I participate in the ESPP (Employee Stock Purchase Plan) that my employer provides. Over the years I have accumulated multiple "lots" or positions which all have a different purchase price. I've recently considered possibly selling some long-term for the purpose of diversification. So is it better to sell the shares with the lowest purchase price or the highest?

My thoughts on it are mixed. If I keep the shares with the lowest purchase price it acts as a buffer if the stock price declines. But if I sell the lower priced shares and it declines I am taking a loss sooner.

I suppose it may be a wash, but still wondering if there is an established rule or something.

FYI: All my positions in the stock are currently profitable.

  • "If I keep the shares with the lowest purchase price it acts as a hedge if the stock price declines." how? you have the same risk regardless of which lot you keep - you either have a large gain and a small loss or two small gains - not sure how this is a "hedge". A hedge would be an opposing position that would reduce risk. – D Stanley Feb 28 '17 at 15:13
  • I see what you're saying, used the wrong terminology apparently. What I really meant was "buffer." I will correct the question. – EternalHour Feb 28 '17 at 23:16

the difference would be taxes... Lets say you have two lots, one with a 10 dollar gain, and one with a 20 dollar gain. And lets say you decide to sell one lot this year, and the other lot in 10 years. AND, lets say that it turns out the stock price is exactly the same in ten years as it is when you sell the first lot.

In all likelyhood, you'll have more income, and therefore you are likely to be in a different marginal tax rate. If you believe that you're more likely to pay more taxes in 10 years, then sell the lot with the higher gain now. If you believe you're more likely to pay more taxes now, then sell the lot with the lower gain now.

  • This leaves out the "time" variable which decides if the gain is taxed as long term gains vs. ordinary income. – ACD Feb 28 '17 at 20:10
  • This makes sense, wasn't thinking about the tax aspect. – EternalHour Feb 28 '17 at 23:17
  • You're quite right. I assumed LTGs for the lot sold today. – Michael Mar 1 '17 at 21:30

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