MONEY selling a home

If You Want to Sell Your House This Year, Start Doing These Things Now

Living room
Michael Grimm—Gallery Stock

With home prices recovering and interest rates still low, now may be the time to act. Here are 8 things successful sellers need to know.

In part one of our Spring Real Estate Guide, we told you what to do if you want to buy a home this year. In today’s part two we’ve got tips for sellers. Stay tuned for part three, with advice for those who want to say put and add value with home improvements.

If you haven’t sold a house in the past decade, brace yourself. Today’s buyers are demanding. They’re savvier about market dynamics and data and want to see houses on their own schedule, says Redfin’s chief economist, Nela Richardson. “We’re finding that buyers want access to your house when it works for them,” she says. “They don’t want to wait for the open house.” Baking cookies won’t cut it anymore.

Some things in your favor: Low interest rates are your friend too. Buyers know that rock-bottom mortgages can’t last forever. If interest rates start to tick up, there could well be a rush to buy. On the other hand, if rates go up too far, that will almost certainly dampen prices. “As a buyer’s monthly payment goes up with rising rates, something’s got to give—and that’s likely your home price,” says Keith Gumbinger, vice president of HSH, a mortgage information provider. In other words, sellers: If you snooze, you may well lose.

Your Action Plan

Sell first, then buy. The dilemma most sellers face is whether to buy a new place at the same time. In general, it’s smarter to sell before you buy—there’s nothing worse than having to carry two mortgages at once. You may be able to rent your house from the buyer for a few months, or at least find a short-term rental elsewhere. The one thing you don’t want to do is try to buy a new place with the contingency that you have to sell your old place first. Nothing kills a deal faster, especially if you’re up against other bidders.

Don’t just list your home—market it. Gorgeous photographs, video walk-throughs, perfect floor plans—buyers want it all. You need an agent who can develop a full-blown marketing plan, including social media. “People are doing so much more research ahead of time, going through listings online, and weeding out properties before they see them,” says Benjamin Beaver, an agent with Coldwell Banker in San Angelo, Texas. That’s especially true of millennial first-time buyers, who have grown up with information on demand.

And a top-flight agent can help pay for himself. Redfin found that listings with photos taken by a professional got 61% more views, and homes listed between $200,000 and $1 million sold for $3,400 to $11,200 more than similarly priced homes. A video tour including views of the neighborhood (parks, restaurants, main street) is another great tool. “If your photos capture an interested buyer, the video can help boost their interest,” says Rae Wayne, a real estate agent in Los Angeles. Plus, a video can help drive additional traffic to your listing.

Negotiate with your agent. Bernice Ross, the CEO of RealEstateCoach.com, has a brilliant method for testing a potential agent’s bargaining skills: Ask her for a reduction in her commission—and then think twice about hiring her if she agrees. “If they can’t negotiate a full commission on their own behalf, how are they going to negotiate the best price for you?” she says.

Don’t “test” the market. Pricing right is an art these days. The last thing you want to do is accidentally list too high out of the gate. Not only does it require cutting the price—in many cases to less than the estimated value—but it also means more time on the market. “It’s not like the old days where you put in a 10% buffer,” says Jacquie Sebulsky, a broker with Cascade Sotheby’s International in Bend, Ore. “People are savvier, and many agents won’t even show a house if it’s overpriced.” According to Zillow Talk: The New Rules of Real Estate, a house that is priced right will sell in about half the time of one that is overpriced.

Another reason to price right: traffic. In the first week a listing goes on the market, it gets four times as many visits as a month later, Redfin found. Moreover, if you do end up dropping your price, says Richardson, it sends a signal to buyers that you’ll come down more. “One agent described it to me as ‘blood in the water,’ ” she says.

To help you arrive at a price, your agent should show you up to 10 comparable active, pending, and recently sold (in the past three months) listings and sales. The most recently sold and the ones that are pending are the best; six or even four months ago may not reflect today’s market, says Brendon DeSimone, a broker in New York City and the author of Next Generation Real Estate. Automatic valuation tools, such as from Zillow and Trulia, are definitely great sources of intelligence. They’ll show you how quickly houses are selling in your market, how close they are going to asking price, and more. But data can tell buyers only so much. “The computer can’t see the inside of the house,” says Ross, “and it can’t see if your house has a view.”

