Harvesting LTCG(s) in 2021

[manaboutown]

Anyone else electing to take one or more sizable LTCGs before year end?

I am taking a huge (to me) one as I fear taxes will be significantly higher in 2022. Other factors are pushing this action, not just taxes.

The problem is of course where to reinvest now that we are experiencing a high rate of inflation. Inflation surge pushes gold to five-month high | Fox Business (https://www.foxbusiness.com/markets/inflation-surge-pushes-gold-five-month-high?cmpid=fb_fbn&fbclid=IwAR3iDcHTvYNsCRTjWrze2hBlcE1FRCcuGNI8o-zsblvevlH0B_qULd9HIrQ)

[retiredguy123]

Good luck. I have been moving money from my Vanguard money market fund, which earns nothing, into my Vanguard high yield corporate bond fund, which is earning 3.12 percent. I have not cashed in any capital gains because of the promise that no one making $200,000 (individual) or $400,000 (joint) will experience a tax increase.

[manaboutown]

Good luck. I have been moving money from my Vanguard money market fund, which earns nothing, into my Vanguard high yield corporate bond fund, which is earning 3.12 percent. I have not cashed in any capital gains because of the promise that no one making $200,000 (individual) or $400,000 (joint) will experience a tax increase.

Thanks. I am having the money at closing wired to my Vanguard account and go from there. I am afraid of getting into bonds as they pay paltry interest now and interest rates are sure to rise.

[Boomer]

I realize I am not exactly answering the OP's question about where to put captured long term cap gains, but it made me wonder about something else.

(btw, OP, the tax brackets for 2022 are up on the aarp.org site along with a comparison to 2021.)

For what it's worth -- I don't see a big need to be paranoid about higher cap gain taxes -- any time soon. When the gold-hawkers show up in ads, it always looks to me like they are opportunists trying to create and then tap into fear and a sense of urgency -- for their own gain.

If your gains are inside IRAs, I am sure you know that taking a bigger than needed RMD could bring on IRMAA. If you are charitably inclined, you could look into using QCDs to lower your AGI, and maybe head off IRMAA at the pass. (I am pretty sure that if you go even a buck into IRMAA territory, you are had.)

If those cap gains are residing in regular accounts, not tax-deferred, and you decide to capture them, there will be no QCD opportunity to rescue you from IRMAA. And IRMAA waits two years to get you -- just when you might have forgotten all about it.

But if you are all set to take a tax hit anyway -- there could be another angle on where to take gains -- but only if they are inside IRAs right now.

If you like what you own inside IRAs -- especially if you have owned the investments forever and the gains are big enough to stand a bit of a hit and still look good, and, most especially, if there are stocks that have been paying and increasing dividends for decades -- well then.....breaking up could be hard to do......

So......would a conversion to Roth (after RMDs or QCDs) possibly be the way to go? If the conversion could be done in-kind, you could still keep your favorites -- even though you would have had to pay taxes on their current value. But then they could be tucked away inside a Roth, never to be taxed again.

Warning to any readers out there: I am not a CPA or a financial advisor of any kind, so please do not take tax advice from me because I don't actually know what I am talking about. But I might give you some ideas about things to think about or check on.

Boomer

PS: If I am wrong about IRA conversion to Roth being a possibility, albeit a taxable one, after RMDs are covered, somebody please tell me. Maybe things have changed on that and I missed it. Also, am I right about in-kind conversions to Roth? (Hey, retiredguy123 -- I'm talkin' to you. :) Am I right about what I am saying about conversion to Roth still being a possibility after RMDs are covered?)

[retiredguy123]

I realize I am not exactly answering the OP's question about where to put captured long term cap gains, but it made me wonder about something else.

(btw, OP, the tax brackets for 2022 are up on the aarp.org site along with a comparison to 2021.)

For what it's worth -- I don't see a big need to be paranoid about higher cap gain taxes -- any time soon. When the gold-hawkers show up in ads, it always looks to me like they are opportunists trying to create and then tap into fear and a sense of urgency -- for their own gain.

If your gains are inside IRAs, I am sure you know that taking a bigger than needed RMD could bring on IRMAA. If you are charitably inclined, you could look into using QCDs to lower your AGI, and maybe head off IRMAA at the pass. (I am pretty sure that if you go even a buck into IRMAA territory, you are had.)

