Freeus, I am not conservative when it comes to investing. This year I nudged a 63% return (pre-tax). It would have been a lot higher (over 90%) had I gotten out of the oil service sector, but I just got stubborn. If you invest in a basket of quality growth stocks you can let the growth of the company propel you rather than relying on stock market swings, and that can make a huge difference in your portfolio.
Now I know how much you like paying taxes, but that is exactly what you do when you trade (even at a profit). Here is an example. Suppose you are an active investor who turns over your holdings frequently. As you know, you will have to pay capital gains taxes at the rate of 28% pa. Let's say you are really good, and earn 30% pre-tax every year for 10 years. Your effective after-tax rate of return is reduced to 21.6%. Now let's say that you are a buy and hold girl, and you latch onto a stock that appreciates at 30% per annum for 10 years, at which point you sell, and to make the point I will assume a 28% tax rate, although it would actually be 18% because of the long term capital gains differential. It turns out that the effective pre-tax rate is 26.15%. In other words, $100,000 will yield $706,864 if you trade, but $1,020,640 if you buy and hold. You let uncle Sam swipe $309,000 from you because you didn't pay attention to the nuances of the tax system.
The difference is even greater if you use the actual long-term capital gains rate of 18%. Here, your investment would grow to $1,148,440 in 10 years after taxes -- with an effective annual rate of return of 27.6%. So, the trader would need to do 38.4% to equal what the buy and holder does at 30%!!!!
Paste this on your refrigerator, or tattoo it on the inside of your eyelids. This is how you can make real $$$$ in the market.
TTFN,
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