Go green. With homes selling at a healthy pace, you probably don’t need to make any major pre-sale upgrades. One that does pay off: the front lawn. A 2012 Texas A&M survey found that curb appeal increases sales prices by up to 17%. “Green grass is huge, whether that means new sod or just fertilizer and lots of water,” says Wayne. Sustainability and low maintenance are the top trends for residential landscape projects, according to the 2015 Residential Landscape Architecture Trends Survey, so you might add simple native plants. You don’t have to spend a lot. See what’s on sale at Home Depot. It only has to be green, not gorgeous.

Fix what’s broken. Paul Reid, a Redfin agent in Southern California, recommends getting a home inspection and fixing any problems before you list the house, despite the out-of-pocket costs. “First-time homebuyers in particular don’t want to come in and do a ton of work,” he says. “They’re making a huge financial commitment and don’t want a money pit. I’ve seen it time and again where a buyer will get in escrow, have the inspection, and back out because the list is overwhelming.”

Go clean. Ten years ago it was mostly upper-end sellers (and maybe desperate ones) who went to the trouble to “stage” their home. Now, the idea that you need to clean out your closets, clear off the counters, take down your photos, and pare down the furniture and accessories is Real Estate 101. That said, you don’t need to hire anyone (though you may need to find someplace to store all your junk). Two areas not to forget: the entrance (that expression about not getting a second chance to make a good first impression is true) and the bathrooms. “I like to say that big, fluffy, white towels can add $10,000 to the price of a house,” says Sebulsky.

Give yourself a deadline. It’s true that houses tend to sell faster in spring and summer (in large part because families want to be settled before the new school year begins). And if your home is still sitting come Labor Day, think twice about keeping it on the market into the fall. “By then a lot of people have made their choices, and if your house has been on the market for six months, people automatically assume something is wrong,” says Sebulsky. Every market is different, of course, but winter may actually be a better option. There’s less competition from other sellers, as well as some pent-up demand after the holidays. Bonus: Anyone trudging through open houses during the winter “tends to be pretty serious about finding a house,” Sebulsky says.

Get more answers to your questions about home buying and selling:
How do I make my home attractive to buyers?
What renovations will pay off when I sell?
Will I pay income taxes on the sale of my home?

MONEY home buying

If You Want to Buy a Home, Here’s What You Need to Do Now

suburban neighborhood
Dan Saelinger

For the first time in years, the boom-and-bust housing market may be finding its sweet spot, with good deals for buyers and sellers. Is it time to jump in?

Too hot, too cold, too hot. For more than a decade the housing market has been nowhere near its Goldilocks moment, a just-right rate of growth that offers opportunities for both buyers and sellers. By certain markers, we’re finally starting to get there: Home prices nationwide are expected to rise 4.9% on average this year, according to the National Association of Realtors (NAR). That’s closer than we’ve been in a while to the long-term average of 3.3%—and a lot more manageable than either the sharp drops of the bust years or the 12% spike we saw in 2013.

What’s more, inventory is expected to loosen up, with 1.9 million units on the market this year—far below the flooded supply of 4 million we saw in 2008. The number of homes that were “flipped” (bought for a quick-sale investment) has dropped for the second year in a row, while the foreclosure rate is less than half what it was two years ago. Those are healthy signs for everyone (except, perhaps, for the small army of TV shows obsessed with renovating and flipping).

Can the center hold? The big question now is whether this manageable growth is sustainable in the long term. Economists such as Moody’s Analytics’ Mark Zandi note that we certainly need more first-time homebuyers in the mix to make that happen, because they drive a good piece of demand, allowing current homeowners to trade up—or cash in. In 2014 the percentage of rookie homebuyers on the market hit its lowest level in decades, just 33% of sales, vs. 40% historically. That said, a new report from BMO Harris Bank finds that 74% of Americans 18 to 34 plan to buy a new home in the next five years, and they are budgeting $240,000 to make the sale, a 24% increase over just last year.

On the other end of the spectrum, experts warn that prices in some markets have already pushed past the bubbling-over peaks, according to RealtyTrac. In San Francisco the median price for a house in December 2014 was $1 million, up 18% from the peak during the bubble. Prices in New York City (median house: $935,000) are 15% above the peak. It’s not just the coasts either. Prices around Austin are 8.6% higher than they were during the mid-2000s. “What we’ve seen so far,” says Zillow’s chief economist, Stan Humphries, “is still a long way from normal.”

