“I have about $100k in a fund bought in the ‘90s at $20 – $30 per share. For the past several years it’s been hovering around $80 to $100 per share and going nowhere. I’m in my 70s and don’t need it.
- Should I sit tight?
- Should I get out?
- I’d like some growth.
- Capital gains issues?”
Very interesting question – lots of options – actually more than you’ve listed. Seems pretty straightforward, perhaps simple even. Not so much. Buckle in for the ride.
Let’s say your cost basis for this block of fund shares is $25,000. Your capital gain is then $75,000. And your capital gains tax will likely (check with your tax professional) be north of $15,000. That’s a lot of money to give to the IRS.
If you sit tight the shares may go up, down, or stay the same. If they stay the same your heirs will receive them from your estate. They will receive a stepped-up basis. They could then sell those same shares and have no capital gains and owe no capital gains tax. That could be good.
You say you don’t need it. If that is true, consider two options. One is to gift shares to a charity you support. Your church, Folds of Honor, Children’s Home of Easton, the Center for Animal Health and Welfare are all excellent options. The charity can sell the shares and pay no taxes. You may receive a charitable deduction (check with your tax professional – do you see the pattern here?). If you do, you might save as much as $40,000. Wow.
A second option is to gift shares of the fund to someone you care about (perhaps already support – parents, child, etc.) who is in a low enough tax bracket that their capital gains tax rate is zero. Properly planned and executed (yeah, yeah, tax professional) the entire $100,000 could be realized with no income taxes due at all. Wow.
If you don’t need the money now, but might need the funds in the future – another option to consider is reverse dollar cost averaging. With this technique you move out of an investment over a period of time. In your case I would look at spreading the sale of the shares over a number of years – three or four perhaps. This will both spread out (perhaps eliminate) your tax bill and average out the sale price of the shares over time.
You may find that limiting your liquidation to $25,000 per year will keep your capital gains tax to a minimum – perhaps zero (tax pro). You would then shift the proceeds into investment assets that could offer you the growth you seek. Of course, there is literally a universe of investment options you should consider (seek the advice of a trusted financial advisor).
You need to explore all these options (pros and cons) in order to select the one (or combination) that best fits you. Most financial advisors (sadly) are not in a position to give tax advice. Most tax professionals (understandably) are not in a position to give investment advice. In rare cases (More than Money and our MtM advisors are one) you will find one firm that can provide you both.
“I am turning 62 next month and am tossing around the idea whether to take Social Security. I retired in 2021 and help my wife out with her business when needed. We are fine living off of her salary. We do not have a mortgage or loan of any kind. I do not need to tap into my 401K since my wife’s salary is covering our expenses.
So, my question is, should I take Social Security now and invest that money into conservative funds to benefit us? Or is it beneficial just to hold off and let my Social Security benefits increase each year? My concern is if Social Security is going to be around in the future and should I reap the benefits now.
Thank you for listening to my concerns and would love to hear your thoughts on this matter.”
When to take Social Security benefits is one of the most challenging questions for all of our clients.
Fortunately, in our More than Money World Headquarters we have a Social security resource with many years’ experience – Mark Bacak. Mark’s knowledge of both Social Security and Medicare is vast. He has helped hundreds of folks in our More than Money family.
When Mark is asked when a person should take their Social Security benefit, his answer is quite consistently, “when you need it.” Since you’ve indicated you don’t need it – hold off until you do. If you don’t need it prior to reaching age 70 – take it then as your benefits max out at age 70.
This is not to minimize your two concerns. First: Would you be “better off’ taking it and investing it conservatively? Between your current age and your FRA (full retirement age) your benefits will grow 6% per year. From your FRA to age 70 they will grow at 8% per year. If you expect you can find conservative investments earning you between 6 and 8% then maybe . . . but I don’t expect that will be easy.
Your second concern – will Social Security be there for you – is one many people share. Recently members of Congress from both parties restated their commitment to keeping Social Security alive and well. Admittedly, having a member of Congress tell you they’re keeping your benefits safe is a bit like having Bernie Madoff tell you your investments are safe and sound. I am reasonably confident Social Security will be intact for your lifetime. I have much less confidence that it will be there for your children. As for your grandchildren . . .
We all make our Social Security benefit choices based on our best instincts and probabilities. We won’t know if we’ve made the best choice until our last day on earth. And on that day, it won’t matter one bit.
“I don’t want my money invested in ESG. My investments are in mutual funds where the fund manager makes all the calls. How can I find out who the fund managers are to communicate my wish for no ESG investments?”
Do your friends and family know you are a bad, bad, person?
I hope not – because you’re not!
ESG (Environmental, Social, Governance) is short-hand for policies that many companies have adopted (been forced to adopt?) that require them to make their corporate decisions with an eye on the impact their company is having on the environment (think climate change), society (think woke), and governance (think diversity).
There are many who applaud the efforts of companies to foster positive change in these areas. There are many (you apparently) who remind us that corporate executives have a fiduciary responsibility to their shareholders – not these other groups who lay claim to being “stakeholders.”
You will have no influence on mutual fund managers. Save your time and efforts.
There is a tool, direct indexing, that allows you to create your own stock index by selecting stocks you believe avoid the ESG label. It requires a bit of effort and decision making, but is an option to consider.
Work with a trusted advisor who has access to this quite new tool.
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