If those cap gains are residing in regular accounts, not tax-deferred, and you decide to capture them, there will be no QCD opportunity to rescue you from IRMAA. And IRMAA waits two years to get you -- just when you might have forgotten all about it.

But if you are all set to take a tax hit anyway -- there could be another angle on where to take gains -- but only if they are inside IRAs right now.

If you like what you own inside IRAs -- especially if you have owned the investments forever and the gains are big enough to stand a bit of a hit and still look good, and, most especially, if there are stocks that have been paying and increasing dividends for decades -- well then.....breaking up could be hard to do......

So......would a conversion to Roth (after RMDs or QCDs) possibly be the way to go? If the conversion could be done in-kind, you could still keep your favorites -- even though you would have had to pay taxes on their current value. But then they could be tucked away inside a Roth, never to be taxed again.

Warning to any readers out there: I am not a CPA or a financial advisor of any kind, so please do not take tax advice from me because I don't actually know what I am talking about. But I might give you some ideas about things to think about or check on.

Boomer

PS: If I am wrong about IRA conversion to Roth being a possibility, albeit a taxable one, after RMDs are covered, somebody please tell me. Maybe things have changed on that and I missed it. Also, am I right about in-kind conversions to Roth? (Hey, retiredguy123 -- I'm talkin' to you. :) Am I right about what I am saying about conversion to Roth still being a possibility after RMDs are covered?)
It sounds like the OP is selling assets from non-IRA accounts and paying the long term capital gains taxes. Any gains made within an IRA would be taxed as ordinary income, not as capital gains. You can never take advantage of the capital gains rates from an IRA. If you withdraw money from an IRA, in excess or your RMD, you can convert that money to a Roth, but you will need to pay taxes on the converted funds at your ordinary income tax rate. I have assets within a traditional IRA but I have not seen the need to convert any of those assets to a Roth. However, I have a friend who is systematically converting all of his traditional IRA assets to a Roth, so that his children can inherit the Roth with no tax liabilities or the legal hassles of dealing with an inherited traditional IRA. In some cases, that can make sense, especially if your tax rate is lower than your heirs.

[manaboutown]

It is a large commercial property owned by an LLC (taxed as a partnership) of which I am a member. It would be impossible to "drop and swap" my share. "Drop and Swap” is a term used to describe the process of dropping out of a partnership or membership interest of a limited liability company (LLC) into an ownership interest in investment real estate and then exchange or swap for new investment real estate. We are mostly in the 80ish year old range and the guy who manages it wants to totally retire. We have had two members die and another gift his share to his adult children. I will be hit by the Obamacare tax, too. Nothing to do but pay tax on the sale as I can't 1031 my share. On the good side the price is unbelievably high due to the current bubble on this type of property.

My conundrum is where do I invest the proceeds given current economic conditions which seem quite bubbly to me?

[Stu from NYC]

I would take a look at conservative mutual funds such as a Value fund or a dividend yield fund that invests in companies with increasing cash flows that allow it to raise the dividends every year.

[CFP James]

After 36 years of Mutual Fund experience, I would recommend a SMA (Separately Managed Account) with a manager that only purchases Dividend paying companies.

If Manaboutown has over $300,000 to invest, the SMA is less expensive and a better alternative to a Mutual Fund.

I wish lower minimums were available for SMA's so more investors could experience the benefits of personally owning shares in each of the stocks chosen by the manager of the SMA.

[manaboutown]

After 36 years of Mutual Fund experience, I would recommend a SMA (Separately Managed Account) with a manager that only purchases Dividend paying companies.

If Manaboutown has over $300,000 to invest, the SMA is less expensive and a better alternative to a Mutual Fund.

I wish lower minimums were available for SMA's so more investors could experience the benefits of personally owning shares in each of the stocks chosen by the manager of the SMA.

Thank you for this. It seems to me a SMA is similar to an old fashioned account with a stockbroker who manages it for an investor for a fee. Is it that or something else? It appears that with SMAs one can have several portfolios, each managed by a different manager, though.

ruhttps://www.investopedia.com/articles/mutualfund/08/managed-separate-account.asp

I have been managing my own stock and bond portfolio since I bought my first stock at age 17. It has been more like a hobby as most of my assets have been in commercial real estate. Yet I will reach 80 early next year and have grown weary of the headaches active real estate management involves. In fact next year I plan on selling another multimember LLC owned property. That will leave me with only a handful of properties I own entirely (without others) which should hopefully mean fewer headaches.

