on the to-do list- not an impulse buy from the liquidation) with some of it. I reasoned that there has been an extended bull market so I got lucky with timing. I dont see myself holding on to these all the way to retirement anyway.

[The White Coat Investor]

1. First, figure out your basis and what your actual tax hit is. I'm not sure but I think you're saying you're currently a fellow. Thus there may be no tax hit at all to liquidating them. If so, this is a great chance to get out of them. If not, you may just want to hold them until death, until you want to give money to charity, or until you need the money to spend (at which point you'll have to bite the bullet and pay the capital gains.) Since they'll eventually be a relatively small chunk of your portfolio, no big deal to keep them from a diversification standpoint, but if it's keeping you up, then by all means sell.

2. Yes, of course you should stop reinvesting dividends. Might as well invest them in the investments you actually want.

[DMdoc]

Thank you for everyone's advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now... :roll:

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

[Hatton]

Muni bonds do well in taxable accounts.  Vwiux is an intermediate fund for this purpose.  Any stock index fund from Vanguard works well also.  I have one individual stock (apple) which I bought in 2008 and do not plan to sell any time soon. I also have two state specific muni bonds which I will hold til they are called.

[PhysicianOnFIRE]

DMdoc wrote:

Thank you for everyone’s advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now… 

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

Click to expand...

Good options? Muni bonds, Berkshire Hathaway stock if you're willing to hold more individual stock (0 dividend).

Also Vanguard or similar low cost index funds which have had dividends of about 2%. My portfolio, half of which is in a taxable account, was posted yesterday on Physician's Money Digest.

Best,

-PoF

[The White Coat Investor]

PhysicianOnFIRE wrote:

DMdoc wrote:

Thank you for everyone’s advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now… 

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

Click to expand…

Good options? Muni bonds, Berkshire Hathaway stock if you’re willing to hold more individual stock (0 dividend).

Also Vanguard or similar low cost index funds which have had dividends of about 2%. My portfolio, half of which is in a taxable account, was posted yesterday on Physician’s Money Digest, and each click earns me a big, fat dime. Click twice if you like my advice

Best,

-PoF

Click to expand...

Don't let Google catch you encouraging clicks. You won't like the consequences.

[DMdoc]

PhysicianOnFIRE wrote:

DMdoc wrote:

Thank you for everyone’s advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now… 

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

Click to expand…

Good options? Muni bonds, Berkshire Hathaway stock if you’re willing to hold more individual stock (0 dividend).

Also Vanguard or similar low cost index funds which have had dividends of about 2%. My portfolio, half of which is in a taxable account, was posted yesterday on Physician’s Money Digest, and each click earns me a big, fat dime. Click twice if you like my advice

Best,

-PoF

Click to expand...

This is great - just looking for some examples of what to look for when funding my taxable acct since.

 

 

[PhysicianOnFIRE]

The White Coat Investor wrote:

PhysicianOnFIRE wrote:

DMdoc wrote:

Thank you for everyone’s advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now… 

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

Click to expand…

Good options? Muni bonds, Berkshire Hathaway stock if you’re willing to hold more individual stock (0 dividend).

Also Vanguard or similar low cost index funds which have had dividends of about 2%. My portfolio, half of which is in a taxable account, was posted yesterday on Physician’s Money Digest, and

Click to expand…

Don’t let Google catch you encouraging clicks. You won’t like the consequences.

Click to expand...

Edited. Don't want to mess with your site, either. Did you learn the hard way?

[The White Coat Investor]

PhysicianOnFIRE wrote:

The White Coat Investor wrote:

PhysicianOnFIRE wrote:

DMdoc wrote:

Thank you for everyone’s advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now… 

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

Click to expand…

Good options? Muni bonds, Berkshire Hathaway stock if you’re willing to hold more individual stock (0 dividend).

Also Vanguard or similar low cost index funds which have had dividends of about 2%. My portfolio, half of which is in a taxable account, was posted yesterday on Physician’s Money Digest, and

Click to expand…

Don’t let Google catch you encouraging clicks. You won’t like the consequences.

Click to expand…

Edited. Don’t want to mess with your site, either. Did you learn the hard way?

Click to expand...

No, I learned from the mistakes of others.

[AR]

The White Coat Investor wrote:

PhysicianOnFIRE wrote:

The White Coat Investor wrote:

PhysicianOnFIRE wrote:

DMdoc wrote:

Thank you for everyone’s advice. I am actually an attending now so higher tax bracket again. Yes, not a horrible problem to have, but wish I would have known what I do now… 

I think I will sell some (use it for home improvements).

What are some good options for what to have in a taxable acct (what specifically to look for)?

Click to expand…

Good options? Muni bonds, Berkshire Hathaway stock if you’re willing to hold more individual stock (0 dividend).

Also Vanguard or similar low cost index funds which have had dividends of about 2%. My portfolio, half of which is in a taxable account, was posted yesterday on Physician’s Money Digest, and

Click to expand…

Don’t let Google catch you encouraging clicks. You won’t like the consequences.

Click to expand…

Edited. Don’t want to mess with your site, either. Did you learn the hard way?

Click to expand…

No, I learned from the mistakes of others.

Click to expand...

Do you have a link or something that explains this in more detail.  Actually quite curious about this.