Tax implications of diversification
Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that. (All for US.) Yes you (will) have a realized long-term capital gain, which is taxable. Long-term gains (including those distributed by a mutual fund or other RIC, and also 'qualified' dividends, both not relevant here) are taxed at lower rates than 'ordinary' income but are still bracketed almost (not quite) like ordinary income, not always 15%. Specifically if your ordinary taxable income (after deductions and exemptions, equivalent to line 43 minus LTCG/QD) 'ends' in the 25% to 33% brackets, your LTCG/QD income is taxed at 15% unless the total of ordinary+preferred reaches the top of those brackets, then any remainder at 20%. These brackets depend on your filing status and are adjusted yearly for inflation, for 2016 they are: * single 37,650 to 413,350 * married-joint or widow(er) 75,300 to 413,350 * head-of-household 50,400 to 441,000 (special) * married-separate 37,650 to 206,675 which I'd guess covers at least the middle three quintiles of the earning/taxpaying population.  OTOH if your ordinary income ends below the 25% bracket, your LTCG/QD income that 'fits' in the lower bracket(s) is taxed at 0% (not at all) and only the portion that would be in the ordinary 25%-and-up brackets is taxed at 15%. IF your ordinary taxable income this year was below those brackets, or you expect next year it will be (possibly due to status/exemption/deduction changes as well as income change), then if all else is equal you are better off realizing the stock gain in the year(s) where some (or more) of it fits in the 0% bracket. If you're over about $400k a similar calculation applies, but you can afford more reliable advice than potential dogs on the Internet. (update) Near dupe found: see also How are long-term capital gains taxed if the gain pushes income into a new tax bracket?  Also, a warning on estimated payments: in general you are required to pay most of your income tax liability during the year (not wait until April 15); if you underpay by more than 10% or $1000 (whichever is larger) you usually owe a penalty, computed on Form 2210 whose name(?) is frequently and roundly cursed. For most people, whose income is (mostly) from a job, this is handled by payroll withholding which normally comes out close enough to your liability. If you have other income, like investments (as here) or self-employment or pension/retirement/disability/etc, you are supposed to either make estimated payments each 'quarter' (the IRS' quarters are shifted slightly from everyone else's), or increase your withholding, or a combination. For a large income 'lump' in December that wasn't planned in advance, it won't be practical to adjust withholding. However, if this is the only year increased, there is a safe harbor: if your withholding this year (2016) is enough to pay last year's tax (2015) -- which for most people it is, unless you got a pay cut this year, or a (filed) status change like marrying or having a child -- you get until next April 15 (or next business day -- in 2017 it is actually April 18) to pay the additional amount of this year's tax (2016) without underpayment penalty. However, if you split the gain so that both 2016 and 2017 have income and (thus) taxes higher than normal for you, you will need to make estimated payment(s) and/or increase withholding for 2017. PS: congratulations on your gain -- and on the patience to hold anything for 10 years! If so, are there ways to reduce the amount of taxes owed? Given that it's currently December, I suppose I could sell half of what I want now, and the other half in January and it would split the tax burden over 2 years instead, but beyond that, are there any strategies for tax reduction in this scenario? One possibility is to also sell stocks that have gone down since you bought them.  Of course, you would only do this if you have changed your mind about the stock's prospects since you bought it -- that is, it has gone down and you no longer think it will go up enough to be worth holding it.  When you sell stocks, any losses you take can offset any gains, so if you sell one stock for a gain of $10,000 and another for a loss of $5,000, you will only be taxed on your net gain of $5,000. Even if you think your down stock could go back up, you could sell it to realize the loss, and then buy it back later at the lower price (as long as you're not worried it will go up in the meantime).  However, you need to wait at least 30 days before rebuying the stock to avoid wash sale rules.  This practice is known as tax loss harvesting.
I know of no way to answer your question without 'spamming' a particular investment.  First off, if you are a USA citizen, max out your 401-K. Whatever your employer matches will be an immediate boost to your investment.  Secondly, you want your our gains to be tax deferred. A 401-K is tax deferred as well as a traditional IRA.  Thirdly, you probably want the safety of diversification. You achieve this by buying an ETF (or mutual fund) that then buys individual stocks.  Now for the recommendation that may be called spamming by others : As REITs pass the tax liability on to you, and as an IRA is tax deferred, you can get stellar returns by buying a mREIT ETF.  To get you started here are five: mREITs  Lastly, avoid commissions by having your dividends automatically reinvested by using that feature at Scottrade. You will have to pay commissions on new purchases but your purchases from your dividend Reinvestment will be commission free.  Edit: Taking my own advice I just entered orders to liquidate some positions so I would have the $ on hand to buy into MORL and get some of that sweet 29% dividend return. "Your relatively young age and the current very low bond interest rates make annuities a very poor buy. And most of the other suggestions you have mentioned have very low diversification, which exposes you to imprudent risks. Buying shares for dividend income can solve the diversification problem by averaging out your totals as different shares change by different amounts. There is no really good solution to the problem of share price volatility except to ignore it: Take your dividends and pretty much ignore the bouncing around of the share price. They usually recover in a year or three. Owning shares of companies that reliably increase their dividend payouts is the only investment type that gives you both diversification and regularly increasing income to counteract inflation over the years. Read some investment books and consider consulting with a financial advisor who charges a fee for the advice. I.e., you don't want ""free"" advice." I would open a taxable account with the same custodian that manages your Roth IRA (e.g., Vanguard, Fidelity, etc.). Then within the taxable account I would invest the extra money in low cost, broad market index funds that are tax efficient. Unlike in your 401(k) and Roth IRA, you will now have tax implications if your funds produce dividends or realize a capital gain. That is why tax-efficient funds are important to minimize this as much as possible.  