Which stocks to sell first?

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Topic Author
nrkv
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Joined: Thu Jan 21, 2021 1:34 pm

Which stocks to sell first?

Post by nrkv »

Hello,
I have your garden variety dividend paying value stocks. These were purchased between 2014 and early 2021 when the account was under management. These are 35 different stocks ranging from 800$ to 5000$ each in capital gains with about 90k total gains as of today. I cannot sell anything this year because of maxed out gains unless a severe correction happens and sell some for a loss.

I don’t think I can get to 3-fund portfolio but even to get to say, 10 funds portfolio in the next 3-4 years, I would like to sell those individual stocks. Dividends are not reinvested. Obviously this exercise is 5 months ahead of time but it’s on my mind. I have separate funds slated for charity.

The question is for sequencing of these sales.
1. Should I simply sort from A to Z and start selling from A and stop when my yearly comfortable gain number is reached?
2. Should I keep some sectors for some more years and sell the others first? Like energy (chevron, Exxon) or pharmaceutical (abbot, Johnson and Johnson ) or financial (jpmorgan, truist financial) or defense (Lockheed, Raytheon) or technology (3m, oracle) etc?
3. Should I sell low quantity stocks first? 7 watsco, 30 Walmart etc. so I reduce the overall number?
4. Should I sell oldest stocks first because the chances of a stock value going to 2014 price is less likely compared to 2019 price and I can capture losses to cover other gains? (Ignoring March 2020 type scenario here)
5. Should I be looking at dividend yield and sell lower yield stocks first?
6. Anything else?

There may not be a right answer but I’m looking for a better plan. Appreciate any suggestions. Thank you!

If this sounds like asking the right order to watch Starwars movies, then so be it :happy
ZMonet
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Re: Which stocks to sell first?

Post by ZMonet »

Aren't most of your gains long-term capital gains? Why not sell everything that is LTCG (presumably +/- 15%) and leave short-term gains to turn to LTCG if that amount bothers you?
lazynovice
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Re: Which stocks to sell first?

Post by lazynovice »

ZMonet wrote: Wed Jul 28, 2021 5:53 pm Aren't most of your gains long-term capital gains? Why not sell everything that is LTCG (presumably +/- 15%) and leave short-term gains to turn to LTCG if that amount bothers you?
Looking at previous posts, OP is bumping up against 3.8% Net Investment Tax and LTCG rates of 20% due to transactions earlier in the year.
lazynovice
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Re: Which stocks to sell first?

Post by lazynovice »

I think you have several good ideas in your post. Dividends will count toward taxable income and can’t be controlled, so any that throw off dividends seem like a high priority. And I like your thought about getting rid of older ones that are very unlikely to go negative, leaving newer ones that could potentially become tax loss harvesting. Other than that, the small ones so you start streamlining as much as you can so you can get to as few as possible.
bradpevans
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Re: Which stocks to sell first?

Post by bradpevans »

I would make a list of every gain and current value

Sort by gain, because that’s what you’ll pay tax on

Make a running total of the gains

If you sort low gains to high you’ll minimize tax impact now but have more gains to pay taxes on later

If yiu sort high gains to low you’ll pay more tax hit now but lessen the blow later

Depending how much room to “the next bracket” you can see virtue in each sort order
go2run
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Re: Which stocks to sell first?

Post by go2run »

lazynovice wrote: Wed Jul 28, 2021 6:03 pm
Looking at previous posts, OP is bumping up against 3.8% Net Investment Tax and LTCG rates of 20% due to transactions earlier in the year.
Is that what "I cannot sell anything this year because of maxed out gains unless a severe correction happens and sell some for a loss." means?

Setting a plan to sell and simplify a portfolio with multiple stocks all comes down to tax planning. As long as you know where you are carrying LT vs ST gains and know how much room you have in current tax brackets to minimize tax impacts, you can plan and prioritize liquidation accordingly.

