Revenue Harvesting

Question:

A long, long time ago, Gene taught us to dollar cost average into equity funds.  It was simple.  Mission accomplished! Fast forward 20 years.  Now, we are retired.  We would like to slowly harvest little slices of what we have stored up.  Where do we start—with the big winners or the moderate winners?  With non-retirement accounts or with IRAs?   With Roth or traditional?  Or should we rotate amongst all categories in an even handed manner?

Answer:

We believe you should leave your money in your tax deferred accounts as long as you can. At 70½, you’ll have to take mandatory withdrawals from traditional IRAs. If you can, we believe it is better to let that money grow tax deferred for as long as you can.

When you sell your investments, you should look at your tax situation each year to decide what to sell. Let’s say the S&P Index was selling for $50 when you began investing, and it is selling for $80 today. If you dollar cost averaged during the last 20 years, you likely have some shares that were purchased at $30, some at $40 and some at $100. If you have kept good records, you should be able to specify which lots you wish to sell. Ideally, you want to harvest your investments so that you have no gains whatsoever. We encourage you to take gains is when a position has grown too large and you need to rebalance.

We are assuming that you have provided for 10 years of liquidity. Ideally, you should start providing for your retirement about 10 years before you need the money. You begin selling your stocks and buying fixed-income investments to correspond with your liquidity needs. This can help you avoid selling in a down market to cover liquidity. If you have 10 years of liquidity, you should be able to wait out a down market by three or four years. Today, the market is up nearly 10%, so we are looking to sell for our clients to provide for their liquidity.

Ideally we want 10 year money in a 10 year bond; however, in the extremely low interest rate cycle, we feel that is a poor decision. We highly suggest keeping maturities short, under three years. When interest rates rise, the price of your bond will fall, and if you need to sell it before it matures, you will likely lose money. The point of having money in fixed-income investments is for capital preservation. We feel this is not the place to take risks with your money. We recommend keeping your maturities short, and when the short-term bonds come due, hopefully, you should be able to reinvest at a higher interest rate.

At Henssler Financial we believe you should Live Ready, which includes knowing both how to invest in the markets and sell when it is opportune for you. If you have questions on your financial strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.       

 

Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.

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