The 3-fund portfolio is a popular choice for taxable accounts because of simplicity and the tax efficiency of broad market index funds that are part of the three fund portfolio. The 3-fund portfolio normally consists of Depending on your tax bracket you may want to consider municipal bonds in your taxable instead of taxable bonds if your tax bracket is 25% or higher.  Another option is to forgo bonds altogether in the taxable account and just hold bonds in retirement accounts while keeping tax efficient domestic and international tock funds in your taxable account. Then adjust the bond portion upward in your retirement accounts to account for the additional stocks in your taxable accounts. This will maintain the asset allocation that you've already chosen that is appropriate for your age and goals. Is this transaction legal Yes it is. Are there any tax implications in US?  The interest is taxable in US. From what I understand, there are no tax implications in India. Yes this is right. The question you haven't asked is does this makes sense? So you are paying 3% upfront. Getting 8% at end of one year. You can making monthly repayments through the year. You have not factored in the Fx Rate and their fluctuations. For Example you would convert USD to INR and back to USD. Even if you do this the same day, you loose around 2% that is referred to as Fx Spread. Plus the rates for USD and INR get adjusted for inflation. This means that INR will loose value in a year. In long term it would be balance out [i.e. the gain in interest rate is offset by loss in Fx rate]. At times its ahead or behind due to local conditions. "The answer to your first question is true. No tax on withdrawls. Under these circumstances, the withdrawl is ""qualified"". To your second question, as long as the withdrawl is qualified, it is not taxed, regardless of your additional income. http://www.investopedia.com/articles/retirement/03/030403.asp?lgl=rira-baseline-vertical has a very comprehensive, plain English, description of the IRS rules (as of today, anyway)." Also, almost by definition rebalancing involves making more trades   than you would have otherwise; wouldn't the additional trading fees   you incurred in doing so reduce the benefits of this strategy? You forgot to mention taxes. Rebalancing does or rather can incur costs. One way to minimize the costs is to use the parts of the portfolio that have essentially zero cost of moving. These generally are the funds in your retirement accounts. In the United States they can be in IRAs or 401Ks; they can be regular or Roth. Selling winners withing the structure of the plan doesn't trigger capital gains taxes, and many have funds within them that have zero loads.  Another way to reduce trading fees is to only rebalance once a year or once every two years; or by setting a limit on how far out of balance. For example don't rebalance at 61/39 to get back to 60/40 even if it has been two years.  Given that the ratio of investments is often rather arbitrary to begin   with, how do I know whether I'm selling high and buying low or just   obstinately sticking with a losing asset ratio? The ratio used in an example or in an article may be arbitrary, but your desired ratio isn't arbitrary. You selected the ratio of your investments based on several criteria: your age, your time horizon, your goals for the money, how comfortable you are with risk. As these change during your investing career those ratios would also morph. But they aren't arbitrary.  These decisions to rebalance are separate from the ones to sell a particular investment. You could sell Computer Company X because of how it is performing, and buy stock in Technology Company Y because you think it has a better chance of growing. That transaction would not be a re-balancing. Selling part of your stock in Domestic Company A to buy stock in international Company B would be part of a re-balancing. Scenario: Ken contributes $20,000 in 2015 when the 402(g) limit is $18,000. Ken is not old enough to make catch-up contributions. Ken made $2,000 in excess deferrals which the plan must correct by refunding the excess and any allocable earnings. If the correction is made prior to April 15th, 2016: No penalty. The excess + earnings is refunded to Ken and basically becomes income. Ken will receive 2 1099-R's one for the excess deferral in 2015, and one for the allocable earnings in 2016. The refund is taxed at Ken's income tax rate. If the correction is made after April 15th, 2016: Double taxation! The excess contribution is taxable in 2015, and again in the year it is distributed. Allocable earnings are taxed in the year distributed. The excess + allocable earnings may also be subject to 10% early withdrawal penalty. If you have multiple accounts, you have to empty them all before you can deduct any losses. Your loss is not a capital loss, its a deduction. It is calculated based on the total amount you have withdrawn from all your Roth IRA's, minus the total basis. It will be subject to the 2% AGI treshhold (i.e.: if your AGI is > 100K, none of it is deductible, and you have to itemize to get it). Bottom line - think twice. Summarizing the discussion in comments: If you have a very low AGI, I would guess that your tax liability is pretty low as well. Even if you deduct the whole $2K, and all of it is above the other deductions you have (which in turn is above the standard deduction of almost $6K), you save say $300 if you're in 15% tax bracket. That's the most savings you have. However I'm assuming something here: I'm assuming that you're itemizing your deductions already and they're above the standard deduction. This is very unlikely, with such a low income. You don't have state taxes to deduct, you probably don't spend a lot to deduct sales taxes, and I would argue that with the low AGI you probably don't own property, and if you do - you don't have a mortgage with a significant interest on it. You can be in 15% bracket with AGI between (roughly) $8K and $35K, i.e.: you cannot deduct between $160 and $750 of the $2K, so it's already less than the maximum $300. If your AGI is $8K, the deduction doesn't matter, EIC might cover all of your taxes anyway. If your AGI is $30K, you can deduct only $1400, so if you're in the 15% bracket - you saved $210. That, again, assuming it's above your other deductions, which in turn are already above the standard deduction. Highly unlikely. As I said in the comments - I do not think you can realistically save on taxes because of this loss in such a manner.