What does it all mean for you? If you’re a buyer, you don’t have to worry as much today about being priced out in a bidding war or by all-cash offers. Sellers who didn’t have enough equity in their homes just a few years ago to justify a move could find themselves in a much better position now. And renovators can still get low rates on home-equity loans and lines of credit. In short: If you’ve been sitting on the sidelines, this may be the time to act—or at least to do some serious number crunching.

Here’s some advice to help would-be home buyers plot their next move. In future posts in this series we’ll offer tips for sellers and those who want to stay put and add some value with smart upgrades.

If you’re in the market to buy

The good news: There are a lot more homes to choose from. In addition to the additional properties already on the market, Zillow’s Humphries is forecasting an increase in houses and condos for sale this year as builders pick up the pace and more homeowners cash in on their rising equity. As prices have risen from the depths of the recession—the median sales price hit bottom in 2012, at an average home price of $152,000—the flippers have started to flee, which has helped the overall market stabilize. “Home prices have risen to the point where, in many markets, houses don’t make sense for investors,” says Daren Blomquist, vice president of Realty-Trac, noting that cash buyers dipped to 30%, the lowest in four years. “That helps level the playing field for regular buyers.”

Then there’s that other important factor: interest rates. Despite prognostications that they could tick up by summer, the 30-year fixed rate—recently at 3.7%—”is still within shouting distance of 60-year lows,” says Keith Gumbinger, vice president of HSH, a mortgage information provider.

suburban house
Dan Saelinger

Your action plan

Start hunting. Sure, you’ve been hearing for years that interest rates would shoot up soon. This time you can believe it—Federal Reserve chairman Janet Yellen signaled as much in her most recent Federal Open Market Committee statement. The NAR is forecasting that the 30-year fixed-rate mortgage will average 4.3% in the third quarter of this year, 4.7% in the fourth, and 5.3% over all of 2016. On a $300,000 loan, the difference between 3.7% and 5.3% would be $285 a month (a payment of $1,381 vs. $1,666) and $102,600 over the life of the loan.

Those rates could go even higher if Europe’s economy starts to recover, warns Sam Khater, deputy chief economist for CoreLogic. One reason that American mortgage rates have stayed so low is that in recent years global investors have poured money into the relative safety of U.S. Treasuries, a main factor influencing the price of mortgages. If money starts flowing back out to the rest of the world, domestic rates will inch up.

Home prices have been heading up as well. Not as fast as in the bubble years, of course, but some areas have already seen double-digit growth. “Until recently the fastest-growing markets were those hit hardest,” says Khater. “Today the fastest growing are those with healthy economies.” With the economy on the upswing, there are a lot more of those now too.

Go fixed-rate, not flex. Adjustable-rate loans may look irresistibly low now—around a 3% average for a five-year and as low as 2.5% for borrowers with credit scores of 760 and higher. But you’re likely to end up paying significantly more at the reset date with rates heading upward. “It’s hard to argue against a fixed-rate loan,” Gumbinger says. The exception: Buyers who plan to stay in the home for less than 10 years may benefit from the low ARM rates in the fixed period.

Right-size your down payment. If you’re looking in a highly competitive market, offer to put down more than the standard 20% if you can afford it. That gives the seller the extra reassurance that if the house appraises for less than the asking price, you’ll still be able to secure a mortgage. Signs that market conditions warrant sweetening the down payment: if houses where you’re looking are going to contract within a matter of days or if they are routinely selling for more than the asking price.

Find a savvy broker. Buyers have so much more information at their fingertips: comparable sales, school district reports, walkability, and more. But don’t underestimate the kind of advice you’d get from a broker. A buyer’s agent will have on-the-ground knowledge of market trends and be able to identify unseen circumstances that affect a property’s price, anything from a cracked foundation or a dead boiler to whether there’s been a recent school redistricting or a zoning change in the area. She might also have access to “pocket” listings that don’t make it online because the privacy-minded sellers don’t want their home flooded with prospective buyers.

Take a little time. Sure, you want to keep an eye on the prospect of rising interest rates. But in a balanced market with steadily rising inventory, don’t feel pressure to jump at the first house you like, says Craig Reger, a broker in Portland, Ore. Visit a good number of open houses (at least five) to get a sense of what’s out there, and go shopping with your agent. You’ll start to learn if a property is over- or under-priced and why.

