My last Apple (AAPL) share harvesting took place in October. I sold a handful of shares at $229.04. That was very close to the all-time high of $233.47.
Thanks Apple, it was a wonderful trip. As I have suggested in many articles, share harvesting accompanied by some generous and growing dividends with a bond component to manage the sequence of returns risk is arguably the most successful retirement-funding portfolio model. When we bring in some stocks or stock funds that have the potential of very generous capital gains, we can create homemade dividends that can dwarf cash dividends. Here’s my article Homemade Apple Dividends Are 100 Time Bigger Than The Cash Dividends. And that was penned before I got out the basket in October for that Fall Harvest.
Growth is great in the accumulation stage. Growth is great for the retiree portfolio. We likely should not get caught up with the ‘income thing’, or income trap. Opening up the universe beyond higher income paying stocks and bonds can open up the door to greater diversification and the ability to find companies with even greater financial health.
So in my share harvesting, did I get lucky? No, not at all. I knew the price. I knew the capital gain, I made hay while the sun was shining. I looked into my account and saw that the markets were rewarding Apple with much higher share prices. The markets and my Apple stock offered a few thousand dollars that were not there a few months earlier.
Let’s say I had 100 shares of Apple in May, the price was $190. So we have $19,000 ‘worth’ of Apple. The share price increases to $230 in October. I know have $23,000 worth of Apple. Obviously, that’s $4,000 of value that I did not have a few months previous. I remember that the share harvest idea certainly entered into my decision to go on that trip. In my new life work semi retirement stage, I have cut my income to near zero. It’s not easy to spend money when you do not have a regular pay cheque and your portfolio is ready to provide half of needed income. I will still have to earn half a living with my writing endeavors. It will likely take a couple of years before I get to that stage. So, taking added trips is not a spontaneous move to be taken lightly. Seeing that added value certainly made it easy. Hit that sell button. I also remember thinking that the added value could just as easily disappear in the short term. Obviously, that added value did disappear. In hindsight it all appears to be a good move. That share harvesting has now only contributed to slightly lesser (puny to begin with) Apple cash dividends.
And yes those cash dividends did arrive just a few weeks ago.
Being in a semi-retirement phase gives me a look at what it feels like to manage the retirement funding (decumulation stage) with a stock portfolio. And many readers will ask me “Should I sell my winners or my losers”. Perhaps my decision to go on that trip and sell Apple is more of an emotional decision compared to a sound financial decision, with a real benefit with respect to future-preparedness of my retirement portfolio. It looked like I was ‘winning’ as I was selling a winner. It felt like winning. I was Charlie Sheen, the investor.
But is the portfolio now in better shape because I sold a winner that was on a tear, compared to perhaps harvesting from 3-4 winners and a loser? I doubt it. The decisions might have been a good financial decision simply based on only having one transaction cost compared to having to sell 3-4 assets. This might be a bit of a financial optical illusion.
What will determine by retirement-preparedness is my future growth (total return) and the risk level of my portfolio. In fact, longer term, you could suggest that I might have slightly compromised the future income potential if I reduced my share count on a company that will deliver future growth that is greater than the stocks that I left untouched. We/I have no idea if Apple will outperform the other stock assets.
In this recent article, When Retirees Leave The Investment Ring They Can Let That Sensible Portfolio Keep On Keeping On, I offered a demonstration that suggests we can leave well enough alone and simply trim ‘from everywhere’. Darwin will take care of things from there.
That said, we might see some support for trimming winners as a strategy within the construct of a balanced portfolio that includes a bond or bond and cash component. Once again, back to my article How Retirees Made It Through The Last Two Recessions, those Vanguard Balanced Funds would and will sell the winners and move those gains (in a rising market) to the safety of the bond component. Those funds are essentially storing the value of the stock gains in the ‘safer’ confines of the bond component. A retiree who self-directs their own portfolio has the option to send those stock gains to a cash component to remove the bond market risks. We can make hay when the sun shines, and then throw a wrapper on those hay bales and wait until we need those funds.
When we rebalance we can manage the risk level of the portfolio. That is the magic of a Simple Balanced Portfolio. Making hay when the sun shines is an ongoing staple of the Balanced Portfolio Model whether you hold a fund or self-direct.
So did I get lucky with respect to my Apple share harvesting, or what? I think we’re going to land on the side of ‘or what’. That said, I will do more research on the matter and I will consult with a bunch of CFAs and portfolio modellers who are much smarter than me.
For weekend reading ideas, you might check out my this link where I begin my look at the wonderful book Retirement Income For Life: Getting More Without Saving More from Frederick Vettese. I will be back with a full review of that must-read book as it does look at spending patterns and funding patterns for Canadian and US retirees. It’s full of surprises; good surprises.
Author’s note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. If you liked this article, please hit that “Like” button. If you’d like notices of future articles, click the “Follow” button.
Disclosure: I am/we are long BNS, TD, RY, AAPL, NKE, BCE, TU, ENB, TRP, CVS, WBA, MSFT, MMM, CL, JNJ, QCOM, MDT, BRK.B, ABT, PEP, TXN, WMT, UTX, BLK.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.