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Sunday, September 10, 2006

Selling it, Part II

As promised, more details of my stock selling experience. Selling Time Warner at a high was good luck for me, as the stock dropped significantly a short time later. I only wish I had sold more of it at the time.

But I have sold stock at other times too. I still had holdings in Walmart and in Coca Cola. You might remember that I had been purchasing both companies using Automatic Investment and also Dividend Reinvestment. These strategies proved to be good for my bottom line when it came to sale time. Having benefited from "dollar cost averaging" and having dividends being reinvested instead of being frittered away if I was paid in cash came in handy when I had the desire to sell recently.

A year or so ago, Kathy and I planned a cruise of the Caribbean. Though we had sufficient money in other more fluid accounts, I decided to tap some of our stock funds to cover our cruise.

When I told a coworker of this, she questioned my judgment.

"Why would you want to do that?" she asked, with a noticeable amount of incredulity.

"Why not?" I returned.

"You will be paying tax on the gains at a much higher rate than if you were to do it later in life."

Though she has a valid point, I looked at it differently. We saved for several years by socking away money into the stock market. The idea of trickling money into investments is to eventually sell, and to use the money in some manner of consumption. Though some sell in order to reinvest in some other financial vehicles, ultimately, the money eventually gets spent somehow.

My line of thinking was that I would much rather absorb the pain of paying slightly higher taxes at my current rate on the gains and spend our hard earned money on a nice cruise than to pay lower taxes in my old age and spend it on health care premiums.

The point is, if you invest in the stock market, consider how and when you will eventually sell. Don't always feel you have to invest all your gains back into some other investment. Do that and you may die rich, (and leave a big nest egg to relatives who may or may not share your values,) never having enjoyed all that money while you had the health to do so.

Better to enjoy life's little pleasures, using funds you worked so hard to earn and to grow during your productive years, while you're still young enough to enjoy them.


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3 Comments:

Anonymous Dan said...

Wow, I totally agree with your sentiments on using your stock market earnings. I'm a pretty firm believer in setting goals for selling and while I wouldn't classify myself as a trader, I definitely don't feel comfortable holding a stock past a projected price goal in hopes of getting taxed less. Ultimately, you're taxed on a gain, right? How much would it hurt to wait an extra few years in order to hit a lower tax bracket and then find yourself looking at a loss?

Thursday, November 09, 2006 2:51:00 AM  
Blogger The Dummy said...

I think it's generally a bad idea to let taxes be the primary driver of when to sell. I can remember numerous bank clients who were PO'd at capital gains being realized at the top of the market in 2000. Fine, don't sell. They certainly avoided that tax hit.

Thursday, November 23, 2006 1:04:00 AM  
Blogger Empty Spaces Inc. said...

good point. after losing my shirt in the 2000 stock market crash, i've learnt to enjoy life a little.

Monday, November 27, 2006 9:47:00 PM  

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