The rules are a little different if you’re looking at new construction, because builders don’t negotiate on price very often. “They tend to sell at 100% of their list price because that’s their comparable for the next house,” says Jacquie Sebulsky, a broker with Cascade Sotheby’s International in Bend, Ore. That said, if you buy in the early stages of construction (when the developer knows you’ll have to live through months of noise, dust, and other hassles), you may be able to ask for help later with closing costs, upgrades, and additional amenities, such as appliances, in lieu of a price cut.

Remember that money isn’t (always) everything. Even in a market where inventory is tight and sellers aren’t negotiating much, you still have some leverage. That starts with minimizing the seller’s potential headaches. If you have attractive financing—a pre-approved loan from a reliable lender or a large down payment—say so. If you can close on the seller’s schedule—whether that means quickly or letting him stay an extra month—do it.

And don’t be shy about plucking a few heartstrings. It never hurts to write a letter explaining what the house means to you. “A lot of sellers don’t want to sell to investors,” says Tim Lenihan, a broker in Seattle. “Hokey as it sounds, it can help you get your foot in the door.”

MONEY Ask the Expert

Rental Properties vs. Stocks and Bonds

Investing illustration
Robert A. Di Ieso, Jr.

Q: I bought a rental property that has increased in value considerably. The cash is great, but I’m wondering if I should sell high and invest in a different asset.
– Russell in Portland, Ore.

A: “This is a situation where there really is no one-size-fits-all answer,” says David Walters, a certified public accountant and certified financial planner with Palisades Hudson Financial Group.

To tackle this question, you’ll want to first get a handle on just how well this investment is performing relative to other assets.

For a simple apples-to-apples comparison, take the property’s annual net cash flow (income minus expenses) and divide it by the equity in the home, he says. You can use this yield to see how the income generated by this property stacks up against that of other investments, such as dividend-paying stocks.

To calculate your total return, take that yield and add it to your expected annual long-term price gains. If your yield is 5%, for example, and you expect the value of the property to appreciate 2% a year on average, your annual total return would be 7%.

Next, you’ll want to figure out just how much you would have left to reinvest after you pay the real estate broker (typical commissions are 6% of the sale price) and the taxes. “In this case, taxes could be a big factor,” says Walters.

Remember, because this is an investment property, you are not eligible for the capital gains exclusions ($250,000 for individuals and $500,000 for couples) available when you sell a primary residence.

Assuming you’ve owned the house for more than a year, you’ll owe the long-term capital gains rate, which is 0% to 20% depending on your tax bracket; for most people that rate is 15% for federal taxes. Your state will also want its share, and in Oregon it’s a pretty big one – 9.9%.

There’s more to it. If you depreciated the property – odds are you did – you’ll need to “recapture” some of that write off when you sell, and at your marginal income tax rate. Here too you’ll owe both federal and state taxes.

One way to avoid paying a big tax bill now is to do a 1031 exchange, in which you effectively swap this property for another investment property in another neighborhood or a different market — though there are plenty of caveats.

Assuming you don’t want to re-invest in actual real estate, the big question is where you should invest the proceeds of the sale – and is it better than what you already have?

You could look at alternative assets that have a similar risk and reward profile — dividend-paying stocks, real estate investment trusts or master limited partnerships.

A better approach, however, may be a more holistic one. “You want to know where this fits in the big picture,” says Walters. Rather than try to pick and choose an alternative investment, you may just roll the proceeds into your overall portfolio – assuming it’s appropriately diversified. If you can max out on tax-deferred options such as an IRA or, if you’re self-employed, a SEP IRA, even better.

Depending on how much other real estate you own, you could allocate up to 10% of your overall portfolio to a real estate mutual fund, such as the T. Rowe Price Real Estate Fund (TRREX) or Cohen & Steers Realty Shares (CSRSX).

The tradeoff: “Most of these funds own commercial real estate,” says Walters. “There aren’t a lot of options to get passive exposure to residential real estate.”

Then again, investing in actual real estate takes time, lacks liquidity, and comes with some big strings attached. On paper, your investment property might seem like a better deal than any of the alternatives, says Walters, “but there are 50 other things you have to think about.”

