Benjamin, nearing retirement at 65, faces a familiar dilemma with his taxable account housing expensive mutual funds. Despite their underperformance, converting to low-cost index funds entails a significant tax hit due to long-held appreciable value.
James explains weighing the immediate tax consequences against the risk of holding onto underperforming assets. He also provides a framework for assessing risk, identifying options, and making decisions based on personal financial goals.
Questions Answered:
How can you decide whether to sell underperforming mutual funds or continue holding onto them?
What factors should you consider in determining whether converting to low-cost index funds aligns with your financial goals and risk tolerance?
Timestamps:
0:00 - Listener question from Benjamin
2:17 - Tail wagging dog?
3:52 - Benjamin’s situation
5:31 - WCS of selling vs not selling
11:17 - Be careful about tax drag
12:47 - Rethinking the break-even point
14:11 - Consider your goal for the money
17:17 - Identify the bigger risk
19:26 - Make your decision
20:26 - Will your tax situation change?
24:20 - Consider staggering sales
28:21 - Summary
Create Your Custom Strategy ⬇️
Benjamin, nearing retirement at 65, faces a familiar dilemma with his taxable account housing expensive mutual funds. Despite their underperformance, converting to low-cost index funds entails a significant tax hit due to long-held appreciable value.
James explains weighing the immediate tax consequences against the risk of holding onto underperforming assets. He also provides a framework for assessing risk, identifying options, and making decisions based on personal financial goals.
Questions Answered:
How can you decide whether to sell underperforming mutual funds or continue holding onto them?
What factors should you consider in determining whether converting to low-cost index funds aligns with your financial goals and risk tolerance?
Timestamps:
0:00 - Listener question from Benjamin
2:17 - Tail wagging dog?
3:52 - Benjamin’s situation
5:31 - WCS of selling vs not selling
11:17 - Be careful about tax drag
12:47 - Rethinking the break-even point
14:11 - Consider your goal for the money
17:17 - Identify the bigger risk
19:26 - Make your decision
20:26 - Will your tax situation change?
24:20 - Consider staggering sales
28:21 - Summary
Create Your Custom Strategy ⬇️
On today's episode of Ready for Retirement, we're going to be discussing what you should do when you have investments with significant unrealized gains. Specifically, we're going to be talking about the tax strategy. Do you sell those gains, pay the tax bill and diversify into what you want to be owning? Or instead, should you continue to hold the funds, forgo the tax liability, at least for the time being, and then do something different? That's what we're discussing on today's episode of Ready for Retirement. This is another episode of Ready for Retirement. I'm your host, james Cannell, and I'm here to teach you how to get the most out of life with your money. And now on to the episode To help us in this discussion. We actually have a listener question, and this question comes from Benjamin.
Speaker 1:Benjamin says the following I'm 58 years old. I'm planning on retiring around age 65. I have a taxable account with four expensive mutual funds that I want to convert to low-cost index funds. The problem is, I've had these funds for over 25 years and they have significant appreciation. I stopped contributing to them and I stopped reinvesting dividends and capital gains a long time ago. These funds at best do the same as their associated indexes, and the total value of these funds is around $1 million, with the average gain around 75%. The average internal expense is around 1.3% per year and it's killing me to pay over $10,000 in fees each year for these funds, but I don't know if it's worth a tax hit to sell them and convert them to index funds. My capital gains tax rate is 20%. My question is where is the break-even point in this situation, benjamin?
Speaker 1:Well, benjamin, thank you for that question, and I think this is a classic case of planning, of look. There's no perfect answer. In most cases, there's not something that's all good and no bad. Any decision we make is going to come with some positive aspects and maybe some negative aspects. The question is, how do we weigh those? How do we fully understand what all the positive things are, all the benefits are, versus how do we understand what all the negative things are? When we can get an accurate picture of those things the good and the bad then it becomes a lot easier to make a more informed decision about what to do next. So that's exactly what we're going to be doing today, using Benjamin's question as a foundation to be able to do that.
