Luckywon wrote: ↑Mon Jun 27, 2022 8:10 pm
MathWizard wrote: ↑Mon Jun 27, 2022 7:54 pm
One thing in favor of a single stock is that while they may get taxed on dividends, they are
not taxed on capital appreciation until they sell.
In this way, they get the same benefit as a tax deferred account, but unlike a tax deferred account
1. they can sell at any time without penalty,
2. they will only pay long term capital gains, 20%, not at individual rates,
3. the account can be a shared account,
4. there are no RMDs, and
5. If it passes to an heir, there is a step-up in basis, so no taxes may need to be paid at all.
This is true of anything they purchase in a taxable account, and doesn't particularly favor a single stock. In fact, purchasing a few stocks instead of a single stock would likely afford more opportunities for capital gains/tax management.
Yes, I used the wrong word. I should have said "individual" not "single" stocks, and should have specified vs a mutual fund (or ETF).
With either individual stocks or a mutual fund, you will be paying taxes on dividends whether you sell or not.
However,
with individual stocks you will not be taxed on capital gains until you sell, but
with a mutual fund, trading by the manager of a fund means that there are sales of stocks, and the capital gains get distributed proportionately to the funds customers. Similarly for an ETF.
The problem I have with individual stocks is that I cannot predict what will happen with individual stocks.
Some people (think that they) can.
However, these are educated adults with 6 figure jobs and pensions, who are filling up their tax advantaged space plus putting money ion a taxable account. They may not have an optimal plan, but they cannot help but be OK.
It was somewhat unclear, but it sounded like just the taxable account was 50% S&P index and 50% one individual stock (Apple).
It was not specified what percentage of their total investment portfolio was in taxable. However, assuming under 50, they would be contributing
$41K to two 403b s and another $12K to two IRAs. That's $53K per year. It's hard to image that they will not be able to retire
with the pension, SS benefits, and just the403bs and IRAs and the 50% S&P in taxable even if Apple goes to zero. (And they can Tax Loss Harvest
if Apple does go to zero.) That's is why I say that they savings habits alone gets them a pass on investing a portion in a single stock.
I'd guess that with $53K savings, there is not much left to put into taxable. Perhaps
the 50% of taxable is their "play" money, and less than 5% of their portfolio.
Apple is not a bad.
They could be putting their money in speculative investments that can no longer be mentioned on this site.