AIM Tax Consequences when starting with existing holdings.........
Q....................
Suggestions sought. When I took back control of my funds I felt that
the markets were overpriced. For that reason, I purposely bought light
with the intent of going a little heavier on any buy orders t ultimately
made to gradually bring my overall portfolio back into balance. This has
worked out fine, but one annoying result is that a number of my sell
points ended up being at or below my average cost now. My question is
how best to fix this? Is it a simple matter of adjusting my portfolio
controls upwards and if so any idea of how big a percentage? I can see
this being an ongoing issue when it comes to rebalancing the overall
portfolio. Any assistance would be appreciated.
M
A....................
Hi M, Re: AIM's lack of concern relative to "average price/share".........
AIM is designed to take profit on the most recent shares purchased, not
on average share cost. So, it is ambivalent about which batch of shares
are being sold or what their costs might be. Generally the gross LIFO
gain is about 20% to 40% depending upon what SAFE values and what
minimum trade size is chosen.
Even with a LIFO gain, the FIFO or average cost could be showing a loss
for a taxable transaction. AIM succeeds by compounding LIFO gains over
time. Eventually with each cycle your average cost/share will be lower
than your average selling price even if you started at a much higher
base cost.
When AIM sells, even at an average or FIFO loss, it will be selling at a
LIFO gain. It is replenishing the cash reserves with profits attached.
Since cash is the seed stock for the next planting, it is important to
recover the cash whenever it is possible regardless of the tax
consequences. If you sell shares at a tax loss, you will be able to use
those losses against any taxable gains you have during the same year.
This will be good for your overall portfolio even if that particular
holding seems to be doing something "wrong."
The best "Fix" is to just follow AIM's directions and sell regardless of
tax base cost when AIM wants a sale to occur.
Other opinions are welcome..............
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