Speaker 1:So let's jump right in and as we do so, there's a saying that I come back to, or that I think about, a lot when it comes to tax planning, and that saying is don't let the tail wag the dog, so the tail is the part of the dog. The dog is not the tail, so the dog is the bigger entity in this picture. Don't let the tail wag the dog. Essentially saying, don't let the smaller details dictate the bigger details, don't let the strategies, or don't let the tactics, I should say, dictate the strategy. Here's how that applies to people's planning. Oftentimes people will let the tax tail, so to speak, wag the planned dog. Now, that's kind of a clunky way of saying it, but essentially what it's saying is they let taxes become the driving factor in their decisions, when taxes are just one component of the overall picture. So how can we take a bigger picture, look, how can we understand what that bigger picture looks like and then make a better decision, as opposed to letting one of these components, aka taxes, be the driving force behind all decisions?
Speaker 1:A simple way to look at this just right off the bat is really understanding worst case scenario. So best case scenario, that's always easy. Well, best case scenario is Benjamin, you don't sell the funds that you already own and these funds do significantly better than the alternative funds that you put them in. And then you don't pay taxes and you do better. So that's best case scenario. Well, that's fine, but how do we understand what worst case scenario is? Because that's really what we need to be prepared for. We need to make sure that there's nothing, from a worst case scenario standpoint, that could impact our plan to an unnecessary degree, or at least we need to minimize the impact that some of those worst case scenarios might have upon our plan.
Speaker 1:So let's take a look at Benjamin's situation. He has a million dollars in these funds and these funds have an internal cost of 1.3%. So, by the way, this is a good reminder to many of you listening. Sometimes people think, oh, the only cost I pay is to, maybe, a financial advisor, if I'm going to work with a financial advisor. Well, every single fund For the most part there are some literally zero cost funds, but every fund, for the most part, has an internal expense. You never really see this internal expense unless you read the prospectus or you look at a fact sheet. But the internal expense on Benjamin's funds is 1.3%, meaning he's paying $13,000 per year just to own these four mutual funds that now have a large gain. His predicament is he wants to get out of them, but to get out of them requires selling, and selling requires paying a tax liability or a paying a tax bill, because there's a lot of unrealized gains in these accounts.
Speaker 1:So let's explore a worst case scenario for Benjamin in each of these things, or each of the two options that he has. One is continue owning these funds and two is sell these funds. Well, what if he sells? What's the worst case scenario there, at least with regards to that transaction? Well, if he has a million dollars in these funds and he said 75% of that is gains, that means 25% is cost basis or what he originally purchased the funds for. So 25% of a million means $250,000 is Benjamin's own contribution. That's what he put into these funds. 750,000 of it, that's the gains on the purchases that he made. Now he's owned them for 25 years, so I would hope that they've done well, but that's where things stand today. He's put $250,000 in. $750,000 is the gain.
Speaker 1:If Benjamin sells, he says he's in the 20% tax bracket. Now I don't know if that includes net investment income tax, which is an additional 3.8%. So make sure that you're mindful of that. I'm not sure what state he's in, so I don't know if there's any state tax brackets above and beyond. So these are questions for Benjamin and for any of you listening to make sure you understand the total tax implications of selling. But if he sells, it doesn't mean he pays 20% taxes on the million dollars. He's paying 20% taxes on the gains and of the million dollars, 750,000 is gains.
Speaker 1:So if we say what's worst case scenario for Benjamin to sell right now, well, he sells, he has a million dollars after that sale but he needs to withhold 20% or needs to set aside 20% of the $750,000 in gains to pay taxes and that comes out to $150,000. So one million turns to $850,000 practically immediately if Benjamin sells today. So in a way that's the worst case scenario with that transaction, based upon what we know Now. Obviously worst case scenario is he then does something foolish for that $750,000 or invests it poorly and it drops from there. But with regards to this transaction, worst case scenario is a million dollars drops to $850,000. Now let's compare that to worst case scenario if Benjamin doesn't sell.
