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I'm a 28 year old college grad who set up a Roth IRA a year or so ago and I've noticed that my long-term stock positions within it have a combined +$102.28 in potential profit. Every position is long term, and all have a net profit individually. I have no desire to withdraw these funds or use the money in it for 30+ years.

So, what would be a reason why I would not want to sell all of them for a $102.28 total gain, and then a day later or so buy all the shares back at the new price (assuming all money stays inside the ROTH)? From my understanding there is no penalty for doing so as it is a gain and not a loss and it would allow me to buy more stock to hold.

Furthermore, I believe that as long as I buy them again before the EX date I also get the dividends. This is still relatively new to me :D

  • Is the profit dividends just sitting in cash or an increase in the stocks value? If the latter, then why do you think this will benefit you in any way? – Nosjack Feb 14 at 19:16
  • The profits and/or dividends sit until there is enough to buy more shares. So, yes, until there is enough to buy more they all sit in cash as contributions (or excess). This particular one doesn't allow automatic reinvestment. – Mark Feb 14 at 19:20
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    "it would allow me to buy more stock to hold" is just wrong. You'll be able to buy exactly as many shares as you would be selling, even though the amount of money is more, because the stock prices went up. Unless you are proposing to rebalance... – Ben Voigt Feb 14 at 19:21
  • Your earnings inside the account never count as contributions. – Ben Voigt Feb 14 at 19:22
  • When I said contributions I meant contributions I made into the Roth sit there until there is enough to invest. Not that each growth is a contribution. As to the bulk of your comment...maybe I'm misunderstanding how it works. If the cost basis is $813.18 and the potential profit is $102.28 then if I sold it all it would be $915.46. Even if the price went up to...say..another $2/share would I not still have more money left over to buy at least 1 more share than I originally had? :/ – Mark Feb 14 at 19:26
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From my understanding there is no penalty for doing so as it is a gain and not a loss...

Correct, since you are selling at a gain you aren't breaking any rules.

...and it would allow me to buy more stock to hold.

Not correct. Assuming the price of the stock does not change due to the market between you selling and re-buying, you would end up with the same number of shares and same account value.

For example, you buy 5 shares worth $100 each, so $500 total value. Two years later your shares are now worth $120 each, total profit of $100 and new total value of $600. You sell all the shares at the market price and get $600 cash. The next day you buy as many shares as you can with $600 at the market price which is... 5 shares.

You purchase the stocks the second time at the market price, not at your cost basis. The cost basis is what you paid the first time (when the stock was only $100 each), which was the market price at that time.

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  • I can see that with your example, but unless my math skills are horrible I'm still getting a 1 share addition here. So let's say I sold all of my 15 shares at a total cost basis of $813.18 for the price $55.53 to total $915.46 ($813.18 CB + $102.28 Gain). Now suppose a day later the price has gone up to $56/share. If I buy 16 shares (instead of 15) that's 1 extra share with $19.46 left over. – Mark Feb 14 at 19:42
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    @Mark Your math skills are horrible, sorry! 55.53 * 15 = 832.95. That's where your increased share is coming from. Just think about this as a general, intuitive concept - how could you sell X shares at a price for some total, and then buy (X+1) shares at the same price for the same total? – Joe Feb 14 at 19:45
  • D'oh. I probably should use a calculator...Ok it all makes sense now. Thanks a lot guys! – Mark Feb 14 at 19:48
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I suspect you're confusing gains with dividends. What you're describing is, loosely, how dividends work in this kind of account.

Say you have a stock that has a present price of $100, and a dividend of $1 per share per year. You own 10 shares of that stock. Each year, you get $10 ($1 * 10) in your account, cash. That money now isn't in a stock - it's just money waiting to be spent.

Ten years down the line, you now have $100, and can buy a 11th share of stock, assuming the price is still $100. But this doesn't come from selling the stock and buying more - it simply comes from having some more cash in your account now.


The other concept you may be confusing this with is timing the market. Timing the market is the attempt to "sell high, buy low" by identifying points in the market where a stock is at or near its peak selling price, and then selling one's shares in that stock, then waiting for the stock to drop some amount, at which point more shares can be purchased. This is a very appealing strategy for some, as it seems like free money.

Of course, timing the market is not really a good strategy, unless you have some insider knowledge (which would probably be illegal to use) or some really good software (which is unlikely unless you've a degree in quantitative finance). You can see a bunch of examples of questions on this site, like this one, some of which explain how timing works and many of which explains why to not do it.

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