Being a fan of Consuelo Mack and Bill Miller I may go with some of his ideas (not the Bitcoin). GREAT VALUE INVESTOR BILL MILLER DISCUSSES HIS CORE HOLDING WINNERS AND RECENT PROMISING ADDITIONS : WealthTrack (https://wealthtrack.com/great-value-investor-bill-miller-discusses-his-core-holding-winners-and-recent-promising-additions/#more-23776)

[Stu from NYC]

After 36 years of Mutual Fund experience, I would recommend a SMA (Separately Managed Account) with a manager that only purchases Dividend paying companies.

If Manaboutown has over $300,000 to invest, the SMA is less expensive and a better alternative to a Mutual Fund.

I wish lower minimums were available for SMA's so more investors could experience the benefits of personally owning shares in each of the stocks chosen by the manager of the SMA.

I like a mutual fund as it spreads out the risk by investing in a basket of stocks.

[CoachKandSportsguy]

Where to invest a large amount of cash now is the question:

My thought process: Selling assets now appears not to be a requirement to maintain your current lifestyle, so I am going to assume that your goal is to purchase assets which are income producing without having to sell them for your current living expenses.

Second, I am going to assume that you will want to use any income but pass the assets on to your offspring/descendants, family members, etc. Putting the assets into a trust, if you don't have one, would help with any probate or distribution delays. Federal inheritance taxes kick in at nearly $12M in CY2022, and not sure how big your total estate is, but I am going to assume for now that you are below that.

Third, to avoid probate and any lawsuits, etc, make the trust very clear about the disposition of the assets. A friend of mine, who is a lawyer, took his father's estate, who had dementia, which was partly some dissolved LLCs, to the NY supreme court about dissolution valuations, and lost. So, selling now for cash is always best and having a clear trust directions for distribution is key. That is the legal piece which is not my expertise, but should be reviewed if not already in place.

Finally, where to put the money for income. From reading your posts, you manage your investments yourself. No better way as noone else can take advantage of you, and you take full responsibility for any mistakes. :ho:

In the equity markets, you cannot avoid systemic risk, (example is the banking crises or the congress voting not to increase the debt limit) without market timing, and I assume you are not into market timing. So, i would have you think about the three main income producing sectors of the equity market for tax free dividends, because you don't appear to need the future assets:

* real estate investment trusts, which pass through income, ETFs
* high yield dividend stock ETFs, which are value stocks, with dividend growth, which are tax free
* Utilities, which also throw off dividends and are the power backbone of the country
we are SOL without them. . .

Thought process: most to all of these investments are becoming more valuable as time marches on, as each are stable, and have long term scarcity or demand growth valuations

Real estate, as you have been invested, you know well
Equity high dividend stocks are low qrowth, stable value stocks, not alot of
appreciation but stable earnings with dividend distributions and dividend increases
Utilities generate electricity and that demand is only going to get larger with the clean
energy movement


* Real estate ETF in vanguard (VNQ), yield 2.91%
* Vanguard Whitehall Funds - Vanguard International High Dividend Yield ETF (VYMI) - 3.0 to 4.0% annual estimate
* SPDR Series Trust - SPDR Portfolio S&P 500 High Dividend ETF (SPYD) - 3.8 to 4.8% annual distribution yield. invested in about 70-80 companies for diversification.
* Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) - 3.71% current distribution yield
* Vanguard Utilities Index Fund Admiral Shares (VUIAX) - 2.8% current dividend yield.


I would consider:
10% VYMI just for diversification and with the dollar high, you are buying from the better FX position. USD down, foreign investments UP. .
The rest i would split evenly to any preferences, remembering that there is overlap as the SPYD or SPYHD has utilities and reits in them and is more diversified.

The dividends are tax free, except maybe the international, but there are ways around that. Targeting 3-5% dividend rates are the sweet spot for income earned. higher is suspect, like GE taking on LTD to maintain dividends. . (stupid mgmt decision from several points of views, a tangent i don't want to go down)

In closing i have made assumptions with my intuition from your posts. Those implicit assumptions can be wrong, which would make this post completely irrelevant and worthless. Otherwise, for the most part, this is my optimal strategy, which I am using along with some market timing, which I need to pay more attention to. .

good luck, and when we move down permanently, would love to share a dinner to discuss investments. . .

finance guy

[manaboutown]

Thank you Coach for your comprehensive sharing of ideas. I had small positions in a couple different utilities stocks way in the past but currently have none except through my Vanguard S&P 500 shares. You are so right about electric utilities as more and more electric vehicles are being sold and driven. I might even see if I can invest in the electric vehicle service stations being built as fast as they can get them up.