Speaker 1:Worst case scenario, benjamin, if you don't sell, is I don't know anything about these funds and so none of this is recommendations or actual guidance with regards to any specific funds. But the worst case scenario is well, what if these funds are so poorly managed that they drop, and they drop worse than what the market does? Let's say they drop 50%, 60%, 70% of value. Well, maybe that's extreme, but we're looking at worst case scenario here. So on the one side let's say the drop 50% in value, 75% in value A good news is your tax problem is gone because all the gains were wiped away. The bad news is so is your money. Your money's also gone because it was wiped out through owning a bad fund.
Speaker 1:Now, typically that's not a risk with an actual mutual funds. Mutual funds are gonna be doing a lot of the diversifying for you, assuming you're owning good funds. This is more specifically a risk where, if Benjamin were to say, hey, I've got a million dollars in one single stock, well, that's where there often is more risk of a potential 50, 60, 70% decline that you don't recover from. So if you're listening to this and you're not Benjamin, but you're someone else that has maybe a million bucks in an individual stock, that's more the risk I would point you towards is well, what if your stock drops 50%, 60% and doesn't recover.
Speaker 1:There's a great study that I referenced quite a bit on this podcast by JP Morgan where they look at the Wilshire 3000 over years and years and years and it's not uncommon. It's very common for stocks to drop by 70% and never really fully recover. They call those catastrophic losses of the risk of underperforming. The market with any individual single stock is actually very high and the reason for that is there's a handful of great stocks that tend to be winners and those tend to derive market returns over time. But if you look at the Wilshire 3000, which is just 3000 companies almost all the companies, the publicly traded companies in the United States a good percentage of them do very poorly over time. So I'm getting off on a bit of a tangent here, because this probably doesn't apply as much to Benjamin. There's less of a likelihood that four mutual funds drop by that much and stay down. I mean they don't recover with the market. There's more of a likelihood if you're listening and have unrealized gains and you're kind of in Benjamin's shoes, but not with a mutual fund. You have a stock instead.
Speaker 1:What's the worst case scenario? Well, the worst case scenario is your million dollars turns to $400,000 and doesn't really recover. So why do I start with that? Well, in the first scenario, worst case scenario is you pay your taxes, but that's a known quantity and you wanna be smart about this. I'm not just saying, hey, go sell and pay taxes and be done with it. Be smart about it, but understand things well, frame things well, understand the implications of your decisions. The implications of that first decision is you write a big check to pay that tax bill and you still have $850,000. The worst case scenario, the worst implications of the second scenario of hey, what if I stay invested in this stock or in these funds because I'm trying to avoid taxes, will you actually set yourself up for an even worst case scenario? Now you also have greater long-term potential. So it's not, you know, downside, without any upside potential.
Speaker 1:But if we're specifically looking at the downside, what sometimes people end up doing is by going back to that saying, letting the tail wag the dog, they end up shooting themselves in the foot because they say, yeah, great, I avoided that tax bill, but my money's cut in half. But my account balance is cut in half because I stayed invested in these poor performing stocks that now haven't recovered. And now I'm even worse off than if I'd simply pay the tax bill and move it on. So I just wanna start with that. As we go on later on in the episode, I'm gonna walk through what I would do, not specifically. Hey, here's my recommendations, but what are the steps I would take as I'm thinking through this so you can take those same steps in your mind, kind of go through that algorithm, so to speak. But wanted to start by framing it, the right way of understand what this decision is really. And if we're trying to minimize risk, sometimes selling is less risky, even though maybe it means writing a big check to the IRS right off the bat. That can sometimes be less risky, depending on what the alternative is, if the alternative means staying in stocks that end up underperforming by quite a bit. Here's another thing that I wanna go to. So another just kind of couple random points before I go into the. What should you do or what should you be thinking about with this?
