Don’t Be Sentimental with Inherited Stocks
Honor your beloved relative’s memory by diversifying as soon as possible.
Q: My aunt died in 1997 and left me a generous amount of Chevron stock. Partly because she and I were so close, I’ve never felt right about selling it. But given what’s recently happened with the price of oil, and, considering that I’m now retired and the stock makes up a majority of my retirement, what do you think about me liquidating it and moving on?
A: Obviously you could not have predicted that the price of a barrel of oil would plummet by over 50% and cause the value of your holdings to drop as much as it has. But here’s a little tip: the Chevron share price should have been irrelevant to your decision to sell (or hold) in 1997. It should have been irrelevant a year ago (when the price was still high), and it should be irrelevant today.
I’m always a little dismayed when people hold on to a particular stock simply because they inherited it. That’s because when a person receives an inheritance, it’s actually a great time to diversify (or even liquidate), and build a new portfolio.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Whether it’s stocks or real estate, most assets that are transferred upon death enjoy what is known as a “stepped-up basis,” which essentially eliminates any capital gains that would otherwise be due. This enables the person who receives the inheritance to dispose of the possessions with no tax consequences.
So why do so many people hang on to inherited securities? There are a variety of reasons, but here are a few that I regularly see. First, there is a sense of obligation that comes with an inheritance, with the asset serving as a reminder of the person who has passed away. (My own home is filled with items that once belonged to my mother-in-law. A few of these items are valuable, but most are simple, everyday things that have great sentimental worth.)
Second, we tend to believe that if an investment was good enough for a cherished relative, it should be good enough for us. Third, and, most commonly, it’s simply easier to hold on to an inherited stock than it is to make a change.
Whatever reasons you’ve had for keeping these shares (for almost two decades), you have too much of your savings tied up in just one investment. Having all of your eggs in one basket is rarely wise, particularly as we age and no longer have decades left to make up for our mistakes or oversights.
If I were in your shoes, I’d sell enough shares so that Chevron doesn’t comprise more than 5% to 10% of your overall retirement savings. Having more than 10% invested in any one company is typically too much for anyone with a limited time horizon and modest (or even moderate) savings or income.
I’m sure you don’t feel great about selling the stock while the price is down, but try and look at it this way: It’s substantially higher now than when you inherited the shares in 1997. So while it may not be as high as it was a year ago, you’re still way ahead.
If you know that reducing your exposure is the right thing to do, but you’re having trouble pulling the trigger, consider selling half of the shares now and the other portion a year from now. That way, for good or for bad, no matter what happens, you can feel clear about your decision. Simply, if the stock is lower a year from now, you can pat yourself on the back for having had enough foresight to sell only half of your shares. And if the stock is higher a year from now, you can congratulate yourself for having kept half.
Your aunt did something very nice for you. But the circumstances have changed and the value of Chevron stock is not what it once was. I suggest you honor your aunt’s memory (and her foresight) by diversifying your portfolio as soon as possible.
Scott Hanson, CFP, answers your questions on a variety of topics and also co-hosts a weekly call-in radio program. Visit MoneyMatters.com to ask a question or to hear his show. Follow him on Twitter at @scotthansoncfp.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Scott Hanson, CFP, answers your questions on a variety of topics and also co-hosts a weekly call-in radio program. Visit HansonMcClain.com to ask a question or to hear his show. Follow him on Twitter at @scotthansoncfp.
-
Stock Market Today: Nasdaq Soars Ahead of Tesla Earnings
The EV stock rose nearly 2% ahead of its highly anticipated Q1 earnings report, due after tonight's close.
By Karee Venema Published
-
GM Stock Accelerates After Earnings Beat
General Motors beat expectations for the first quarter and raised its outlook for the year. Here's what you need to know.
By Joey Solitro Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Pros and Cons of Waiting Until 70 to Claim Social Security
Waiting until 70 to file for Social Security benefits comes with a higher check, but there could be financial consequences to consider for you and your family.
By Patrick M. Simasko, J.D. Published
-
Now Could Be Time for Private Investors to Make Their Mark
The venture capital crunch may be easing, but it isn't over yet. That means there could be direct investment opportunities for private deal investors.
By Thomas Ruggie, ChFC®, CFP® Published
-
How to Stop Boredom From Ruining Your Happy Retirement
Retirees who explore new interests and have an active social life are more likely to find joy — and even greatness — in the newfound freedom of retirement.
By Richard P. Himmer, PhD Published
-
The Life-or-Death Answers We Owe Our Loved Ones
How our life ends isn’t always up to us, but that question too often must be answered by loved ones and health care workers who don’t know what we would want.
By Joel Theisen, RN Published
-
Hot Tips for Home Buyers and Sellers Right Now
Real estate looks to be especially hopping this spring, thanks to pent-up demand and buyers adjusting to higher mortgage rates. Here’s how you can prepare.
By Pam Krueger Published
-
Is 100 the New 70?
Eating well, exercising, getting plenty of sleep and managing chronic stress can help make you a SuperAger. Funding that long life requires longevity literacy.
By Phil Wright, Certified Fund Specialist Published
-
Nine Lessons to Be Learned From the Hilton Family Trust Contest
Disclaimers, good communication, post-marital agreements and more could help avoid conflict in a family after the owners of a wealthy estate pass away.
By John M. Goralka Published