OP, do you do your own taxes or have available tax software available? Run the scenario for what your situation looks like for this calendar year and plan what you can sell to minimize overall taxes. I'm not aware of any golden rules to pick which stocks (A-->Z vs target sector vs age of stock held (as long as all are > 1 yr held) as the decision comes down to tax planning.
Topic Author
nrkv
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Re: Which stocks to sell first?

Post by nrkv »

lazynovice wrote: Wed Jul 28, 2021 6:08 pm I think you have several good ideas in your post. Dividends will count toward taxable income and can’t be controlled, so any that throw off dividends seem like a high priority. And I like your thought about getting rid of older ones that are very unlikely to go negative, leaving newer ones that could potentially become tax loss harvesting. Other than that, the small ones so you start streamlining as much as you can so you can get to as few as possible.
Thank you for both your responses. As I checked again, there are many older stocks with less than 100 in each. These may be the first to go to reduce noise.
Topic Author
nrkv
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Re: Which stocks to sell first?

Post by nrkv »

bradpevans wrote: Wed Jul 28, 2021 6:56 pm I would make a list of every gain and current value

Sort by gain, because that’s what you’ll pay tax on

Make a running total of the gains

If you sort low gains to high you’ll minimize tax impact now but have more gains to pay taxes on later

If yiu sort high gains to low you’ll pay more tax hit now but lessen the blow later

Depending how much room to “the next bracket” you can see virtue in each sort order
Yes, I plan to have a total gains number that I can manage to pay taxes on in a year. Thank you for the response.
Topic Author
nrkv
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Re: Which stocks to sell first?

Post by nrkv »

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go2run wrote: Thu Jul 29, 2021 9:57 am
lazynovice wrote: Wed Jul 28, 2021 6:03 pm
Looking at previous posts, OP is bumping up against 3.8% Net Investment Tax and LTCG rates of 20% due to transactions earlier in the year.
Is that what "I cannot sell anything this year because of maxed out gains unless a severe correction happens and sell some for a loss." means?

Yes

Setting a plan to sell and simplify a portfolio with multiple stocks all comes down to tax planning. As long as you know where you are carrying LT vs ST gains and know how much room you have in current tax brackets to minimize tax impacts, you can plan and prioritize liquidation accordingly.

OP, do you do your own taxes or have available tax software available? Run the scenario for what your situation looks like for this calendar year and plan what you can sell to minimize overall taxes. I'm not aware of any golden rules to pick which stocks (A-->Z vs target sector vs age of stock held (as long as all are > 1 yr held) as the decision comes down to tax planning.
Yes, I use TurboTax. I didn’t think there were any golden rules but since I’m new to trading myself, I thought I’ll ask and get suggestions.
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grabiner
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Re: Which stocks to sell first?

Post by grabiner »

I would suggest selling the stocks, and the sectors, in which you have the largest amount, as this gives you better diversification, If 10% of your portfolio is in one stock, or if 30% is in oil, you are taking a significant risk, which you can avoid by selling the right stocks. If you have a collection of stocks with no more than 5% in any one stock and no strong overweight in any one sector, the collection will behave relatively similarly to an index fund, so there is less benefit from selling.
Wiki David Grabiner
delamer
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Re: Which stocks to sell first?

Post by delamer »

nrkv wrote: Thu Jul 29, 2021 8:02 pm
lazynovice wrote: Wed Jul 28, 2021 6:08 pm I think you have several good ideas in your post. Dividends will count toward taxable income and can’t be controlled, so any that throw off dividends seem like a high priority. And I like your thought about getting rid of older ones that are very unlikely to go negative, leaving newer ones that could potentially become tax loss harvesting. Other than that, the small ones so you start streamlining as much as you can so you can get to as few as possible.
Thank you for both your responses. As I checked again, there are many older stocks with less than 100 in each. These may be the first to go to reduce noise.
That was my approach when I was in a similar situation.

I had a couple stocks in the same industry that had heavy weights in the portfolio. I sold off some shares of those next.

And I was able to do some tax loss harvesting in late 2018.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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