Of course there is no way I can get a single penny of this money into my Roth IRA which is loaded with high dividend stocks. 60% of my taxable accounts are in BRK which I bought in the mid 1980s. Thank you Warren Buffet! It of course has paid no dividends which is fine and dandy with me.

BTW I do own some REITs. Wish I had bought more. I bought them in 2009 after they dropped like bombs but was afraid to put much into them. They of course skyrocketed to where they are now and I unfortunately sold some on their way up. Hindsight! REITs look pricey to me now especially as we assuredly face rising interest rates. Too, REITs currently are driving the sky high commercial real estate market into which I am selling. They are paying cap rates of 3.5 to 5 on properties which would have sold at cap rates of 7 to 11 three or four years ago. IMHO it is just crazy!

As an aside I am going to finish loading up my grandchildren's 529 plans, too.

Thank you for the dinner invite Coach! I would like to meet you and kick around investment ideas.

[CoachKandSportsguy]

I might even see if I can invest in the electric vehicle service stations being built as fast as they can get them up.


Now that is a great idea, and if you come across anything worthwhile, let me know as that is definitely a specialty need which is coming, and worth getting in on the ground floor. Mostly battery replacements, but other high tech repairs is needed.

Happy Holidays!

sportsguy or finance guy

[CFP James]

I hope to answer your concerns with a few comments.
STU from NYC: Your comment does describe a SMA. It is a diversified portfolio of stocks that spread the risk. Just like a mutual fund.

manaboutown: SMA's have Chartered Financial Analysts managing the portfolio. This can not be compared to a local stock broker (with no CFA designation).

Here is a short personal explanation of why I am more comfortable with an SMA.
My manager is a CFA (Charted Financial Analyst) with 39 years experience of managing both mutual funds and SMA's.
My portfolio of 53 individual stocks that all pay dividends are actually owned by me and listed with the shares I own in each stock on the Charles Schwab Website.

My manager has full discretions over buying and selling. I rely on the manager's expertise just like a mutual fund manager.

However unlike a mutual fund my manager will never "over diversify" my stock portfolio or take gains or losses that are forced due to cash flows of the mutual fund. Let me explain that I have spoken over lunch with successful mutual fund managers that admit they are buying 25 or more stocks they DO NOT WANT TO OWN. Why?
Because they are attracting so much new money into the mutual fund and they have to invest the new money. Regulations state they can own over a certain % of any one stock. (they can not buy more of their best stocks)

A SMA manager can attract new money but it is never comingled with my shares and the manager never has too over diversify my account.

My closing thought is I have had several mutual fund managers with billions under management admit to the group at lunch they dream of only managing SMA accounts.

Can I get invited to lunch with some of you guys?
Merry Christmas

[Stu from NYC]

I hope to answer your concerns with a few comments.
STU from NYC: Your comment does describe a SMA. It is a diversified portfolio of stocks that spread the risk. Just like a mutual fund.

manaboutown: SMA's have Chartered Financial Analysts managing the portfolio. This can not be compared to a local stock broker (with no CFA designation).

Here is a short personal explanation of why I am more comfortable with an SMA.
My manager is a CFA (Charted Financial Analyst) with 39 years experience of managing both mutual funds and SMA's.
My portfolio of 53 individual stocks that all pay dividends are actually owned by me and listed with the shares I own in each stock on the Charles Schwab Website.

My manager has full discretions over buying and selling. I rely on the manager's expertise just like a mutual fund manager.

However unlike a mutual fund my manager will never "over diversify" my stock portfolio or take gains or losses that are forced due to cash flows of the mutual fund. Let me explain that I have spoken over lunch with successful mutual fund managers that admit they are buying 25 or more stocks they DO NOT WANT TO OWN. Why?
Because they are attracting so much new money into the mutual fund and they have to invest the new money. Regulations state they can own over a certain % of any one stock. (they can not buy more of their best stocks)

A SMA manager can attract new money but it is never comingled with my shares and the manager never has too over diversify my account.

My closing thought is I have had several mutual fund managers with billions under management admit to the group at lunch they dream of only managing SMA accounts.