Speaker 1:If you're in a situation like Benjamin, understand that these higher cost funds typically have much higher turnover. You know, if you're buying higher cost funds, it's not an index fund, it's not a fund that's gonna have low turnover. It's typically a very actively managed fund. And if you're owning these actively managed funds outside of an IRA or a Roth IRA meaning you're owning them in a brokerage account well, active management means there's a lot of buying and selling and when that buying and selling is happening, it's triggering gains. And when those gains are happening, the mutual fund manager isn't paying them. They are passing them along to you to pay. So you get a tax form at the end of the year and say wait a minute, I held onto this fund this whole year. Why am I paying a tax bill on these capital gains? Well, you're paying that because the fund manager realized those gains and those gains were then passed to you to pay taxes on. So I bring that up because, benjamin, as you're asking and it sounds like you're maybe aware of this already based on your question but sometimes just by owning the mutual fund and not selling it, it's not absolving you from a tax liability. You're still paying the tax liability even though you're just holding onto the investment. So be very mindful of that. I've seen people say, yeah, I'm being smart, I'm being tax smart by holding this when in reality, they're gonna tax bill each year and there's a ton of what you might call tax drag on their investments. Tax drag meaning because of all this turnover, that's generating a lot of costs, a lot of tax cost, and that's a drag on their performance. So just be really mindful of that.
Speaker 1:The next thing that I wanna look at real quick is Benjamin asks what's the break even? Well, this depends. It depends upon how do those funds perform relative to their benchmark. It depends upon will you ever be in a lower tax bracket? But in a large sense or to a large degree, it's not really a break even analysis. A break even analysis assumes a cost upfront and the benefit later on. Really, if you're not selling today, assuming you're going to be in the same tax bracket in the future which is a big assumption my guess is when Benjamin's retired, so seven years from now, he's not going to be in the same tax bracket. But assuming you will be in the same tax bracket in the future, it's not a break-even question, it's a timing question. You're going to pay the taxes on the gains anyways. Do you want to do that today or do you want to do that in the future? So what you're really doing by not selling is you're just kicking the tax can down the road, there is a break-even analysis to be done. If you know for certain you're going to be in a lower tax bracket in the future, if you knew for certain, there is going to be a difference in fund performance between what you're currently owning and what you would own with the proceeds of any sales that you made. But break-even again is applying that there's an initial cost followed by a benefit. In this case there is a tax cost up front, but there would also be a tax cost in the future if Benjamin didn't sell today but instead chose to sell a few years down the road. All right, so those are just a few random thoughts before we jump in.
Speaker 1:Now let's actually jump into the. What should you do when the rubber meets the road? What should I actually do about this? Not a recommendation, but here's what I would flow through. Number one my first thing is what is your goal with the money? Now, that sounds obvious, but too many people they skip this step. But here's what it matters. What if you want this money for retirement In? This, million dollars is all Benjamin has for his retirement. Now, that's a good chunk of money. But what if this is all that he has. Well, you probably want to diversify, that. You probably want to diversify into other things, because this is something that you can't sacrifice. You can't potentially lose this if you need this for your retirement needs. So, probably best to diversify.
Speaker 1:Well, compare that to what if Benjamin said no, I want to use this for family gifting. I want to give this to kids or grandkids, if that happens to be in the picture for him. Well, if that's the case and Benjamin's in a high tax bracket, maybe he gifts shares of these mutual funds to kids or grandkids who are in potentially lower tax brackets. They could then sell these shares at their tax brackets, which might be lower. Or maybe Benjamin says I want to use this for charitable giving. Well, great, if you want to use this for charitable giving, either giving it directly to a charity or giving it to a donor advised fund, which then later gives it to the charity. We'll gift these shares to the charity instead of giving cash. What that does is you're not paying taxes on the game, the charity is not paying taxes on the game and you get the full deduction for whatever amount you gift, up to certain limits based upon your adjusted gross income. So I wouldn't sell this. I would say save the money on the taxes, but use this to fund your gifting Versus.
Speaker 1:What if Benjamin just wanted to own this for fun? I don't know the rest of Benjamin's situation. Let's use an extreme example, though. What if Benjamin has a million dollars here, but he has nine million dollars in other diversified investments that are fully going to fund his retirement needs, his legacy needs, his other needs? This probably isn't the case here, because these are funds that he's already expressed that he doesn't love and he doesn't want to continue to own. But if I change the scenario a little bit, if I change the picture, what if these aren't for mutual funds but they're for stocks that Benjamin loves and he really likes them, and he bought them a while ago, so he still has the same gains. Well, if these are just being held for fun and he has Another 9 million and other things not that he needs that much, but just essentially saying this is 10% of his portfolio and these stocks that he really loves and it's just for fun Well, maybe he lets it right, maybe he doesn't need to sell because he has a lot of assets doing other things meaning his other needs and he's not dependent upon this million dollars to meet all this needs.
