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Author: notehound Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 459410  
Subject: FIFO or LIFO when booking gains? Date: 2/11/2013 10:55 AM
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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.


http://wiki.fool.com/How_to_Sell_Stock_With_LIFO_or_FIFO

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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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415599 of 459410
Subject: Re: FIFO or LIFO when booking gains? Date: 2/11/2013 11:06 AM
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6. In a non-taxable (IRA) account

It doesn't matter in an IRA account.

7. How would the answer differ in a taxable account

and

5. Also wishes to minimize losses if remaining shares are sold later during a downturn

Generally means sell LIFO (assuming held or at least one year for LTCG vs STCG). Less capital gains on those that have appreciated the least and less on those you have own the longest if the market drops.

The alternative is to book larger gains now and hope for the ability to write-off capital losses later.

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Author: notehound Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415600 of 459410
Subject: Re: FIFO or LIFO when booking gains? Date: 2/11/2013 11:21 AM
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It doesn't matter in an IRA account.

Thanks, Hawkwin.

I was sort of thinking that I should choose LIFO in the IRA account so that a small market drop (say under 10%) would show less "red" on the remaining control panel if the shares I purchased first were bought at a greater discount to current price.

I.e. - I would have permanently booked smaller gains, but the control panel would still look "green" to my DW after the drop, since she seems to consider my trading performance as sub-par if anything I have bought shows "red."

I really should turn the IRA account over to a professional so she has someone else to blame when the next big correction comes.

;-)

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Author: TMFMurph Big gold star, 5000 posts Old School Fool Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 415601 of 459410
Subject: Re: FIFO or LIFO when booking gains? Date: 2/11/2013 11:24 AM
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Hi notehound!

With Scottrade, there is a choice called "least tax"; which, IMHO, ( and for my tax situation ) is best. The automatically "chose" which shares to sell that result in the least gain ( tax ), regardless of when they were purchased. Way better than LIFO or FIFO for me.

This is relatively new ( started last year or so, IIRC ).

Cheers!
Murph
Home Fool

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