Can I get invited to lunch with some of you guys?
Merry Christmas

Would be a very interesting lunch.

[manaboutown]

I hope to answer your concerns with a few comments.
STU from NYC: Your comment does describe a SMA. It is a diversified portfolio of stocks that spread the risk. Just like a mutual fund.

manaboutown: SMA's have Chartered Financial Analysts managing the portfolio. This can not be compared to a local stock broker (with no CFA designation).

Here is a short personal explanation of why I am more comfortable with an SMA.
My manager is a CFA (Charted Financial Analyst) with 39 years experience of managing both mutual funds and SMA's.
My portfolio of 53 individual stocks that all pay dividends are actually owned by me and listed with the shares I own in each stock on the Charles Schwab Website.

My manager has full discretions over buying and selling. I rely on the manager's expertise just like a mutual fund manager.

However unlike a mutual fund my manager will never "over diversify" my stock portfolio or take gains or losses that are forced due to cash flows of the mutual fund. Let me explain that I have spoken over lunch with successful mutual fund managers that admit they are buying 25 or more stocks they DO NOT WANT TO OWN. Why?
Because they are attracting so much new money into the mutual fund and they have to invest the new money. Regulations state they can own over a certain % of any one stock. (they can not buy more of their best stocks)

A SMA manager can attract new money but it is never comingled with my shares and the manager never has too over diversify my account.

My closing thought is I have had several mutual fund managers with billions under management admit to the group at lunch they dream of only managing SMA accounts.

Can I get invited to lunch with some of you guys?
Merry Christmas

These are all good points derived from your professional experience. Thank you for providing them as I did not know any of this.

Getting together for a lunch would be enjoyable, so sure!

Merry Christmas to you, James!

[manaboutown]

Now that is a great idea, and if you come across anything worthwhile, let me know as that is definitely a specialty need which is coming, and worth getting in on the ground floor. Mostly battery replacements, but other high tech repairs is needed.

Happy Holidays!

sportsguy or finance guy

Will do. I have heard battery replacements in Teslas are quite expensive. Maybe that is another area to investigate for investment opportunities.

Happy Holidays Coach!

[sail33or]

The Stock Market has changed. Large investments are index fund types that buy all stocks. So when a computer gets a sell indication (ALL STOCKS ARE BEING SOLD.) Everything goes down. Everything. And it is sold before you can sell.

Exxon will always pay a dividend(now 6%) (and first $72,000 of dividends are tax free) as long as oil is over $40.00 a Barrel. Can you ever see oil below this as the government squeezes the very substance everything is made from.

[Stu from NYC]

The Stock Market has changed. Large investments are index fund types that buy all stocks. So when a computer gets a sell indication (ALL STOCKS ARE BEING SOLD.) Everything goes down. Everything. And it is sold before you can sell.

Exxon will always pay a dividend(now 6%) (and first $72,000 of dividends are tax free) as long as oil is over $40.00 a Barrel. Can you ever see oil below this as the government squeezes the very substance everything is made from.

I find it incredible and sad that the depletion allowance for oil still exists. If it goes away what happens to the oil companies? Nothing good.

A few fairly random thoughts

Everything made from oil is becoming more fuel efficient. My 2011 Camry got about 32mpg. My new one close to 40.

Until the range of electric cars gets to over 400 miles think the demand will be limited.

As a result not sure people will be willing to pay the price and suffer the inconvenience of electric cars. Not to mention where will the rare earth metals needed for them come from?

Can see a scenario where price of oil does drop just no idea how far.

May not do as well as some "funds discussed here" but my basket of mutual funds has done quite well for us over the years.

The funds favored by Kiplingers are a good starting point for investing.

[CFP James]

Where to invest a large amount of cash now is the question:

Equity high dividend stocks are low qrowth, stable value stocks, not alot of
appreciation but stable earnings with dividend distributions and dividend increases
Utilities generate electricity and that demand is only going to get larger with the clean
energy movement
finance guy

October 26th, 2021 Article from Jonathan Wolfgram: The 6 Greatest Dividend Investors
Bill Ackman:
Bill Ackman, an activist investor mentored by Warren Buffett, is the billionaire fund-manager of Pershing Square Holdings. His fund has outperformed the S&P 500 as well as his mentor’s Berkshire Hathaway (NYSE:BRK_B) in the last three years. More notably, over half (roughly 60%) of its portfolio holdings are invested in dividend stocks.
Outside of dividend investments, Ackman is famous for his successful takeovers of Canadian Pacific, Fortune Brands and Allergan. These victories as an activist investor gave him billions of dollars in profits, allowing for more aggressive reinvestment in stable, dividend-paying equities.