With real property there’s always the risk that you’ll have to pay in money for, say, a new roof or heating and cooling system. That’s one thing you don’t have to worry about with a mutual fund.

MONEY Ask the Expert

When Going All In Is Not A Risky Bet

hands pushing poker chip stacks on table
iStock

Q: I’m 33 and recently received a $200,000 windfall. But I’m lost on how I should put it to work. Should I invest in phases or all at once? I’m nervous about investing at all-time market highs. – Rod in Los Angeles

A: Assuming you’re investing this money for the long term — and you have sufficient cash set aside to meet short-term needs and emergencies — go ahead and invest it all at once, says Jerry Miccolis, founding principal of Giralda Advisors, a Madison, N.J. firm that specializes in risk management. “Don’t let headlines about the market hitting new highs make your nervous because, if the market does what it’s supposed to do, that should be the norm,” says Miccolis.

Now, you may have heard the term “dollar-cost averaging.” This notion of automatically investing small amounts at regular intervals, as you do in a 401(k) retirement plan, does tend to smooth out the natural ups and downs of the market. It’s one of many perks of investing consistently, come what may.

Still, if you have cash at the ready to put to long-term use, says Miccolis, it’s just as well to invest all at once – and given your age primarily in equities.

This isn’t to say that short-term market corrections – even sizable ones – won’t happen again. “You’ll probably see many in your lifetime,” says Miccolis. “But you risk losing a lot more waiting around for something to change before you invest.”

In fact, investors who’ve had the bad luck of getting in at the very top of a market have ultimately come out ahead – provided they stayed the course. Consider this analysis from wealth management tech company CircleBlack: An investor who put $1,000 in the Standard & Poor’s 500 index of U.S. stocks at the beginning of 2008 (when stocks fell 37%) and again in early 2009 would have been back in positive territory by the end of 2009.

A critical caveat: This advice assumes that you actually keep your savings invested, and not panic sell when things look ugly. Hence, before you make your decision, try to gauge your tolerance for risk – here’s a quick survey to understand your comfort level – as well as your capacity for risk.

While tolerance generally refers to how risk affects you emotionally, capacity refers to how much risk you can actually afford. (You may have a high tolerance for risk but low capacity, or vice versa.)

If you have a steady income, little debt, and several months of emergency savings, the odds that you’d be forced to tap your long-term savings should be low, meaning that your capacity for risk is adequate. If the rest of your financial advice is a bit of a mess, however, you’ll want to use some of this windfall to tighten your ship before you commit to investing it.

Another exception to the advice to invest in one-fell swoop: If you can’t afford to max out on your 401(k) plan, earmark some of this money for living expenses so you can divert a bigger chunk of your salary to these tax-deferred contributions.

MONEY Ask the Expert

Why You Need to Send Your Spouse a Love Letter—About Money

Investing illustration
Robert A. Di Ieso, Jr.

Q: I have accounts with various institutions and have been doing my own investing for more than 30 years. I recently married again but my wife does not get involved with my investments. What instructions should I give her about how to handle these accounts if I die first? — Anonymous

A: The sooner you can bring her into the fold, the better, says Byron Ellis, managing director for United Capital Financial Advisers in The Woodlands, Texas. And not just for the sake of your nest egg, but for the sake of your marriage.

First, consider consolidating your accounts. “A lot of people think having money at different firms is a great way to diversify, and that’s just not true,” says Ellis. Simplifying has advantages for you today, and will make things easier for your heirs down the road.

Next, use this concern about these accounts as a jumping off point for a bigger discussion about money. “People think differently about money, and that can lead to other issues,” adds Ellis.

If you haven’t already, make a date with your wife to talk about everything from how you’d like to handle day-to-day finances to your overall philosophy about spending and saving. Does she have assets of her own? How confident is she about managing money? What motivated you to save as you did?

Once you understand where each of you is coming from, you can talk about how you want to handle things going forward. For example, do you want to continue managing your money separately? What are your near-term and longer-term goals?

Regardless of what comes out of the conversation, you should by all means leave your wife some instructions – for your investments and the rest of your estate. In addition to making sure your will is up to date – that is key – write your wife what Ellis calls a love letter, and ask her to do the same.

