Time to exit?

[bdr1000]

I hold ex-employer shares (MSFT) gained through an Employee Share Ownership Program ESOP. These are an anomoly in my portfolio (see detail below) and now represent 20% of my portfolio.

I am considering selling/exiting this position fully or partially and reinvesting the proceeds in my primary global equity index etf.

Should I exit the holding in this individual share?

Welcome your thoughts, experience, opinions.

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Little background below, kept it short to make it readable, feel free to ask any questions.

Age:48
Net Worth: 3m (1m Property home, 2m Portfolio)

The portfolio is allocated 70/30 equity/bonds.

My equity holding is consolidated into VWRL 1.1m and MSFT 400k, my bond holdings into VAGP 500k and 100k cash.

I left my career a few years ago to pursue a passion travelling, live low cost generating income by renting my home (property), leaving the portfolio untouched to grow, reinvesting dividends. Plan to continue for another five years before returning home when drawdowns may start.

The anomoly is the MSFT shares which through good fortune have grown in value significantly since acquisition in the early 2010's. Now valued at 400k (peaked around 550k in Dec'21). Held in a taxable account so subject to CGT, original value was circa 60k so a 340k capital gain.

[Snakey]

That tax looks painful. I assume you are still a UK resident despite the travelling? Any prospect of you changing that status? Five years might just about do the trick. Professional advice could be worth the money.

[bdr1000]

That tax looks painful. I assume you are still a UK resident despite the travelling? Any prospect of you changing that status? Five years might just about do the trick. Professional advice could be worth the money.

Thanks, and yes UK resident, interesting suggestion.

I imagine it might be tricky to implement because of the property generating income and because I don't reside in one country but travel throughtout the year usually changing every three months.

Perhaps I should seek professional advice, as a DIY investor its not my instinct - which profession do you suggest?

[Howard]

That tax looks painful. I assume you are still a UK resident despite the travelling? Any prospect of you changing that status? Five years might just about do the trick. Professional advice could be worth the money.

Thanks, and yes UK resident, interesting suggestion.

I imagine it might be tricky to implement because of the property generating income and because I don't reside in one country but travel throughtout the year usually changing every three months.

Perhaps I should seek professional advice, as a DIY investor its not my instinct - which profession do you suggest?

You seem to have done so well making your own decisions I'm not sure that it's worth spending money on professional advice.

Also a diy investor, over the years I have come across professionals. The problem is that most of them earned less than me (so why take their advice?) and those who appeared to earn more offered very expensive advice which I'm glad I didn't take.

I'm not a professional and wouldn't claim any expertise but, if it were me I'd gradually reduce the holding in Microsoft to perhaps half. But as a fellow holder it seems worth keeping a good proportion of your portfolio in such a good company given its track record.

regards

Howard

[MrFoolish]

Bill Gates has been buying big into MSFT recently...

https://www.youtube.com/watch?v=CArKnKBG6JM

He's a pretty clever chap and probably knows a thing or two about MSFT.

[Snakey]

I meant professional tax advice. If it's a non-starter - e.g. because you're UK-resident for sure unless you make changes that you aren't prepared to make (which may well be the outcome) - they'll probably tell you that without a fee. If it can be done but only if you're canny/careful, well, as with all these things you can sit and learn it all for yourself (it won't be beyond you I'm sure, it's just a question of whether you think you'll find it interesting/rewarding enough to be worth your time) and hope you haven't missed anything, or...

[bdr1000]

You seem to have done so well making your own decisions I'm not sure that it's worth spending money on professional advice.

Also a diy investor, over the years I have come across professionals. The problem is that most of them earned less than me (so why take their advice?) and those who appeared to earn more offered very expensive advice which I'm glad I didn't take.

I'm not a professional and wouldn't claim any expertise but, if it were me I'd gradually reduce the holding in Microsoft to perhaps half. But as a fellow holder it seems worth keeping a good proportion of your portfolio in such a good company given its track record.

regards

Howard

Thanks for sharing your experience and wisdom!

And the suggestion to methodically average out to a lower percentage holding. It does help to hear others opinions and relate them to your own thoughts.

With the CGT allowance reducing from 12.3k down to 6k and 3k over the next two years, my previous strategy of selling once a year to fill my ISA subscription (into VWRL) and mostly avoiding CGT no longer works. With no real tax advantage in using that slower (annual) pace I'll think about speeding up the pace perhaps quarterly and think a little harder about what level (% of portfolio) I would feel positive about retaining in a single company holding. Whilst MSFT is an amazing business with great earnings and diversified revenue streams with high growth opportunities, anything can happen and I think I've learnt not to be greedy and believe the past decades share price growth will be repeated next decade. Reducing the position by half would make it a 10% of porfolio holding.

Also helpful to hear your perspective on pursuing professional advice. Perhaps the value there would only be in the event of changing my tax residency as Snakey comments.

[bdr1000]

Bill Gates has been buying big into MSFT recently...

https://www.youtube.com/watch?v=CArKnKBG6JM

He's a pretty clever chap and probably knows a thing or two about MSFT.

Thanks for sharing.

He certainly understands the business and it looks like he has bought big 9bn at current levels $247. It's just that personally I don't have the same room for error, nor the same timescales as the Gates Foundation, so diluting my concentration is likely a better bet for me. It's useful insight though, so thank you, and certainly makes me think about partial rather than total dilution.