I am still hoping for a Lunch invitation with you guys.
Merry Christmas

[valuemkt]

No.. I am not selling to avoid perhaps higher taxes in the future. If you have CORE holdings in taxable accounts that have gains, I see no reason to "anticipate" what our lawmakers are fumbling with .. Not to mention that, from an investment perspective, it makes no sense. My adage is never pay taxes today on what you can defer until tomorrow or the next day. If you don't sell, you dont pay taxes.

[CoachKandSportsguy]

No.. I am not selling to avoid perhaps higher taxes in the future. If you have CORE holdings in taxable accounts that have gains, I see no reason to "anticipate" what our lawmakers are fumbling with .. Not to mention that, from an investment perspective, it makes no sense. My adage is never pay taxes today on what you can defer until tomorrow or the next day. If you don't sell, you dont pay taxes.

didn't think you had too. However, the original question was not a market equity / stock sale in a taxable account question. The question was what to invest in after liquidating / selling an LLC which no longer wants to be managed, and to take the excessive gains now before losing them.

However, your thesis is only tax avoidance optimal, and not necessarily wealth optimization. Wealth optimization should include harvesting gains when the investment valuation is maximized, and the future potential gains are near zero or negative, or the investment horizon is shortening quickly.

There are plenty of studies/analysis for harvesting gains and paying taxes for long term wealth maximization. The key to remember is that tax payments increase as success increases. The more successful you are, the more you may have to pay in taxes for the next investment opportunity to continue being successful. Being successful is the key, tax avoidance is generally a secondary goal or necessary byproduct at times.

But everyone has their own strategy, and many investment strategies work, until they don't. And passive index funds will work, until they don't. Why, because all finance theories don't scale linearly forever. There are always growth limits, coupled with human error and greed.

good luck! we all need it in retirement.

[manaboutown]

Because of a few resolvable nettlesome issues needing to be cleared up closing will be deferred into January, 2022 which gives me some breathing room in some ways. Hopefully the LTCG tax rates will not be increased. As a consequence I am rolling some deductible business expenses into next year. That is a first for me as I have historically tried to obtain every possible deduction I could by year end. lol

The stock market is still near its all time high so I am in no rush to charge in and buy anything just yet but I hate sitting on so much cash which pays me next to nothing while the highest rate of inflation in 39 years rages onward.

[retiredguy123]

Because of a few resolvable nettlesome issues needing to be cleared up closing will be deferred into January, 2022 which gives me some breathing room in some ways. Hopefully the LTCG tax rates will not be increased. As a consequence I am rolling some deductible business expenses into next year. That is a first for me as I have historically tried to obtain every possible deduction I could by year end. lol

The stock market is still near its all time high so I am in no rush to charge in and buy anything just yet but I hate sitting on so much cash which pays me next to nothing while the highest rate of inflation in 39 years rages onward.
Just a comment. If the deductible business expenses will reduce your ordinary income, why wouldn't you use them in 2021? The long term capital gain income tax in 2022 should not be affected by a reduction in your ordinary income for 2022.

[manaboutown]

Just a comment. If the deductible business expenses will reduce your ordinary income, why wouldn't you use them in 2021? The long term capital gain income tax in 2022 should not be affected by a reduction in your ordinary income for 2022.

Because my income the year of sale will be subject to the Obamacare 3.8% add on tax on all of my investment income exceeding its threshold. Bottom line is every tax deduction will be worth more to me in 2022 than it will in 2021 so I want to reduce my 2022 AGI as much as possible.

[Stu from NYC]

Because my income the year of sale will be subject to the Obamacare 3.8% add on tax on all of my investment income exceeding its threshold. Bottom line is every tax deduction will be worth more to me in 2022 than it will in 2021 so I want to reduce my 2022 AGI as much as possible.

Figured that was the reason. Been there done that.

Next year expect to itemize deductions for first time in a number of years so delaying some expenses till next year when they will have more value.

[walterray1]

Where to invest a large amount of cash now is the question:

My thought process: Selling assets now appears not to be a requirement to maintain your current lifestyle, so I am going to assume that your goal is to purchase assets which are income producing without having to sell them for your current living expenses.

