4 ms·

How do you handle the capital gains taxes? I’d love to be able to rebalance the massive S&P 500 portion of my portfolio into other things but it would trigger h

by qwerpy 8mo ago

How do you handle the capital gains taxes? I’d love to be able to rebalance the massive S&P 500 portion of my portfolio into other things but it would trigger huge federal and state taxes. Was hoping to hold on to these until retirement at which point I’d slowly be selling it for living expenses and the income taxes would be much smaller.

nilkn 8mo ago
I'm very curious about this as well. This is the main thing that has held me back from a meaningful rebalancing. Eating a huge tax bill to avoid a theoretical future loss of unknown size and duration while also losing out on potential gains if that loss ends up not materializing is a hard pill to swallow. I suppose this is probably why most long-term investment advice suggests not trying to time the market unless you have a very short time horizon. (Note: for me, I'm referring to funds in taxable brokerage accounts.)
- alsetmusic 8mo ago
  I have a family member who once told me that their net worth was roughly halved in 2008. They probably recovered it if they stayed in the market after, but I don't know what they did. I suppose the real question is whether you can weather the storm long enough for the market to recover. And beyond that, how cynical you are overall about everything taking completely before that can happen. I wonder a lot about that second one.
  - nilkn 8mo ago
    If you'd been DCAing a fixed amount monthly into stocks for 10 years prior to the 2007 peak, then during the crash continued doing so without selling, the total value of your portfolio would've matched its pre-cash peak in just 3 years and exceeded it significantly by the time the market itself recovered in ~5.5 years. 3 years is really not a long time. So I'd say it comes down to emotional fortitude and probability of staying employed. If your time horizon is longer than 3 years, the calculation of whether to sell should essentially come down to calculating your odds of keeping your job. I bet it's possible to build a robust mathematical model that recommends a decision given your best personal estimate of your layoff probability during a severe market crash.
    - alsetmusic 8mo ago
      You vastly overestimate the money a lot of people have. A lot of people will be destroyed by this.
baggachipz 8mo ago
I did this in my IRA and 401(k). No tax penalty or gains tax in doing that.
dehrmann 8mo ago
You pay taxes with the proceeds from the sale? You sell all the losers in your portfolio to offset what gain you can?
chasd00 8mo ago
this is the spot i'm in too, i can move my 401k and IRAs around fine but ye'old brokerage account is a different story. Unless my losses are greater than the capital gains i'm going to pay then i'm better off just staying put. That brokerage account is dedicated to funding college for my two boys. I have enough now for about 6 years of undergrad. The bills start coming in 2 years, idk if that's enough time to recover from a dot-com level crash...
- bmitch3020 8mo ago
  If you need the money in 2 years, I wouldn't leave it in the stock market. Find a money market or CD to avoid the gamble. You're going to get hit with capital gains taxes either now or in 2 years, so that shouldn't impact your decision. My personal time frame is 4-5 years of emergency funds. You can adjust that for your own risk tolerance, but have a look at various past crashes to make an educated decision. I'd only leave it invested if you don't actually need it, because college can be delayed or financed with student loans.

by qwerpy 8mo ago

nilkn 8mo ago

I'm very curious about this as well. This is the main thing that has held me back from a meaningful rebalancing. Eating a huge tax bill to avoid a theoretical future loss of unknown size and duration while also losing out on potential gains if that loss ends up not materializing is a hard pill to swallow. I suppose this is probably why most long-term investment advice suggests not trying to time the market unless you have a very short time horizon. (Note: for me, I'm referring to funds in taxable brokerage accounts.)

alsetmusic 8mo ago
I have a family member who once told me that their net worth was roughly halved in 2008. They probably recovered it if they stayed in the market after, but I don't know what they did. I suppose the real question is whether you can weather the storm long enough for the market to recover. And beyond that, how cynical you are overall about everything taking completely before that can happen. I wonder a lot about that second one.
- nilkn 8mo ago
  If you'd been DCAing a fixed amount monthly into stocks for 10 years prior to the 2007 peak, then during the crash continued doing so without selling, the total value of your portfolio would've matched its pre-cash peak in just 3 years and exceeded it significantly by the time the market itself recovered in ~5.5 years. 3 years is really not a long time. So I'd say it comes down to emotional fortitude and probability of staying employed. If your time horizon is longer than 3 years, the calculation of whether to sell should essentially come down to calculating your odds of keeping your job. I bet it's possible to build a robust mathematical model that recommends a decision given your best personal estimate of your layoff probability during a severe market crash.
  - alsetmusic 8mo ago
    You vastly overestimate the money a lot of people have. A lot of people will be destroyed by this.

baggachipz 8mo ago

I did this in my IRA and 401(k). No tax penalty or gains tax in doing that.

dehrmann 8mo ago

You pay taxes with the proceeds from the sale? You sell all the losers in your portfolio to offset what gain you can?

chasd00 8mo ago

this is the spot i'm in too, i can move my 401k and IRAs around fine but ye'old brokerage account is a different story. Unless my losses are greater than the capital gains i'm going to pay then i'm better off just staying put. That brokerage account is dedicated to funding college for my two boys. I have enough now for about 6 years of undergrad. The bills start coming in 2 years, idk if that's enough time to recover from a dot-com level crash...

bmitch3020 8mo ago
If you need the money in 2 years, I wouldn't leave it in the stock market. Find a money market or CD to avoid the gamble. You're going to get hit with capital gains taxes either now or in 2 years, so that shouldn't impact your decision. My personal time frame is 4-5 years of emergency funds. You can adjust that for your own risk tolerance, but have a look at various past crashes to make an educated decision. I'd only leave it invested if you don't actually need it, because college can be delayed or financed with student loans.