What to do with disproportionately high unrealized gains?

It all depends on your appetite for risk.

What is the alternative? Do you want to wait until they de-value enough to avoid the tax? Look at it as the cost of doing business. If you are satisfied with the post tax return, then sell them. Personally, I think its time to realize you hit a home run with them and sell them. Your real return doesn't happen until you sell them and pay the fees. Paper gains mean nothing. On the individual asset side of things, you have an asset that appreciated 4.5 times since you bought it, that's pretty good, don't be greedy. People hate Cramer, but he's right when he talks about hogs getting slaughtered. Ring the register.

If you want to ride with them, that's fine, just consider them the high risk part of your portfolio that could evaporate in no time.

This could all change if they were paying out solid divs though.

hank jr wrote:

Look at it as the cost of doing business. Your real return doesn't happen until you sell them and pay the fees. Paper gains mean nothing.

Right answer. Sell. Put some money aside for the taxes next year and diversify with a strong hedge for declining valuation.

Look at the tax consequences carefully before doing anything, as your effective rate may not be as simple or as low as 15%. It might be useful to talk to a CPA if you can find one who will charge a flat fee.

1) It may be that the capital gains rate is greater than 15% once you get above a certain total income level or certain percentage that capital gains are of your total income. Check the Qualified Dividends and Capital Gains Tax worksheet in the instructions to form 1040.

2) The alternate minimum tax may also prevent you from paying as little as 15% if your gains are large. That's a separate form, I think form 6251.

3) Make sure you look at the new tax law that will be in effect for income earned this year. I'm not sure if the IRS has forms out yet incorporating the provisions of the new law.

Separately, I've never thought the rule of keeping any one holding at 5% or less of your total assets is a great idea. That means you have investments in at least 20, and probably more, places. Seems like too many to follow closely, and the diversification benefit of going from, say, 10 holdings to 20 probably isn't nearly as great as that of going from, say, 2 to 10. That said, you are taking on more risk, especially if you have 20% or more in one stock. If you're continuing to invest, then over time the percentage your big four represent of your total should gradually go down.

I appreciate the comments, and am definitely leaning towards cashing in. The alternative would be to wait on selling until I need the funds. The 12 percent hit on the total value just feels like a lot. I keep asking myself if I really think that these stocks will under-perform the market, or other investment options, by that much by the time I'd need the funds.

95 percent of the funds are in one of four stocks. Two currently provide dividends (1.4% dividend yield and 0.7% dividend yield).

I am glad you asked this question in that i am in an almost identical situation. Years ago, buying up triple leveraged ETFs like small cap, and the FANG stocks (several of them). When they kept going up, i just bought more. Now i am at many mutiples of average cost basis.

I may take the advice here and sell some (not most) soon. It is hard to cut the ties with what has worked out so well.

Frankly, i couldn't see taking the tax hit and figured i would pass it along to the next generation. I still may. That's an option, too, by the way.

ANd i never followed the 5% rule. I'm glad i never heard of it.

At this point, i should retire and live off the 4% or 5% i could make with a dividend play, but I can't bring myself to do it.

As an alternative, you could buy puts or sell calls or both. Look into it.

First of all. congratulations!

1. Pay the tax man and be happy. As others have said, look into new tax laws/brackets.

2. If you are so inclined, gift shares to you favorite charities each year and take the deduction.

3. Hold and pass on to your heirs at the stepped up basis.

4. Do some or all of the above. FWIW, I do all of the above.

One thing you should consider is the NASDAQ composite peaked in March 2000 and did not get back to even until 2015. Furthermore, many of the stocks in that index never regained the highs of that period or even survived. So worring about 15% capital gains seems rather foolish in my view.

I can tell you, it sure as hell does not feel anything like just a 15% hit. And therein lies the problem.

As an example, i have a cash basis of $60K and current value of $400K in one stock. If i sell, i end up paying $51 K in taxes. And the thought of adding $51,000 to my existing taxes is more than i have been able to swallow.

Saying pay up the 15% sounds like a non-issue. Pay something akin to almost a whole year's take home pay becuase you did it is a different story, at least by how it is perceived.

1. Pay the tax man and be happy. As others have said, look into new tax laws/brackets.

2. If you are so inclined, gift shares to you favorite charities each year and take the deduction.

3. Hold and pass on to your heirs at the stepped up basis.

4. Do some or all of the above. FWIW, I do all of the above.

beat the street wrote:

I can tell you, it sure as hell does not feel anything like just a 15% hit. And therein lies the problem.

As an example, i have a cash basis of $60K and current value of $400K in one stock. If i sell, i end up paying $51 K in taxes. And the thought of adding $51,000 to my existing taxes is more than i have been able to swallow.

Saying pay up the 15% sounds like a non-issue. Pay something akin to almost a whole year's take home pay becuase you did it is a different story, at least by how it is perceived.

How would you feel when that $400,000 gain shrinks to $150,000 and stays there for years?

beat the street wrote:

I can tell you, it sure as hell does not feel anything like just a 15% hit. And therein lies the problem.

As an example, i have a cash basis of $60K and current value of $400K in one stock. If i sell, i end up paying $51 K in taxes. And the thought of adding $51,000 to my existing taxes is more than i have been able to swallow.

Saying pay up the 15% sounds like a non-issue. Pay something akin to almost a whole year's take home pay becuase you did it is a different story, at least by how it is perceived.

While I'm not dealing with quite as high of numbers, that's definitely a mental barrier I need to get over as well.

Thanks! These are the types of complication that have been making me nervous as well. I'm going to follow the advice on here and set up a meeting with a CPA/CFA, with the intent to divest in the most logical way.

Any advice on what information I should have ready, and in what format, for this meeting?

Cash on Paper wrote:

beat the street wrote:

I can tell you, it sure as hell does not feel anything like just a 15% hit. And therein lies the problem.

As an example, i have a cash basis of $60K and current value of $400K in one stock. If i sell, i end up paying $51 K in taxes. And the thought of adding $51,000 to my existing taxes is more than i have been able to swallow.

Saying pay up the 15% sounds like a non-issue. Pay something akin to almost a whole year's take home pay becuase you did it is a different story, at least by how it is perceived.

While I'm not dealing with quite as high of numbers, that's definitely a mental barrier I need to get over as well.

I hear ya. And that's just one of them. There's maybe three or four. But for the sake of getting a handle on this, i just spot checked, and most are not that high of a percentage gain, more like tripling from the cost basis on average. Still tough to fathom taking a tax hit like that, at least all at once.

One thing i do is at the end of the year, if i sold some stock(s) with significant capital gains, i sell enough losers to offset the tax hit. Fitbit comes to mind this past year.

If you are the type that doesn't mind doing your own research, it's not that hard to grasp. Personally, i find it fascinating and rather enjoy it. I do understand that other people might be strapped for time with work or family, or just would rather focus on other things. Really, just make sure you keep a tight handle on the fees, both the advisors and any front end or sale fees, etc.

Good luck