Speaker 1:So these are just arbitrary examples, but I bring that up because if you don't know what your goal is with this money, it's hard to say what should you do with it, and your goal is gonna be different, whether you're gonna use this for your retirement needs, whether you're gonna use this for legacy or gifting, whether it's for charitable giving, whether it's for fun all those things I might recommend, or I might suggest a different Response to what to do with these assets. So that's where I would start is number one Understand what your goal is with that money. Number two, step number two ask what the bigger risk is With the decision that you're gonna make with regards to those mutual funds or that stock, if that's the case that you're in. So the way that I opened up this podcast was how do you frame risk? How do you frame worst case scenario?
Speaker 1:We think of risk as the tax bill that's right in front of us if we're gonna sell these funds today. But that's just. That's being short-sighted in many cases. Maybe that's just a lack of imagination. I'm not being able to understand. What if these funds really perform poorly? Or, more likely, what if these stocks really perform poorly. We don't often think of that as a risk because Sometimes we fail to see how could that possibly happen. The reality is it happens. So once you understand what your goal is, then understand which Option and the two options are either continue to hold on to the mutual funds, if your embingments case, or maybe it's stock for someone else or another investment for someone else, or selling that investment.
Speaker 1:Neither options without risk, and that's what we all need to understand. Both options carry risk. Both options carry potential opportunity, but understand which option has a greater risk. That would be very difficult to recover from and that's what we want to protect against. And again, there's not a universal answer. I'll go back to the example before. If Benjamin, if that million dollars is all he had and you needed that all for retirement, and Instead of having those four funds he had four individual stocks, high risk stocks the bigger risk is probably those stocks have a catastrophic loss that they never recover from. That Essentially ruins for lack of a better way of putting it that ruins Benjamin's ability to retire. Those stocks drop and that's all he has to live on. Versus, if Benjamin does have those four stocks and the million dollars, but he has other nine million dollars on the side. That's fully covering all of his needs, not such a risk that those funds drop in value. So when you understand the bigger picture, when you understand what your goals with this money, then you can make the right decision with regards to these funds or stocks, whatever it is to minimize the risk that is in front of you.
Speaker 1:Then step number three is based upon your goals and based upon the risk assessment that you do. Then determine does it make sense to keep these funds and Benjamin's case, or the investments and other listeners case? That's when you make the decision of should you do it. If you determine, yeah, I'm gonna keep these, either because I'm gonna use this for charitable giving, or I'm gonna use this for legacy, or I'm gonna use it for fun, you're good, you're, the analysis is done, you've you've gone through it, you understand what your goals are, you understand what risk is and you've come to the conclusion these investments fit within my goals and do not add too much Unnecessary risk to my plan. Great, that's not the conclusion that you come to if you say you know what these funds don't fit with, what my goals are, or these funds do present too much risk to simply hold on to and it would be less risky to sell right now and pay the tax bill. Then come up with a game plan to start to sell out of them. That's where I'd go to step number four. Start to ask yourself the question of will your tax situation ever change?
Speaker 1:If Benjamin's tax situation never changes, he's always gonna be in a 20% capital gains tax bracket. It really doesn't do him any good to sell in 10 years when he could sell today. Every year he continues to hold on to expensive funds or poorly performing funds or investments that present too much risk. Every year there's either additional risk that he's accepting that he doesn't need to, or he's paying additional fees and Costs inside of these funds that he really doesn't need to. He's not saving money by continuing to hold on to these funds. He's simply pushing the tax bill. He's pushing the cost to a later date.
