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Investment Analysis Clubs / Macro Economic Trends and Risks
|Subject: FIFO or LIFO when booking gains?||Date: 2/11/2013 10:55 AM|
|Author: notehound||Number: 415595 of 510726|
Here's another super dumb question: Should a person choose FIFO or LIFO when selling stocks (given the following assumptions):
1. Shares acquired over a period of time
2. In a rising market (i.e. - paid lower price for first shares, highest price for most recent shares)
3. Expects the market to take a downturn soon
4. Wishes to maximize the gains on shares sold while price is high
5. Also wishes to minimize losses if remaining shares are sold later during a downturn
6. In a non-taxable (IRA) account
7. How would the answer differ in a taxable account
The Motley Fool Wiki provides the following overview on the FIFO/LIFO election:
Tips & Warnings
- First in, first out (FIFO) means that the first shares of stock to be sold are the first shares acquired. If the stock's value has constantly increased, these will be the shares of stock with the lowest basis, and then the most gain or lowest amount of loss.
- Conversely, last in, first out (LIFO) means that the first shares of
stock to be sold are the last shares acquired. If the stock's value has constantly increased, these will be the shares of stock with the highest basis, and then the least gain or greatest amount of loss.
- Basis is typically the investor's cost of the stock, although it may differ when the shares of stock were inherited.
The thing that is confusing me is how to choose when I don't plan to sell all the shares at once, but rather wish to book some gains now, while minimizing the pain of selling more later... assuming I want to further lower risk exposure after the market turns downward.
I probably am missing something obvious here.
What say the wise and wonderful METARites?
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