Re-balance instantly or wait a little while?

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jason
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Re-balance instantly or wait a little while?

Post by jason » Tue Dec 05, 2017 12:09 pm

My stock market holdings are getting very close to 35% (34.84%) to be exact. Do most people re-balance the second they see it hit 35%? Or should I at least wait to see if it closes at 35%? And maybe wait a few days to see if it stays there or if it was just a fluke? Forgive me if there is already a thread on this - I couldn't find it. If I have to re-balance, taxes will be hefty as this is a non-taxable account, so I find the whole thing fairly upsetting :-\. My stock holdings are up around 60% from where I started in mid-2013.
Thanks!
Jason
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ochotona
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Re: Re-balance instantly or wait a little while?

Post by ochotona » Tue Dec 05, 2017 12:57 pm

Jason, quickly make a gift of appreciated stock to you favorite charity before year end! The capital gains problem goes away
barrett
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Re: Re-balance instantly or wait a little while?

Post by barrett » Tue Dec 05, 2017 1:24 pm

jason wrote:If I have to re-balance, taxes will be hefty as this is a non-taxable account, so I find the whole thing fairly upsetting :-\.
Don't forget that we are close to the end of a calendar year. You could look at selling a portion now and another whack after the first of the year. That way you would split up the gains over two calendar years and not pay the 2nd round of taxes until early 2019.

BTW, you meant to write that it's a "taxable" account, right? In a non-taxable account taxes are not a concern.
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dualstow
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Re: Re-balance instantly or wait a little while?

Post by dualstow » Tue Dec 05, 2017 2:33 pm

, so I find the whole thing fairly upsetting :-\
I hope you're joking, Jason. Until taxes are 100% of capital gains, I would think rebalancing out of a winner instead of just into a loser is a good thing.
Of course the choice is yours. If it were me, the fear of losing all these stock gains would be gnawing at me more than the tax bite.
But then again, I've already cheated and sold a bit of stock here and there for psychological purposes. (My pp equities are currently up 101% but only constitute 25% of my pp).
Well, you've got what appears to be good advice in the posts above.

I was just reading a Wall St Journal article with this advice:
The broadly simple answer, many financial experts say, is that taking some money off the table could make sense for anyone who needs it soon. But, they add, it might be a really bad idea for those who have a long-term investment horizon and are mainly just worried about another market correction.
source: ‘What to Consider Before You Dash Into Cash’, Michael Pollack
Last edited by dualstow on Tue Dec 05, 2017 6:42 pm, edited 1 time in total.
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Tortoise
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Re: Re-balance instantly or wait a little while?

Post by Tortoise » Tue Dec 05, 2017 5:58 pm

If you want to stay within the 15/35 rebalance bands without generating a taxable event, maybe you could just buy more of the other assets so that your stock allocation falls below 35%? (Assuming you have enough cash sitting around that's ready to invest, of course.)
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jason
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Re: Re-balance instantly or wait a little while?

Post by jason » Tue Dec 05, 2017 8:04 pm

Oops, sorry, it's a taxable account. I didn't even think about the fact that it's especially not good to sell in December because if I wait 3 more weeks, I will have an entire year extra to pay the taxes. I'm really torn about this.
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ochotona
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Re: Re-balance instantly or wait a little while?

Post by ochotona » Tue Dec 05, 2017 10:36 pm

jason wrote:Oops, sorry, it's a taxable account. I didn't even think about the fact that it's especially not good to sell in December because if I wait 3 more weeks, I will have an entire year extra to pay the taxes. I'm really torn about this.
It is all long-term capital gains? What's your capital gains rate?
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Hal
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Re: Re-balance instantly or wait a little while?

Post by Hal » Wed Dec 06, 2017 1:15 am

You will never go broke taking a profit.

Remember what HB said about trying to time the market.
How would you feel if the market dropped between now and the end of the year? No one knows what is going to happen.
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jason
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Re: Re-balance instantly or wait a little while?

Post by jason » Wed Dec 06, 2017 2:17 pm

ochotona wrote:
jason wrote:Oops, sorry, it's a taxable account. I didn't even think about the fact that it's especially not good to sell in December because if I wait 3 more weeks, I will have an entire year extra to pay the taxes. I'm really torn about this.
It is all long-term capital gains? What's your capital gains rate?
Yes, it's all long term capital gains so I guess it would be taxed at 20%. I know I will likely need to rebalance soon but I was wondering if most people rebalance at the exact moment they hit 35% or 15%, or do people wait to see if it stays outside the bands for at least a day or two?
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buddtholomew
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Re: Re-balance instantly or wait a little while?

Post by buddtholomew » Wed Dec 06, 2017 4:19 pm

jason wrote:
ochotona wrote:
jason wrote:Oops, sorry, it's a taxable account. I didn't even think about the fact that it's especially not good to sell in December because if I wait 3 more weeks, I will have an entire year extra to pay the taxes. I'm really torn about this.
It is all long-term capital gains? What's your capital gains rate?
Yes, it's all long term capital gains so I guess it would be taxed at 20%. I know I will likely need to rebalance soon but I was wondering if most people rebalance at the exact moment they hit 35% or 15%, or do people wait to see if it stays outside the bands for at least a day or two?
“A day or too.”
That can’t possibly make a difference in your decision to rebalance into a lagging asset.
I personally contribute to cash so buy the lagging asset when others outperform to stay within 15/35 bands.
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ochotona
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Re: Re-balance instantly or wait a little while?

Post by ochotona » Wed Dec 06, 2017 7:23 pm

Jason,

Are you making $470,701 and over for married-filing-jointly? Is that why your long-term cap gains tax rate is 20%? If so, just be thankful that you have such a problem, rebalance your portfolio and pay the damn tax.

For people making below that, there is no 20% capital gains tax rate. Look at the table here.

https://www.nerdwallet.com/blog/taxes/c ... tax-rates/

If you make $75,900 or less married filing jointly, your long-term capital gains tax is ZERO. Above that, it's 15%, until you get to the no-sympathy range of $470,701 and over.
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Re: Re-balance instantly or wait a little while?

Post by rocketdog » Thu Dec 07, 2017 12:22 pm

Another option: Sell an equal amount of whatever has gone down (I'm guessing gold?) to offset the gain in stocks. The loss on gold will offset the gain on stocks. Then, wait 31 days (to avoid the wash sale rule) and repurchase gold (or whatever you need to get back in balance). Consult a tax preparer if you're not sure how to do all this.

Of course, if you repurchase gold at its new lower level, then your cost basis will be lower and therefore if and when it goes back up again you will owe taxes on those gains when you sell/rebalance (unless you can find a way to offset them again against a loss in something else).

For more details on this strategy, search for "tax loss harvesting".
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