This letter should outline your instructions and include all the information you think she should have if you pass away: a list of accounts and account numbers; user names and passwords; your insurance policies; important contacts and phone numbers; an inventory of other assets or items you’ve hidden. Obviously, you’ll need to put this letter in a safe place, such as a safety deposit box, and let your wife know where you keep it.

Finally, make a point of updating the letter once a year; some information will change, and so too may your wishes.

MONEY Ask the Expert

Are Robo-Advisers Worth It?

Investing illustration
Robert A. Di Ieso, Jr.

Q: I downloaded the app from Personal Capital to get a better look at my finances. Is it worth the money to use their advisory service? I had a free discussion with one of their advisers and liked what they had to say, but I have a complex portfolio inherited from my parents. — Dan in Gillette, Wyo.

A: Over the last several years a new breed of technology-based financial advisory services — sometimes referred to as robo-advisers — have come on the scene in an attempt to serve investors who otherwise wouldn’t seek or couldn’t afford professional advice. Many investors don’t meet the minimum required by traditional advisers, while others are, understandably, reluctant to pay the typical 1% management fee for hands-on financial advice.

Enter the likes of Personal Capital, Wealthfront, Betterment and other services that help investors allocate, invest, monitor and rebalance their assets.

Personal Capital offers a free app that aggregates financial information on a single dashboard, and in turn uses that information to call on clients who may benefit from their advisory service, which melds technology with traditional human advice; clients and advisers communicate via phone, text, instant message and Skype.

Here’s the catch: At 0.89% for the first $1 million, the fee for Personal Capital is nearly as high as what you’d pay for a traditional advisory relationship.

“Is it worth it? We think there are several other options available that may be a better fit,” says Mel Lindauer, co-author of “The Bogleheads’ Guide to Investing” (Wiley) and a founder of the Bogleheads Forum, which focuses on low-cost, do-it-yourself investing à la Vanguard Group founder Jack Bogle.

If you’re primarily interested in help with asset allocation, he says, there are more affordable services worth checking out. Vanguard Personal Advisor Services, for example, charges 0.3% for its service. On a $1 million portfolio, that’s the difference between $8,900 a year and $3,000 a year, says Lindauer. An even cheaper option yet: target date funds, which peg their portfolios to investors’ retirement date.

Of course, asset allocation is only one piece of the financial puzzle. A good adviser can help you with everything from budgeting and taxes to estate planning.

Personal Capital advisors do work with clients on broader issues, but if your situation is truly complex, you may be better served sitting down with a traditional fee-only adviser.

MONEY Ask the Expert

When Selling Winning Stocks Makes Sense

Investing illustration
Robert A. Di Ieso, Jr.

Q: Is there a benefit to taking profit on a stock that has done well over several years? It was $24 when we bought it and is $64 now. We will be in the lowest tax bracket this year and should be in a higher bracket in a later year. A planner suggested selling some, paying taxes on the profit, and repurchasing it. — Viola C.

A: “Taxes should never be the sole reason to trade a stock,” says Scott Bishop, director of financial planning at STA Wealth Management in Houston. Likewise, you can get into trouble holding a security longer than you should simply for the sake of saving a bit on taxes.

That said, there are times when selling in one year may be more opportune than selling in another.

First, you need to understand how any gains from the sale of stock will be taxed.

If you had held the shares for less than a year, they would be taxed at your marginal tax bracket, in which case an early sale would probably do nothing to improve your tax situation.

Since you’ve owned these shares for several years they will be taxed at your long-term capital gains rate. “Currently the tax rates on long-term capital gains vary depending on your income level,” says Bishop.

If you’re in the 10% or 15% marginal bracket, your long-term capital gains will be nothing. Obviously, there would be a benefit to selling before the end of this year if you expect to be in either of those brackets in 2015.

If you’re in the 25% to 35% bracket, your rate will be 15%. And if you’re in the 39.6% bracket, you’ll be taxed 20% on the gains; plus you may owe an additional 3.8% of net investment income tax stemming from the Affordable Care Act.

It’s probably helpful to do the math and see how the decision translates to dollars.

Say you own 100 shares of stock that has appreciated $40 a share. If you’re in the lowest brackets this year, selling will save you $600 versus waiting until the following year and paying at the 15% rate. If your long-term rate is 15% and you think it will be 20% next year, the difference is only $200.

“Some people get stuck in this analysis when they are talking about a pretty small dollar amount,” says Bishop, noting that you should be sure to factor for the transaction costs of a sale.

