Investing Thoughts - aggressive trading vs. buy and hold

[drunk]

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Capital gains are not taxable unless there is a trade and a profit is realized - dividends are of course taxable but many growth issues have smallish dividends

If the investor has a strategy of buy and hold and part of the reason he is investing is to pass along wealth to his heirs he may never have a capital gains tax obligation on that portion that will pass to his heirs

heirs don't pay capital gains taxes. Instead the asset is valued at a stepped up basis. This tax provision is huge for many heirs since they may inherit assets that the giver has owned for a long time.

If you're an excellent trader, it may be worth it to aggressively buy and sell stocks and pay the capital gains taxes.

But if you're not, or you're not sure you are, most are probably better off with buy and hold of an aggressive mutual fund or an index.

Many amateur traders, who see themselves as being highly skilled and highly profitable (compared to buy and hold) in reality are not - they're fooling themselves

Many professional traders underperform the indexes.


the average combined Federal and State tax rate is probably around 27%

imagine paying 27% for 35 years or so and also imagine instead of that having that 27% in your account to grow each and every year

most profitable traders will lose a substantial amount of their profits to taxes

of course, an individual's tax rate may be more or less depending on their situation -

even if the person is retired mandatory IRA withdrawals can bump up their tax rate

although all of a person's capital gains are taxable the maximum NET loss a person can write off on Federal Tax for one year is $3,000



here is what some of the high flyers from past years have done so far this year -(ytd) - these are 5 of the so called "Magnificent Seven"



Aapl (Apple) 20.89% - trails the s&p 500 index which is about 21.89%


Msft (Microsoft) - 13.86% - trails the index


Goog (Alphabet - Google) - 18.49% - trails the index


Amzn (Amazon) - 23.62% - barely beating the index


Tsla (Tesla) - 8.33% - getting crushed by the index




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[DSchles]

Yes, all of the above is true. But don't lose sight of the fact that the "Magnificent 7" are responsible for 25% of the S&P's gain this year (you didn't list Nvidia). And although I've been in the S&P for over about 35 years, with magnificent growth, this kind of concentration concerns me. You think you've got diversification with 500+ stocks, but, in reality, you don't. If and when tech turns bad, it's going to be messy. That said, as the article mentions, I don't want to sell, because of my relatively low cost basis and the capital gains tax that would have to be paid.

The step up in basis is one of the linchpins of the Republican platform, and, of course, as Biden attempted to do, but failed, it's a virtual certainty that Harris would attempt to get rid of it, along with an increase in capital gains tax, corporate tax, lowering of estate tax exemptions and gifting limits, and, initiating annual tax on appreciated stocks, even though they remain unsold. This isn't an attempt to discuss politics, which I never do, but simply to expand upon the article you cited.

Don

[drunk]

Yes, all of the above is true. But don't lose sight of the fact that the "Magnificent 7" are responsible for 25% of the S&P's gain this year (you didn't list Nvidia). And although I've been in the S&P for over about 35 years, with magnificent growth, this kind of concentration concerns me. You think you've got diversification with 500+ stocks, but, in reality, you don't. If and when tech turns bad, it's going to be messy. That said, as the article mentions, I don't want to sell, because of my relatively low cost basis and the capital gains tax that would have to be paid.

The step up in basis is one of the linchpins of the Republican platform, and, of course, as Biden attempted to do, but failed, it's a virtual certainty that Harris would attempt to get rid of it, along with an increase in capital gains tax, corporate tax, lowering of estate tax exemptions and gifting limits, and, initiating annual tax on appreciated stocks, even though they remain unsold. This isn't an attempt to discuss politics, which I never do, but simply to expand upon the article you cited.

Don

yes, thanks Don

NVDA is the exception, the leader of the "Magnificent Seven" with a spectacular ytd return of 183.86%

even more surprising, to me anyway, is that VST (Vistra) is not in the "Magnificent Seven," it is not a tech stock - it is a utility company, and -

the return of VST has crushed every single stock in the S&P 500 by a large margin with a much more spectacular ytd return of 231.15%


I have deviated from my own strategy of only buying the index or something similar by buying some of NVDA and I will buy some of VST in January

maybe, probably, I'm late, or maybe they will stay strong for a long time - idk - anyway, it will be only a very small % of my stuff - not diving off a high board now - no way________ (-:/

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[marriedputter]

If you're concerned about the ever increasing lopsidedness of market cap in the S&P, you may want to consider adding the RST to your portfolio. It's the S&P but it's equally weighed so that a bad run in the big boys won't hurt you as much. It also pays a dividend.
The market cap of Tech has made the performance of the S&P look a lot loss diversified in the last 20 years.

Screenshot 2024-10-28 at 12.26.28?PM.jpg

[DSchles]

Yes, am aware and toyed with the idea. Haven't pulled the trigger yet, as I think this market has more upside.

Don

[moo321]

With smaller portfolios, real estate generally offers much better returns than stocks, with better tax characteristics.