I sold stock from my taxable account today. I obviously don’t have to tell you about yesterday’s roller coaster ride in the market. I’ve had the feeling the market has gone too high too fast before this, and believe the market is not cheap right now. I sold stocks today because of these reasons:
- I’ve had considerable gains in the stocks I owned (20%+ in one year)
- Believe the market is overbought with a somewhat high P/E ratio (approx 20)
- The stocks I sold have dividends and since they are in a taxable account will be subject to much higher tax rate next year
- The primary reason was to fully fund our Roth IRA accounts for the year
We are already 5% in cash with our retirement accounts. I’ve made adjustments to our retirement accounts in the past few months, but I have not (nor will) make adjustments to them other than for some re-balancing. I believe asset allocation is much more important than selling based upon emotional factors.
I’m taking the money from today’s sale and fully funding our Roth IRA accounts for 2010. I’ve not mentioned this before, but our 2010 investment strategy is:
- Max out my wife’s 403(b) account (I don’t have a 401k or IRA setup within my company)
- Max out both our Roth IRA accounts
- Contribute $10,000 to our children’s NY State 529 accounts (since contributions up to $10k are tax deductible to the state)
- Invest $5-10,000 in US I Savings Bonds (I’m not sure the exact amount because I’m not crazy about the existing rate)
- All remaining funds invest within our taxable accounts
I eventually want to invest our taxable savings into real estate or another business. I haven’t found anything suitable so far. My thought is then take some of that taxable money off the table, and move into tax differed savings.
IJ, why don't you have a SEP set up? I use a Simple because at the time, it allowed a larger deduction for a lower income level.
Hey Robert,
Thanks for commenting. I thought about doing this, but at the moment prefer to invest what's remaining in taxable accounts (ie for real estate or another business). With an IRA while possible to do this is much more difficult. I want to keep retirement accounts specifically for retirement and taxable accounts for RE and businesses.
We also are way ahead with our existing retirement accounts amount for our age. For someone else who does not have much in their retirement accounts (especially if you are 40+ years old), I agree you are best to setup a SEP IRA. Keep in mind these accounts cannot be touched until at least 59 1/2 years old.
Maybe next year I'll be motivated to setup a SEP IRA with the higher tax rates. I personally like to have 20-30% of our entire net worth in taxable accounts. You don't have to worry about government risk (ie changing tax rules) in a taxable account and can be used for any investment you like.
Yes, if you can't afford to do both, I can understand the desire to have capital available for investments outside "protected" accounts. For myself, three years ago, (at age 47), I finally had the resources to max out both Roth IRAs, my Simple, and my wife's Sarsep. I want as much money growing tax deferred as possible. Not eligible for Traditional IRA, so Roth it is.
Now at 50, I'm just now gathering some money for capital to start diversifying outside the stock market. Just threw $10k at Lending Club and I should have $4k per month the rest of the year to set aside for capital investment opportunities.
I hope you did this Monday not late last week. I never sell into weakness.
I did it last Friday. The stocks I sold since then gained approx. 3%. Would I have been better off? Of course yes, but I don't look to time the market. I been looking for a point to sell some of the taxable stocks and move it into our Roth IRAs. That was my primary motive. The sale was less than 5% of my taxable portfolio so in the end it wouldn't of made a huge difference when I specifically sold.
Why not buy some European or UK equities with your strong dollar?
The FTSE 100 (our top 100 shares in the UK) is yielding c.3.5%, and the forward P/E was only just into double digits last time I looked. Better still, c.70% of earnings are from overseas, including big exposure to emerging markets.
You might even get a currency benefit if we ever see £1:$2 again.
Hmm any ETFs that do this that hold it in UK dollars? I'm only familiar with mutual funds that do this and charge 1.5%+ fees.
I do have some blue chip stocks like KO and KFT that can take advantage of strong growth internationally and in some emerging markets.
As Barry Ritholtz has mentioned on his blog:
"The U.S. is the best looking horse…at the glue factory."
http://www.ritholtz.com/blog/2010/05/bonds-are-fo…