Personal Investments • Rebalance stocks to index funds - tax implications justifiable ?

Now that I am aware of the benefits of index funds and ETFs I definitely am a believer - on my tax advantaged retirement accounts I have already made the changes - but on taxable accounts I am stuck due to the prospect of a huge tax bill.

I am budgeting up to $1.5k extra in taxes per year, hence the limit of $10k in capital gains. Everything I sell, minus the taxes goes into index funds - so I am trying to sell ones that have least capital gains at this point.

For what reason do you want to sell all the stocks? Is it a large part of your portfolio?

Personally, I'd consider treating the basket of stocks as part of a US Stock or US large cap allocation, and adjust other allocations accordingly. For example, if I treated the individual stocks as a S&P 500 holding, I could buy an Extended Market index to compensate somewhat.

I could hopefully avoid paying taxes on the unrealized gains for a while, possibly forever.

If any stocks lose value and have an unrealized capital loss, I sell immediately.

If I want to donate to charity or gift to someone in a lower tax bracket, I can donate the stocks with the largest percentage of unrealized gains. (Long term gains in the case of a charity.)

If I wanted to sell to minimize concentration risk, I'd probably sell those with the lowest percentage gain first, to maximize the amount of cash to be used for diversification at the lowest tax cost.

I'm personally comfortable with holding an individual stock portfolio long term, as long as its performance is expected to be somewhat correlated with a large cap index.

Statistics: Posted by friluftsliv-roy — Tue Sep 10, 2024 11:32 pm — Replies 12 — Views 417