Taking gains: should I?

[cocacola]

I have an inheritance amount which is invested in the eMaxis Slim All Country, in my tokutei (taxable) account. I have used some of this inheritance to max-out my "growth" NISA (the lump-sum one), and using part of the gains to invest in the tsumitate (monthly) NISA. The investment has been doing quite well, with a pretty substantial growth.

In terms of our monthly finances, we've gotten to the point where we have enough for monthly fixed costs, as well as a bit more to be saved. We've got a good amount of emergency fund, so the bit of savings go into a "pre-emergency" fund. We use this pre-emergency fund, in case we go over our spending limits (ie. credit cards). Doesn't happen often, but it's good to know that this layer is there.

My question is: my daughter needs a new bike, and I want to get her something nice (like a Tokyo Bike, which costs around 10万). Should I dip into the "pre-emergency fund" to buy it, or take some off the top of the tokutei investment? The tokutei investment has quite a bit more gains than the total of the pre-emergency fund.

From my thinking, taking gains from the tokutei would mean that I would have to pay 20% capital gains tax. Using money from the pre-emergency fund will not incur any tax. The pre-emergency fund has around 50万, so spending 10万 from it won't be the end of the world.

But would it be a good idea to sometimes think about taking some gains from an investment, even if cap gains tax needs to be paid?

I'm new to investing on my own, so I would like to hear some experienced investors' mindset about taking gains. Do you take gains, even if it's not absolutely necessary? When do you take gains?

Thanks!

[TokyoWart]

I think realizing capital gains in order to maintain portfolio diversification is different from harvesting gains for a consumption expense. To me, it seems like this question mixes those two desires. I don't like harvesting funds from my investment accounts for a consumption item because I am still in my accumulating phase and I want to pay for consumption from current cashflow so that I don't develop a habit of living beyond my means. I also want the decision to realize gains in order to maintain my portfolio allocation goals to stay focused on those allocation goals rather than being tempted by market timing or a desire to splurge on something nice.

For that reason I would make the decision on using the "pre-emergency fund" without regard to what has happened with the inheritance investment or how high or low eMaxis Slim All Country has performed. Separately I would decide whether or not I wanted to sell some eMaxis slim based on whether or not it has outgrown its allocation in my portfolio and I need to move funds around. I don't want the decisions to influence each other.

[cocacola]

This is a great breakdown. Thank you very much.

I guess my thoughts on the inheritance was that I just didn't want to keep it as cash, losing its value due to inflation. But since the inheritance was not planned-for, I didn't really have a plan for it. I just put it into the emaxis fund, and it has done a lot better than I had expected it would.

I think this is why I am not considering that investment as seriously as I should.

Gives me more to think about, in a good way.

But separating an investments in terms of yield harvesting vs. long-term gains is a good point to keep in mind.

Thanks very much for your advice.

[Mrblobby]

I'm new to investing on my own, so I would like to hear some experienced investors' mindset about taking gains.

cocacola, I was thinking exactly the same, and doing similar research. It gets pretty tiring doesn't it, with all the varying opinions. As valuable as they were (well, some of them!), I came to realise that there is no correct answer and I really just had to what I thought was best for me... in my particular situation.

Do you take gains, even if it's not absolutely necessary? When do you take gains?

I took gains last week.
It was entirely unnecessary - that was the main thing I was trying to think through.
It just seemed like a good idea.
What remains in is still more than what I have put in.

The new car I have on order - it's almost going to feel like I'm paying for it with 'free' money.
That's going to be a pretty great feeling!

[cocacola]

cocacola, I was thinking exactly the same, and doing similar research. It gets pretty tiring doesn't it, with all the varying opinions. As valuable as they were (well, some of them!), I came to realise that there is no correct answer and I really just had to what I thought was best for me... in my particular situation.

Yes, this is what I have concluded, as well. Getting insight from experienced investors, as well as doing my own research has brought me to the same conclusion as yourself: there is no "correct" answer, just one that fits your particular situation. As Thomas Sowell had once said: "There are no solutions, only trade-offs." And the trade-offs are very personal to each individual. Weighing the trade-offs carefully is what is the most important factor, I think. Taking gains now may reduce the long-term future total amount, which isn't great, but it could also reduce the long-term risk, if the investment falls in a market downturn...

I took gains last week.
It was entirely unnecessary - that was the main thing I was trying to think through.
It just seemed like a good idea.
What remains in is still more than what I have put in.

The new car I have on order - it's almost going to feel like I'm paying for it with 'free' money.
That's going to be a pretty great feeling!

That's awesome. Congratulations! I am mainly considering the inheritance-investment for my children's future, but at the same time, if taking some gains now can allow us, as a family (while they are young) to experience more things together, I think that is a worthy trade-off.

Thanks for chiming-in on this and letting us know about your thought-process and personal experience. Knowing that there is someone who has taken gains for their own happiness helps me think through this with feeling less guilt/potential regret.

One thing I'd like to mention is that, if the eMaxis Slim All Country fund I am investing in actually did pay dividends, and/or reinvested its dividends, my choice of whether to take gains now or not would be a bit more difficult. Not sure if that is a big factor that should be considered, but taking compounding into consideration would complicate things a bit more for me.

Thanks, again.

[beanhead]

One thing I'd like to mention is that, if the eMaxis Slim All Country fund I am investing in actually did pay dividends, and/or reinvested its dividends, my choice of whether to take gains now or not would be a bit more difficult. Not sure if that is a big factor that should be considered, but taking compounding into consideration would complicate things a bit more for me.

Thanks, again.

It does reinvest the dividends.
Link below shows how you can find the report which tells you how much is reinvested.

https://www.retirejapan.com/forum/viewt ... 5&start=10

[Mrblobby]

That's awesome. Congratulations! I am mainly considering the inheritance-investment for my children's future, but at the same time, if taking some gains now can allow us, as a family (while they are young) to experience more things together, I think that is a worthy trade-off.

Thanks for chiming-in on this and letting us know about your thought-process and personal experience. Knowing that there is someone who has taken gains for their own happiness helps me think through this with feeling less guilt/potential regret.

You're welcome, and best of luck with your situation.
Let's decisions!

Now, if only they would jolly well get a move on with actually making the thing...!
I might even have a ski season to enjoy before I eventually get it.
That seems a long way off, but no doubt it will come round (too) soon enough.
Looking forward to stuff is fun too, hey.

[cocacola]

It does reinvest the dividends.
Link below shows how you can find the report which tells you how much is reinvested.

https://www.retirejapan.com/forum/viewt ... 5&start=10

Yes, from what I understand, the fund internally re-invests dividends of companies within the fund that pay dividends, but does not pay-out dividends to investors, nor re-invest those dividends marked for investors to purchase more of itself.

Correct me if I'm wrong, but all us investors experience from the eMaxis Slim All Country fund is the fund's price movement, no?

[cocacola]

Let's decisions!

There was a commercial more than 10-years back where a famous Japanese rock singer did a commercial for some Lotte gum. The tagline he repeated in the commercial was "Wret Chewing!" (Let's chewing).

Now, if only they would jolly well get a move on with actually making the thing...!
I might even have a ski season to enjoy before I eventually get it.
That seems a long way off, but no doubt it will come round (too) soon enough.
Looking forward to stuff is fun too, hey.

I'm a bit of a car-guy, and if you are waiting for one to be custom-built, it must be a very nice piece. Enjoy!!

[Mrblobby]

It will be very nice, but from what I have heard there are some really long waiting lists for many new cars right now.... even little diddy k-cars and the like.

I've been promised the price is locked in, yey.

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