[bdr1000]

I meant professional tax advice. If it's a non-starter - e.g. because you're UK-resident for sure unless you make changes that you aren't prepared to make (which may well be the outcome) - they'll probably tell you that without a fee. If it can be done but only if you're canny/careful, well, as with all these things you can sit and learn it all for yourself (it won't be beyond you I'm sure, it's just a question of whether you think you'll find it interesting/rewarding enough to be worth your time) and hope you haven't missed anything, or...

Thanks Snakey, I'll do some online research on professional tax advisors, something like Taxscouts perhaps

[MrFoolish]

It's useful insight though, so thank you, and certainly makes me think about partial rather than total dilution.

Well Microsoft is pretty diversified in itself, which probably mitigates some of the risk of holding a fair bit of it.

[Hariseldon58]

Could hold a mixture of VEVE and VFEM instead of VWRL in a 9:1 mix and save about £1000 a year in fees…

Or a mixture of VHVG and VFEG the accumulating versions and reduce transaction costs relating to dividend reinvestment.

Personally I’d avoid letting the tax tail wag the dog! Reduce stock specific risk asap, use the CGT allowance and the lower rate of capital gains tax,

[bdr1000]

Could hold a mixture of VEVE and VFEM instead of VWRL in a 9:1 mix and save about £1000 a year in fees…

Or a mixture of VHVG and VFEG the accumulating versions and reduce transaction costs relating to dividend reinvestment.

Personally I’d avoid letting the tax tail wag the dog! Reduce stock specific risk asap, use the CGT allowance and the lower rate of capital gains tax,

Thanks, I'll think about the VEVE/VFEM idea to reduce fees, rebalance once a year I guess.

[Adamski]

I'd personally look at partial sales to use up capital gains allowance and use up lower rate, each tax year.

Your a wealthy guy/lady, up to you but might want to think about gifting some of it, before labour get in. Didn't mention whether married or children. Send some my way if you like

You staying early retired or going back to work? Cheers, Adam

[bdr1000]

I'd personally look at partial sales to use up capital gains allowance and use up lower rate, each tax year.

Your a wealthy guy/lady, up to you but might want to think about gifting some of it, before labour get in. Didn't mention whether married or children. Send some my way if you like

You staying early retired or going back to work? Cheers, Adam

Hi Adam

Thanks for reading and commenting, yes seems like partial sales to reduce holding to a lower target % of portfolio is the way I'll go, perhaps taking the timing out by transacting once a quarter.

To answer your questions:
I have a long term partner, twenty years but not married, so miss out on some of those tax advantages. One child although they are now early twenties. As someone who grew up with very little, a single parent immigrant mother on a low wage, I value the lessons it taught me to start work from a young age, be self sufficient, be happy on low cost lifestyle (value other things than consuming) and so don't feel that gifting to my child at this point in their life would lead to positive outcomes. My Mother passed twenty years ago, my Father is absent, and no siblings. My partner also came from very modest background and did not have the same earnings opportunity I lucked into, so these savings and investments are really for us both to provide a security we never had and give us freedom and time together.

I guess mentally I don't really relate to the label retired, it implies my life was all about work. I worked from age 12 continously through education and into a professional career, had a really high savings rate with a goal to no longer be dependent on work which drew a lot of mental energy, time, and healtg. We found a passion which we developed and wanted to pursue fulltime, it occupies our time fully and leads us to travel almost fulltime. So its not a conventional retired life perhaps. We can continue to do this on a modest income generated from renting our home, and plan on continuing this whilst we remain healthy and fit enough (the passion involves the outdoors and a sport) and focus on freedom, time together, and motivation for this passion.

[Adamski]

@bdr1000, I'm similar age but semi retired/part time. I'm not so keen on the retired label either, as people assume you're spending your days playing golf.

I help care for a relative which takes lot of our spare time. Could do with more sport/outdoors activity myself, and to lose extra pounds from Christmas!

On gifting know what you mean, but these days generally people in 20s need help on the housing ladder otherwise stuck in renting.

[bdr1000]

On gifting know what you mean, but these days generally people in 20s need help on the housing ladder otherwise stuck in renting.

Yep, thanks for re-asserting this bit, I agree. On this topic I feel timing is important on both the human and the market sides.

[vand]

Honestly, no one can answer this for you. the inclination for most people - because they haven't been on the journey you have been on with the stock is to cut your position size (otherwise, why don't they own the same stock in the same allocation as you?), but just the fact that you have held it for so long is a good sign that you're shouldn't be in too much of a rush to change what has worked.

There are definitely a point where you can be too concentrated in one stock, but whether 5% or 50% is impossible to answer.

[Lanark]

If you sell them the price will go up and you will kick yourself for missing out on those future gains
On the other hand if you keep them, they will fall in value and you will kick yourself for losing those past gains.

Right now MSFT is approaching 25% of your portfolio equity. If you were setting this up from scratch nobody would advise putting that much into a single share. I would cut it down to 10%.

If I find myself fretting about a particular share and checking its price too often, that's usually a sign I'm over invested. A good portfolio is one you can comfortably forget about for weeks or months at a time.

[bdr1000]

Right now MSFT is approaching 25% of your portfolio equity. If you were setting this up from scratch nobody would advise putting that much into a single share. I would cut it down to 10%.

Thanks good advice.

I suppose one thing I can do this FY is sell my large bond holding and move it immediately to an almost identical index ETF, thereby crystalising some sizable losses (from this years bond crash) which can be used to offset some gains on MSFT and begin the trimming of the position with this.

[scrumpyjack]

Shares acquired as a result of an ESOP may have special CGT allowances or exemptions. I suggest you check this out. It looks very complicated!

https://www.gov.uk/government/publicati ... hemes-2021