Dear Helaine: When I was a teenager, my grandmother gave me about $20,000 in privately traded stock in a company founded by my great-grandfather. The value has grown considerably. What was initially a $125 annual dividend paid $14,000 last year.
My wife and I are diligent savers. Our house is paid off, and we currently have a mix of retirement savings and short-term assets valued at a little under $1 million. My shares from the family company make up the majority of that number.
Every year the family company sets aside a certain sum of money to buy back shares at a discount from the book value. Other family members have sold back some of their stock over the years, but I never have. Given that the stock has been valued higher every year, this has been a good investment decision. But with some key relatives in company management looking to retire, I feel like I should probably start selling shares and moving the money elsewhere.
But I am fighting a feeling of disloyalty at the thought of selling the shares. I never worked for the company, and neither did my parents. Also there's the thought that since I never did anything to earn this stock, it should be something that gets passed along to my kids instead of keeping it for myself.
I'm also concerned about capital gains. It's easier to collect a nice dividend check every year than to think about forking over a bunch of money in taxes. Thoughts? -- Fortunate but Perplexed
Dear Fortunate: It must feel like that stock is a close relation. It's not just your own piece of a long-term family-owned business; it's like a fairy godmother, raining down financial benefits on you while you do nothing for it in return. Little wonder you would like to hold the stock close!
But wise money management isn't about sentiment and continuing to count on good fortune. It's about cold, hard facts and logic. So ask yourself this question: If this stock was that of any other company, would you ever have allowed it to become such a disproportionate part of your portfolio? The answer is almost certainly not. It's too risky. If something goes wrong, it will inflict severe -- and perhaps irreparable -- damage on your finances and on any future inheritance you might leave your children.
You need to diversify your holdings. Holding on to the stock because you fear a large capital gains bill could be the definition of being penny wise and pound foolish. I'd recommend taking advantage of the family buyback plan so you can bring your financial life into alignment. But you don't need to recalibrate in one fell swoop. You can parcel out the sales over a period of years, gradually weaning yourself off the family business.
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