If you decide to sell, there are no rules preventing you from buying the very same stock the next day. (The only time you need to worry about this is when you sell a stock at a loss and hope to write that off against a gain.)

That said, if you wouldn’t buy the stock again at today’s prices, says Bishop, consider putting the proceeds to work somewhere else. “Don’t let biases drive the decision to buy the stock again,” he says. Just because the stock has done well so far doesn’t mean it will continue to do so.

Finally, if you’re looking at taking advantage of a lower tax bracket to sell a single stock, ask yourself if you should use this window to make more substantial changes to your portfolio. For example, maybe you’d benefit from converting some of your IRA holdings to a Roth IRA.

In doing so, you’ll owe income taxes now but have the benefit of tax-free withdrawals later. Over time, that could translate not just to hundreds of dollars in savings but possibly thousands.

MONEY Ask the Expert

When It Comes to Muni Funds, Does Location Matter?

Investing illustration
Robert A. Di Ieso, Jr.

Q: I live in New York state and currently invest in a high-yield municipal bond fund. Should I switch to a tax-exempt New York muni fund? — Connie

A: There are lots of considerations when weighing the pros and cons of a high-yield bond fund that invests nationally versus a state-specific municipal bond fund.

The three big ones: “You want to think about taxes, volatility and credit quality,” says Stephen DeCesare, a certified financial planner and president of DeCesare Retirement Specialists in Marlton, NJ.

Let’s start with taxes, since that is the primary perk of investing in municipal bonds, which are issued by local and state government entities to cover general expenses or fund specific projects. Most, but not all, municipal bonds are exempt from federal income taxes, which is a selling point in and of itself.

If you’re in the 28% tax bracket, for example, a 3% yield on a tax-exempt muni is the equivalent of a 4.17% taxable bond. You can run your own numbers using this simple Vanguard calculator.

There are, of course, caveats, such as if you owe the alternative minimum tax. Also, gains on principal are subject to capital gains tax. Likewise, it generally doesn’t make sense to own tax-exempt municipal bonds in a tax-deferred retirement account.

That said, because you live in a state with high-income taxes – New York’s top rate is 8.8% — narrowing your focus to New York can further sweeten the tax side of the deal.

If you lived in a state with low income taxes, however, you might be better off in a national tax-exempt municipal bond fund. Managers of those funds typically have more leeway to find opportunities without necessarily ramping up risk.

It’s always important to weigh the breadth and health of your state’s muni market against any tax break. New York has a relatively robust municipal bond market, says DeCesare, which is another reason why a state-specific muni bond fund could make sense in your case.

Once you’ve looked at all the variables, the decision will ultimately hinge on your risk tolerance and income needs. Remember that high-yield municipal bond funds invest the majority of their assets in bonds that are rated below-investment grade or aren’t rated. These funds can put up higher total returns – even after taxes – but with that comes more credit risk and in turn more volatility.

MONEY Ask the Expert

When Investment Growth, Income, and Safety Are All Priorities

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 64 and retired. My wife is 54 and still working, but I’m asking her to join me in retirement. We have about $1 million in savings, with about half in an IRA and the rest in CDs. How can try I try to preserve the principal, generate about $2,000 in monthly income until I collect Social Security at age 70, and somehow double my investment? — Rajen in Iowa

A: The first thing you need to ask yourself is what’s really more important: Growth, income, or safety? You say you want to preserve your principal – and your large cash position suggests that you are risk averse – but you also say you want to double your investment.

“Why do you need to double your investment?” asks Larry Rosenthal, a certified financial planner and president of Rosenthal Wealth Management Group in Manassas, VA. “Everybody likes the idea of doubling their investment, but there’s a high cost if it doesn’t work out.”

Given that you’re already retired, doubling your investment is a tall order. You probably don’t have that kind of time. At a 5% annual return, it would take you more than 14 years, and that’s without tapping your funds for income along the way. Nor can you afford to take on too much additional risk.

Either way, you do need to rethink how you have your assets allocated.

A 50% cash position is likely far too much, especially with interest rates as low as they are. “You’re effectively earning a negative return,” factoring in inflation, says Rosenthal.

And while cash is a great buffer for down markets, the value is lost in the extreme: The portion of your portfolio that is invested in longer-term assets such as stocks and bonds needs to do double duty to earn the same overall return.