Speaker 1:That being said, if we know I'm gonna make it again an arbitrary example that's not actually reality. But if we're sitting on, say, december 31st and and Benjamin really wants to come up with a decision quickly and he's like I can sell my funds today or Next year, I'm gonna mean a 0% tax bracket because I retired and have no income and I can realize a certain amount of gains at no, no tax bill. Well, that's an easy decision. I could pay taxes 20% today or 0% tomorrow. I'm gonna pay 0% tomorrow. Unfortunately, for most of us it's never that clear-cut, it's never that black and white of 20% today or 0% in the future. In Benjamin's case, he's 58 today. He wants to retire at 65.
Speaker 1:At retirement He'll probably be in a bit of a lower tax bracket, would be my guess. So the tax bracket that we're talking about 20%, that's the long-term capital gain tax bracket that we're referring to, which means if he's in the 20% long-term capital gain tax bracket, benjamin makes a pretty good income. Your income is at a good level if you're the 20% long-term capital gains tax bracket. So my guess would be, when he retires he'd be in a lower tax bracket. Let's just say 10% for the sake of argument. That's not even a federal long-term capital gains tax bracket. Today it's either 0, 15, or 20. I'm just going to use 10% for the sake of using this. A simple number. How do we run that now? How do we understand? Well, what should I do? I could either pay tax at 20% today or 10% in the future.
Speaker 1:Well, if Benjamin is in this position, it's 20% today or 10% in the future over seven years. It's almost like and this isn't a perfect way of looking at it, but it's almost like every year that he waits. If you're going to average it out, he gets 1.5% savings on his tax bill. All else being equal and this is not, again, the perfect way of looking at it but there's a 1.5% per year benefit for him waiting. But it's almost as if all that benefit kicks in in seven years. It's like a seven-year besting schedule almost. Just bear with me on this analogy, because I know it's not perfect.
Speaker 1:Well, if Benjamin is paying 1.3% in costs that are unnecessary, it's okay, benjamin, great. You're saving 1.5% per year for seven years by waiting 10 years, but at the same time, you're simultaneously paying 1.3% more than you need to each year by waiting. So that's kind of a way to start to frame this, to say, okay, maybe there's a benefit to wait to sell, but there's also a cost of waiting to sell, and is that cost now offsetting the benefit? So that's where understanding will your tax situation change is part of it. But also, what's the cost of waiting until your tax situation is going to change. If, in a month or a quarter or even six months, we knew Benjamin's tax situation was going to change, that's one thing. But we probably don't know that, or we certainly don't know that, and it might take up to seven years for it to change. And the question is how much unnecessary costs have you paid, how much unnecessary risk have you accepted over the course of those seven years just to get to a point where you're saving a little bit of money on taxes? That's what you'd want to start to look at.
Speaker 1:And then the next step from there and it's kind of like a sub-step is is there the opportunity to stagger some of these sales? So, in other words, it doesn't have to be an all or nothing proposition. It's not Benjamin should he sell all million dollars right now or should he sell nothing right now? Sometimes it makes sense to stagger this. And this is where having a comprehensive plan, this is where having an actual strategy in place that's not just tax focused but focused on retirement income, investments, taxes, insurances, big picture when you have that in place, these decisions become a lot easier. So part of this is difficult to come up with a specific answer because I don't know what that big picture plan is for Benjamin, but for a lot of people it makes sense to stagger some of these sales, specifically for people in retirement, because of something called gain harvesting. So gain harvesting is this thing that far too many people neglect to take advantage of and I think in most cases is because they're just not aware of it.
Speaker 1:But for 2024, if you are a single, in your taxable income is under $47,025, you don't pay any taxes, any long term capital gains taxes on long term capital gain, on any of your gains up until that threshold. If you are married, finally and jointly, in 2024, in your taxable income is under $94,050, you can realize an unreal, a long term capital gain and not pay anything in taxes. So here's an example of how that would work out If you are single and your taxable income and, by the way, taxable income is your adjusted gross income minus deductions so if your taxable income is $27,025, you can realize up to $20,000 of long-term capital gains without paying any federal income taxes on it. So I'm getting that number because, again, if you're single, $47,025 is the threshold at which you don't pay any long-term capital gains. Above that, you pay 15%. Then there's another threshold above what you pay 20% in long-term capital gain taxes.
