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Strategies & Market Trends : Classic TA Workplace

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To: AllansAlias who wrote (45548)	7/13/2002 8:59:44 PM
From: yard_man	Read Replies (1) of 209892

thanks -- Medicine for the sheeple on YHOO -- don't sell in order to avoid taxes. Course that isn't really a problem for many now ... >>Bob and Jane invested $1 each, and both averaged an annual return of 20% over the last 40 years. But Bob traded annually while Jane bought and held. How do their portfolios compare? How respondents have answered: 159128 votes to date Jane's is about 8 times as large as Bob's 30% 47983 votes Jane's is about twice as large as Bob's 22% 35354 votes Jane's is 28% larger than Bob's 22% 35932 votes Jane's and Bob's are the same size 25% 39859 votes The correct answer is: Jane's is about 8 times as large as Bob's -------------------------------------------------------------------------------- It's easy to forget the decimating effect of taxes on investment strategies. Tax effects are usually referenced as a footnote in discussions of investing returns. ADVERTISEMENT But over time, taxes are much more important than a footnote. Over 40 years, one dollar that compounds at 20% continuously grows to $2,540. By contrast, if you picked at the start of each year a single stock whose rise would be 20%, sold at the end of the year, and paid a short-term capital gains tax of 28%, then the after-tax rate of return is 14.4%. At that rate, $1 invested at the outset of 40 years would only grow to $325. Andrew Tobias, in The Only Investment Guide You'll Ever Need, figures by this same reasoning that Warren Buffett --"perhaps [America's] leading capital gains tax avoider"--would only be worth one tenth of the current value if he weren't such a resolute long-term holder.1 <<

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