If generating growth and income are both priorities, “look at shifting some of that cash into dividend paying stocks, a bond ladder, an annuity, or possibly a combination of the three,” says Rosenthal, who gives the critical caveat that the decision of how to invest some of this cash will depend on how your IRA money is invested.

Meanwhile, you should take a closer look at the pros and cons of claiming Social Security at full retirement age, which is 66 in your case, or waiting until you’re 70 years old.

The current conventional wisdom is to hold off taking Social Security as long as possible in order to maximize the monthly benefit. While that advice still holds true for many people, you need to look at the specifics of your situation – as well as that of your wife. The best way to know is to run the numbers, which you can do at Social Security Timing or AARP.

The tradeoff of waiting to claim your benefit, says Rosenthal, is spending down more of your savings for six years. You may in fact do better by keeping that money invested.

What’s more, “if you die, you can pass along your savings,” adds Rosenthal. But you don’t have that type of flexibility with Social Security benefits.

MONEY Ask the Expert

Even if Rates Rise, the Sky Won’t Fall

Investing illustration
Robert A. Di Ieso, Jr.

Q: With interest rates predicted to rise in 2015, what should I consider doing with my mutual fund bond holdings now? About 35% of my retirement portfolio is in bonds as part of a target date retirement fund. — Alan in Orland Park, Ill.

A: No doubt this is a common concern for many investors today. Economists have for years been saying that interest rates can only go higher from here, and yet interest rates are still near historic lows. The yield on the 10-year Treasury note has been hovering around just 2% — and that’s down from 3% at the start of last year.

Why the worry? Market interest rates and bond prices move in the opposite direction. So a rise in interest rates would likely translate to a drop in the value of older bonds held by your bond funds. Trouble is, exactly when rates will rise and to what degree is still anyone’s guess.

“We all know the elephant in the room is that rates will go up,” says Jason Jenkins, an investment advisor and CEO of portfolio monitoring software company AssetLock. “But I don’t think they will respond as violently as everyone thinks.”

Jenkins isn’t alone in that view that interest rates won’t shoot up over night. While it’s true that the end of the Federal Reserve’s stimulative bond-buying program reduces domestic demand for Treasuries — which lowers prices and in turn raises rates — foreign investors have been flocking to U.S. bonds of late amid worries of another global slowdown.

Regardless of what happens in the big picture, it’s important to view this in the context of what role bonds play in your overall portfolio.

If you’re in or near retirement, odds are that you’re looking to bonds for steady income. In that case, rising rates will ultimately be to your benefit. “Investors need to remember there are two sides to the coin,” says Jenkins. “If rates go up, prices go down but payments go up.” In 1999, for example, the Barclays U.S. Aggregate index fell 7%, but the yield was 6.7%. Investors, adds Jenkins, need to think not just about price and yield but total return.

Meanwhile, bonds bring something else to the table – diversification. Historically, when stocks are at their worst, bonds have still managed a positive return. In one study, Vanguard looked at periods of bottom-decile returns for U.S. stocks from 1988 through 2012. During those times, the median monthly return bonds — including Treasuries, U.S. corporate bonds and international corporate bonds — was still positive.

That said, Jenkins and bond strategists aren’t advocating investing in bonds indiscriminately. Because long-term bonds are most vulnerable to rising rates, he recommends sticking with short-term and intermediate-term bonds.

Now, your question of what to do with bond holdings raises a couple of other points: Should you be in a target date fund, and if so, are you in the right target date fund?

Target-date funds are a handy solution for investors who would otherwise make poor investment decisions, try to time the market, or not invest at all. In theory, you could choose such a fund pegged to the year you think you’ll retire and never worry about where to invest or when to rebalance. The managers of these funds will make those decisions for you.

Yet as many investors in these funds learned after the financial crisis, one-stop-shopping isn’t a perfect solution. Two funds with the same target date may take two very different approaches — one risky, one conservative. Moreover, your own propensity for risk is as much of a factor as the date you expect to retire.

If you’re concerned, at the very least do look under the hood (sounds like you have) and see what percent of your portfolio is in bonds and the maturity of those bonds. You can use some of the free tools at Morningstar.com to see how your fund did relative to similar portfolios in 2008 and get a closer look at where it’s invested today.

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