Speaker 1:So if your income is under these thresholds, what you can start to do is you can start to, on purpose, realize just nothing gains to bring you up to the top of that threshold. And what you're doing is you're essentially realizing these gains tax-free. It's almost like making or turning your brokerage account into a Roth IRA, partially because you're realizing these gains and not paying any taxes to do so. So if you are about to retire and if you're in this position where you've got a bunch of unrealized gains, you might look at that and say, okay, how much do I have in long-term gains, what's my tax liability projected to be? What's my taxable income projected to be for the next number of years?
Speaker 1:And does it start to make sense to sell these funds or sell parts of this fund in tranches or in bits and pieces, as opposed to doing it all at once? Because in doing so maybe you stay under certain tax gain thresholds or taxable thresholds there. So that's the other thing I would look at is when does it make sense? Tough to say, do you have to do everything all at once? Not necessarily, but having some type of a plan is really important to look at or consider as you're going through this analysis, then the final piece of this analysis and really this should probably actually come closer to the beginning is move towards something, not just out of something.
Speaker 1:It's not just okay, I wanna sell these funds for the sake of selling these funds. It should be. I wanna sell these funds so that I can do X, y and Z with them, so I can spend the money, so I can invest in different funds, so I can give some of the money. Whatever that is, understand what the actual outcome or what the desired outcome is. For Benjamin, I think this is the case. He talks about wanting to sell these funds because there's other index funds he thinks are more appropriate for his situation. But in general, sometimes I'll see people really wanting to sell something, but then they have no idea what's gonna come next, what are they gonna do with it. So make sure you have that as part of your plan.
Speaker 1:So just to summarize that flow that we just walked in, it's number one understand before making any decision. Understand what is your goal with these dollars, with this money. Number two understand what's the biggest risk with you accomplishing or toward you accomplishing that goal? Is it hanging on to the fund or is it selling that fund and paying the taxes? Number three based upon that, does it make sense to hold onto the fund or to sell. If it makes sense to hold on, analysis is complete just hold on and you're good to go. If it makes sense to sell, then you start understanding, or then you start coming up with a game plan of how to sell. You sell all at once, do you stagger the sales out, do you take advantage of tax gain harvesting if available, and then finally make sure that you have identified what that money is gonna go into which could be spending, it could be saving, it could be investing but make sure that you have a game plan for that. So that is how I would think about it.
Speaker 1:Benjamin, I appreciate the question. I know that this isn't just advice and this isn't a specific answer, but I think the framework, as always, is more important than anything and understanding. What are the questions you should be asking yourself? What is the bigger risk? What are the options available to you as you go through this? Hopefully that's helpful as you come up with an answer for yourself and your situation. So that is it for today.
Speaker 1:If you're listening on Apple Podcasts or Spotify, I would really appreciate it if you leave a review. If you're enjoying the podcast, leave a five-star review. If you're listening on YouTube, hit the thumbs up button. Subscribe if you haven't done so already. And another way that you can support the show, which many of you do and I really, really appreciate it, is if you have friends, have family, have coworkers, have people who are preparing to retire and you think they could use good information like this, please be sure to share this podcast or video with them. That is it for today. Always appreciate listening and I'll see you next time.
Speaker 1:Hey everyone, it's me again for the Disclaimer. Please be smart about this. Before doing anything, please be sure to consult with your tax planner or financial planner. Nothing in this podcast should be construed as investment, tax, legal or other financial advice. It is for informational purposes only. Thank you for listening to another episode of the Ready for Retirement podcast. If you wanna see how root financial can help you implement the techniques I discussed in this podcast, then go to rootfinancialpartnerscom and click start here, where you can schedule a call to one of our advisors. We work with clients all over the country and we love the opportunity to speak with you about your goals and how we might be able to help. And please remember, nothing we discussed in this podcast is intended to serve as advice. You should always consult a financial, legal or tax professional who's familiar with your unique circumstances before making any financial decisions. Milkát, have a seat everybody.