Saturday, July 3, 2010

My Own Mutual Fund

I have my own collection of individual stocks which I call my mutual fund. They are all dividend reinvestment stocks and most are direct purchase so I didn't need a broker. I bought them back in 2000 when I got my first full time job and stock prices were high. I planned to hold them long term so I wasn't worried about their value.

With all that has gone on since 2000, I am not surprised that they aren't worth as much as I had hoped, although I am disappointed. Every year at tax time I added up their totals since I have to pay tax on the dividends. I had hoped they would be worth $5k, then when the economy tanked I hoped for $4k, then GM went bankrupt and I hoped for $3.5k. I just added them up and they are barely worth $3k. The worst losses in value came from Motorola and Eastman Kodak. This is a bad time to sell.

I suppose 10 years is a long term investment to some and not long enough for others. If I don't sell them and use the proceeds for my mortgage then I will have to add at least 2 more months on to my mortgage plan. Ugh, that sound awful. If I don't sell, I should at least sell Motorola and Kodak and reinvest in one of the other stocks that has done well over the last 10 years like Proctor and Gamble. Maybe that would give my little mutual fund a chance to grow.

I haven't decided what I will do yet. 8 more months for the mortgage seems like a very long time and that's IF my tenant pays regularly. Then there's the capital gains tax that is going up next year. I should sell now or many years from now. Decisions, decisions.


Dave said...

Yes, Daizy, it is a bad time to sell, especially if you bought them in 2000 when stock prices were high. Remember the first rule of investing: "Buy low, sell high."

Intangibles of paying down the mortgage aside, if the after-tax value of the dividends those stocks yield are greater than the after-tax interest you are paying on the mortgage, then you should keep the stocks. But when determining the after-tax value of selling the stocks, you need to also take into account any capital losses you will incur if you sell any losers. That capital loss can be used to offset your other income (up to $3,000) on your tax returns.

And another thing on dividends and long-term cap gains, the top rate on them will be increasing only if your overall income is very high, like at least $200k, which I doubt you are near.

I still have plenty of shares in my non-IRA stock mutual fund which I bought in the late 1990s. Some were reinvested dividends, others were not. If I were to sell it all now, I'd be taking a big loss for tax purposes although when I exclude the reinvested dividends I'd still be ahead.

Decisions, decisions, still have plenty of them to make!

Daizy said...

Thanks for that reminder Dave. I forgot that it was only for income over $200k. No need to worry about that then. I do have plenty of losses too. I think I will wait a few more months to decide to sell or not.