Second, I am going to assume that you will want to use any income but pass the assets on to your offspring/descendants, family members, etc. Putting the assets into a trust, if you don't have one, would help with any probate or distribution delays. Federal inheritance taxes kick in at nearly $12M in CY2022, and not sure how big your total estate is, but I am going to assume for now that you are below that.

Third, to avoid probate and any lawsuits, etc, make the trust very clear about the disposition of the assets. A friend of mine, who is a lawyer, took his father's estate, who had dementia, which was partly some dissolved LLCs, to the NY supreme court about dissolution valuations, and lost. So, selling now for cash is always best and having a clear trust directions for distribution is key. That is the legal piece which is not my expertise, but should be reviewed if not already in place.

Finally, where to put the money for income. From reading your posts, you manage your investments yourself. No better way as noone else can take advantage of you, and you take full responsibility for any mistakes. :ho:

In the equity markets, you cannot avoid systemic risk, (example is the banking crises or the congress voting not to increase the debt limit) without market timing, and I assume you are not into market timing. So, i would have you think about the three main income producing sectors of the equity market for tax free dividends, because you don't appear to need the future assets:

* real estate investment trusts, which pass through income, ETFs
* high yield dividend stock ETFs, which are value stocks, with dividend growth, which are tax free
* Utilities, which also throw off dividends and are the power backbone of the country
we are SOL without them. . .

Thought process: most to all of these investments are becoming more valuable as time marches on, as each are stable, and have long term scarcity or demand growth valuations

Real estate, as you have been invested, you know well
Equity high dividend stocks are low qrowth, stable value stocks, not alot of
appreciation but stable earnings with dividend distributions and dividend increases
Utilities generate electricity and that demand is only going to get larger with the clean
energy movement


* Real estate ETF in vanguard (VNQ), yield 2.91%
* Vanguard Whitehall Funds - Vanguard International High Dividend Yield ETF (VYMI) - 3.0 to 4.0% annual estimate
* SPDR Series Trust - SPDR Portfolio S&P 500 High Dividend ETF (SPYD) - 3.8 to 4.8% annual distribution yield. invested in about 70-80 companies for diversification.
* Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) - 3.71% current distribution yield
* Vanguard Utilities Index Fund Admiral Shares (VUIAX) - 2.8% current dividend yield.


I would consider:
10% VYMI just for diversification and with the dollar high, you are buying from the better FX position. USD down, foreign investments UP. .
The rest i would split evenly to any preferences, remembering that there is overlap as the SPYD or SPYHD has utilities and reits in them and is more diversified.

The dividends are tax free, except maybe the international, but there are ways around that. Targeting 3-5% dividend rates are the sweet spot for income earned. higher is suspect, like GE taking on LTD to maintain dividends. . (stupid mgmt decision from several points of views, a tangent i don't want to go down)

In closing i have made assumptions with my intuition from your posts. Those implicit assumptions can be wrong, which would make this post completely irrelevant and worthless. Otherwise, for the most part, this is my optimal strategy, which I am using along with some market timing, which I need to pay more attention to. .

good luck, and when we move down permanently, would love to share a dinner to discuss investments. . .

finance guy

quite a bit of what one might consider as financial advice and quite the speech. Agenda, hidden or otherwise?

[Chi-Town]

The long-term capital gains tax rates are 0 percent, 15 percent and 20 percent, depending on your income.

I'm at 15%. Not bad considering the return on investments that I am selling. Plus one needs to balance periodically.

[CoachKandSportsguy]

quite a bit of what one might consider as financial advice and quite the speech. Agenda, hidden or otherwise?

Speech? I thought i was typing at and you were reading an internet :blahblahblah: :blahblahblah: :blahblahblah: chat board. But good for you for questioning being sold to on an internet bbs. . . I hate being sold to as well. . .

Nope, finance 24x7 (its a curse), just like thinking about/talking about investment opportunities, as a corporate financial professional, and a continuously aspiring part time trader, equities and options. (ie make some money, lose some money, depends upon the year) One never knows when a topic will uncover a nugget of an investment opportunity. I did work at an institutional financial services data delivery public company back in the late 1990s, pricing out (valuing) financial data and consulting companies as well as programming global earnings forecasts ie the good old days.

