Gains?! Yes, even though we find ourselves in a market that was at one point down 33.92% (from the high on February 19 through the low on March 23), some investors are still carrying large gains in those legacy positions you have had for years. As of April 16, the market is down approximately 17.05% from the high on February 19, which still leaves us with an opportunity to sell some stocks at a lower gain than they once were.
Show of hands: How many of you have had discussions with your financial adviser or CPA over the years about the need to sell some positions at a gain, maybe to invest in newly recommended holdings, or to simply rebalance your account to be in line with the strategy you are following?
When we speak with clients about taking gains, we are often met with some resistance. Some clients have restrictions on their accounts to some degree, either an outright “Do Not Sell” directive or maybe a restriction on how much in gains they are willing to take each year. No one wants to pay more in taxes than they have to; we do understand that. Paying taxes is a necessary evil sometimes, and making money on investments is one of those times.
What an odd discussion to have when you really think about it. This notion of not wanting to sell stocks because of large gains. What’s the alternative? To have the market fall so that the gains are less severe or to have no gain at all, I guess. Well, that is where we find ourselves today—in a lower market. One that will eventually recover and likely surpass the previous highs, as has occurred throughout the market’s history. The market may go lower from here, or maybe it is off to the races again. Unfortunately, no one knows for sure, so we should try to take advantage of what we know in the present.
This year offers a unique opportunity to take some gains while keeping your taxable income near normal levels. Several investors have substantial required minimum distributions (RMDs) from their retirement accounts each year. As you have heard from us and probably others, this year, you are not required to take an RMD. This means your taxable income could be substantially less than in previous years. While we would all love to enjoy a tax break and a reduction in taxes now, maybe in the long term it would be better if you were to take advantage of this situation and clear out of some of those large gains.
This is not necessarily the time to sell for liquidity purposes, but why not consider selling some positions that are no longer recommended or that need trimming and reallocating the proceeds into other recommended positions? Taking some gains, even if only as much to basically break-even for the year, assuming you had to take an RMD, may be wise.
At a minimum, it is worth a discussion with your Adviser and your tax preparer. If you have questions specific to your situation, contact the Experts at Henssler Financial:
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