Another investing question: if I already have some stocks that were given to me as a gift, am I better off selling them and putting the funds in an index, or just holding them?
Additional info: I already have a well funded index fund and a retirement account, the stock value would be around 10% of their (combined) value. I’ve owned the stocks for 10+ years.
As Lumifer said, if you sell stocks (and they’re up) you pay taxes on the capital gains—the difference between the price of the stock when you bought it and the price now. If the price now is lower, you get a tax credit for the losses, up to a certain point. Capital gains taxes tend to be lower than regular taxes (in America, at least). Selling shares of an index fund works the same way, where you pay taxes only on the gains, so selling stock to buy what is essentially more stock is pretty much a wash—you don’t pay more taxes overall, you just pay them now instead of later. I’m not sure whether being a gift affects the taxes, or what your basis is for capital gains. Investopedia might know, or ask an accountant.
Pretty much the choice of whether to sell the stock and buy more shares of the index fund is like any other choice in investment: which will make you more money? To simplify the math, imagine you sold all the shares now and paid taxes, so you had $X and could invest that in stocks or an index fund. Keep in mind the status quo bias—it is unlikely you would invest in this specific stock if you had $X to invest, and you should only keep the stock if that were the case (tax issues exempted—you’ll have to do the math yourself).
This is basically a tax issue. Selling the stocks would be a tax event so you need to calculate whether paying taxes now (instead of later) will be worth it.
Another investing question: if I already have some stocks that were given to me as a gift, am I better off selling them and putting the funds in an index, or just holding them?
Additional info: I already have a well funded index fund and a retirement account, the stock value would be around 10% of their (combined) value. I’ve owned the stocks for 10+ years.
As Lumifer said, if you sell stocks (and they’re up) you pay taxes on the capital gains—the difference between the price of the stock when you bought it and the price now. If the price now is lower, you get a tax credit for the losses, up to a certain point. Capital gains taxes tend to be lower than regular taxes (in America, at least). Selling shares of an index fund works the same way, where you pay taxes only on the gains, so selling stock to buy what is essentially more stock is pretty much a wash—you don’t pay more taxes overall, you just pay them now instead of later. I’m not sure whether being a gift affects the taxes, or what your basis is for capital gains. Investopedia might know, or ask an accountant.
Pretty much the choice of whether to sell the stock and buy more shares of the index fund is like any other choice in investment: which will make you more money? To simplify the math, imagine you sold all the shares now and paid taxes, so you had $X and could invest that in stocks or an index fund. Keep in mind the status quo bias—it is unlikely you would invest in this specific stock if you had $X to invest, and you should only keep the stock if that were the case (tax issues exempted—you’ll have to do the math yourself).
This is basically a tax issue. Selling the stocks would be a tax event so you need to calculate whether paying taxes now (instead of later) will be worth it.