At What Point Should I Take the Tax Hit on Unrealized Gains?

Ready For Retirement

Benjamin, nearing retirement at 65, faces a familiar dilemma with his taxable account housing expensive mutual funds. Despite their underperformance, converting to low-cost index funds entails a significant tax hit due to long-held appreciable value.
James explains weighing the immediate tax consequences against the risk of holding onto underperforming assets. He also provides a framework for assessing risk, identifying options, and making decisions based on personal financial goals.
Questions Answered:
How can you decide whether to sell underperforming mutual funds or continue holding onto them?
What factors should you consider in determining whether converting to low-cost index funds aligns with your financial goals and risk tolerance?
Timestamps:
0:00 - Listener question from Benjamin
2:17 - Tail wagging dog?
3:52 - Benjamin’s situation
5:31 - WCS of selling vs not selling
11:17 - Be careful about tax drag
12:47 - Rethinking the break-even point
14:11 - Consider your goal for the money
17:17 - Identify the bigger risk
19:26 - Make your decision
20:26 - Will your tax situation change?
24:20 - Consider staggering sales
28:21 - Summary

Create Your Custom Strategy ⬇️

Get Started Here.

Chapters

1. Tax Strategies for Investments With Gains (00:00:00)

2. Tax Implications of Holding Poor Funds (00:06:52)

3. Making Informed Investment Decisions (00:14:11)

4. Selling Your Funds (00:23:13)