I can't sell anyone anything, not a registered advisor, no market licenses, I work at a utility company in IT finance and regulatory planning and build financial data marts for financial analysis. I specialize in building corporate financial models for product and service pricing, operational delivery, labor and spending and revenue forecasts, and customer/government bid models. Dabble in macro economic forecasting and market predictive analytics. In order to invest in the future, you must understand all the past relevant influences and changes.

And you walter ray: What do like to read/type about and do you have any expertise you can share?

[DAVES]

Anyone else electing to take one or more sizable LTCGs before year end?

I am taking a huge (to me) one as I fear taxes will be significantly higher in 2022. Other factors are pushing this action, not just taxes.

The problem is of course where to reinvest now that we are experiencing a high rate of inflation. Inflation surge pushes gold to five-month high | Fox Business (https://www.foxbusiness.com/markets/inflation-surge-pushes-gold-five-month-high?cmpid=fb_fbn&fbclid=IwAR3iDcHTvYNsCRTjWrze2hBlcE1FRCcuGNI8o-zsblvevlH0B_qULd9HIrQ)

I think this post and so many others is that WE are all uncomfortable. Imagine 2/2/22
the ten year treasury is paying 1.8% and the CPI consumer price index is 7% the return on S&P 500 was down 7%. What to do? Where to hide? Unlike EXPERTS who must claim to know, I can be HONEST-BEATS ME. My investment expertise comes from a comic inside a nickel roll of Bazooka bubble gum. Yup, even then I realized if you INVESTED in the nickel roll rather than the regular penny portions, you were buying at the volume price and got an extra LUMP at N/C. Like your decoder ring, I kept you waiting too long.

That wisdom was buy low and sell high. The hard part is knowing when is the low and when is the high. There are many books on that. Sometimes they are right and sometimes they are wrong. Only good news is everyone is not right all the time.
To make money you just need to be right more often then you are wrong.

[Stu from NYC]

I think this post and so many others is that WE are all uncomfortable. Imagine 2/2/22
the ten year treasury is paying 1.8% and the CPI consumer price index is 7% the return on S&P 500 was down 7%. What to do? Where to hide? Unlike EXPERTS who must claim to know, I can be HONEST-BEATS ME. My investment expertise comes from a comic inside a nickel roll of Bazooka bubble gum. Yup, even then I realized if you INVESTED in the nickel roll rather than the regular penny portions, you were buying at the volume price and got an extra LUMP at N/C. Like your decoder ring, I kept you waiting too long.

That wisdom was buy low and sell high. The hard part is knowing when is the low and when is the high. There are many books on that. Sometimes they are right and sometimes they are wrong. Only good news is everyone is not right all the time.
To make money you just need to be right more often then you are wrong.

Good post.

When I figure out how to time the market will attempt to do just that.

In the meantime think the best bet is keep an emergency fund of good size and stay the course with investments. As I have probably said before and who remembers at my age new investments are more conservative funds of Value and Dividend Yield funds with good long term track records.

[manaboutown]

Well, the closing on the commercial real estate property dragged out from late December to the last day of March. Upon reflection I am grateful as the stock market has dropped considerably. Although I put my toe in the water with one minor purchase I am just watching it now to see where it will go. Frankly, being about 50% in cash today feels pretty darn good!

[Stu from NYC]

Well, the closing on the commercial real estate property dragged out from late December to the last day of March. Upon reflection I am grateful as the stock market has dropped considerably. Although I put my toe in the water with one minor purchase I am just watching it now to see where it will go. Frankly, being about 50% in cash today feels pretty darn good!

Sometimes luck is better than skill, good for you.

[Babubhat]

Unless your are already stuck in mutual funds it’s only ETFs. More tax efficient. Can buy dividend aristocrats if looking for yield

[retiredguy123]

Unless your are already stuck in mutual funds it’s only ETFs. More tax efficient. Can buy dividend aristocrats if looking for yield
I don't understand why you would say that ETFs are more tax efficient than mutual funds. My stock investments are in the Vanguard S&P 500 Index mutual fund. Very tax efficient. It seems to me that the S&P 500 Index ETF would be less tax efficient. The ETF would attract investors who would buy and sell more often requiring the ETF manager to sell the stocks more frequently generating a lot more taxable events than in a mutual fund, and thereby creating more capital gain distributions. Mutual fund investors are more of the buy and hold type of investor. Isn't that correct?