Is it worth paying taxes to rebalance

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chris319
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Re: Is it worth paying taxes to rebalance

Post by chris319 »

retiredjg wrote: Wed Oct 27, 2021 5:39 pm
chris319 wrote: Wed Oct 27, 2021 4:58 pm When in history has the market ever crashed and not recovered?
Isn't that exactly what happened in Japan about 30 years ago?

I'm sure you mean the US stock market, but who is to say that cannot happen here as well?
Good point.

Is there anything in the U.S. that would prevent us from going the way of Japan?
Financial decisions based on emotion often turn out to be bad decisions.
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retiredjg
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Re: Is it worth paying taxes to rebalance

Post by retiredjg »

chris319 wrote: Wed Oct 27, 2021 6:31 pm
retiredjg wrote: Wed Oct 27, 2021 5:39 pm
chris319 wrote: Wed Oct 27, 2021 4:58 pm When in history has the market ever crashed and not recovered?
Isn't that exactly what happened in Japan about 30 years ago?

I'm sure you mean the US stock market, but who is to say that cannot happen here as well?
Good point.

Is there anything in the U.S. that would prevent us from going the way of Japan?
I'm sure there are things that humans think "should" prevent that...but I'm also sure that "sure things"... are not sure. :happy

Who could have predicted some of the things we have seen in our lifetimes? For example, if you are old enough, did you ever think the Berlin wall would come down? If not old enough for that, how about a pandemic? Or people who seemed to be boys at birth having babies a few decades later?

I'm old enough to have seen a number of "impossible" things actually happen, so that probably colors my take on a lot of things. :happy
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grabiner
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Re: Is it worth paying taxes to rebalance

Post by grabiner »

sharukh wrote: Wed Oct 27, 2021 6:29 pm Instead of selling the stocks, you can just buy few put options to reduce the risk.
This has its own tax complications (for example, depending on the option, you might make the stock dividends non-qualified, and you will have gains and losses on the options). In addition, if you are going to sell the stock eventually anyway, you are only postponing the tax by not selling now. And you will probably lose a larger fraction of the stock value to taxes when you do sell it later, since the stock market is more likely to go up than down.
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Re: Is it worth paying taxes to rebalance

Post by Trader Joe »

jcw3rd wrote: Tue Oct 26, 2021 1:36 pm I have a dilemma. First, some background. We are in our 14th year of retirement. We retired in Jan 2008 at age 57 with $1.5M. Proceeded to lose almost half of that due to the Financial Crisis of '08-'09, where our portfolio bottomed out in March '09 at $864k. We have since recovered and today our portfolio is just north of $2.14M. Over that time I have continued to improve my FI awareness and as such have settled on an Asset Allocation of 65/35. Rebalancing over the last few years has resulted in my taxable brokerage account holding mostly equities and my tax sheltered accounts holding all bonds (mostly Tips).

The quandary I am facing is that my current AA is knocking on the door of 70/30, meaning, based upon my 'plan', I will soon need to rebalance again. Most of my previous rebalancing were able to be carried out in our tax sheltered accounts. But if I need to rebalance again, to get back to the desired 65/35, it will have to happen in my taxable account. That would generate a substantial tax obligation. Even at the long-term-cap gains rate of 15%, a rebalancing move of $100-150k would incur a tax hit of $15-22.5k. Seems like a high price to pay just to rebalance.

Here's what my AA looked like at the end of Sept...
Image
"Is it worth paying taxes to rebalance?"

No it is not.
niagara_guy
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Re: Is it worth paying taxes to rebalance

Post by niagara_guy »

You didn't say what your income is. You might be able to sell part of your lt taxable in 2021 and stay in a low tax bracket. Do you have different funds or stocks in taxable (or, even the same stock/fund but a different cost basis)? If so, you could sell the ones with the lowest gain first (actually, sell anything with a loss first).

I also agree with others that if you have enough to live on in bonds you could let your stock percentage go up.
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