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It's interesting to use this reasoning in the context of tax-avoidance that the parent mentioned. Would you rather have $[some_large_number] of cash, or $[some_

It's interesting to use this reasoning in the context of tax-avoidance that the parent mentioned. Would you rather have $[some_large_number] of cash, or $[some_large_number + some_large_numer*(tax rate)] in [tech stock]?

harryh 10y ago
Indeed. I don't think that the question I posed is the only question worth considering. Taxes matter and should be paid attention to. Really, stepping up to an even higher level of abstraction I think the most important advice is to pay attention and think about your options. I think that far to many people fall prey to inaction and sticking with the status quo simply because it is easier.
- seizethecheese 10y ago
  Exactly. It's far from obvious whether it's better to be 25% poorer with diversification.
  - sokoloff 10y ago
    But you're not 25% poorer, because your basis is now stepped up. In order to access the value of your current shares, you're going to pay the taxes. You either have $100 on paper and owe $25 on it, or you have $75 on paper and owe $0 tax on it. Unless you think the tax rate is going to be lower in the future, once you've hit the long-term capital gains threshold, I don't see a reason to believe that paying taxes now and switching investments is worse than holding investments and paying all the taxes later.
    - harryh 10y ago
      The longer you can put off paying taxes the longer you can keep that portion of the money and earn a return on it.
      - redcalx 10y ago
        There's also an annual allowance (in the UK anyway), so you can sell enough to make 11k (approx.) profit a year before capital gains tax kicks in.
      - ChuckMcM 10y ago
        Yes and no. If you hold a stock you avoid paying taxes on it and if that exact stock goes up, you "win" because you get more for it later. However there is no way to get a "return" on the capital that is tied up in the stock in some other way without some shenanigans. One dubious way was taking a loan out at the full value of the stock (stock is collateral) and then using the proceeds from the loan to invest in other funds. Back when day trading was "the thing to do" I met a guy who was full of these schemes and like the mortgage crisis later, when the crash came I'm not sure how they unwound, even if they did.
cesarbs 10y ago
Sorry for being pedantic, but wouldn't that be $[some_large_number + some_large_numer*(1 - tax rate)]? :)
ajmurmann 10y ago
I think this is actually a very real problem. What would happen if I could sell one investment and immediately buy another investment vehicle and not have to pay taxes till I transform it to something that's obviously not an investment. If done right this should just make the market more efficient because it prevents lock in.
- jnicholasp 10y ago
  This is possible in some circumstances with real estate - it's called a 1031 exchange, and you can sell one piece/set of real property, roll the profits directly into purchasing another piece/set of real property, and not owe capital gains taxes on the profits from the first sale, although they will be owed if you eventually sell the second set of properties for cash.
  - yoloswagins 10y ago
    In California, and across some counties, you can also move your lower property tax assessment thanks to prop 60/90[1] [1] http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1 http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1

harryh 10y ago

Indeed. I don't think that the question I posed is the only question worth considering. Taxes matter and should be paid attention to. Really, stepping up to an even higher level of abstraction I think the most important advice is to pay attention and think about your options. I think that far to many people fall prey to inaction and sticking with the status quo simply because it is easier.

seizethecheese 10y ago
Exactly. It's far from obvious whether it's better to be 25% poorer with diversification.
- sokoloff 10y ago
  But you're not 25% poorer, because your basis is now stepped up. In order to access the value of your current shares, you're going to pay the taxes. You either have $100 on paper and owe $25 on it, or you have $75 on paper and owe $0 tax on it. Unless you think the tax rate is going to be lower in the future, once you've hit the long-term capital gains threshold, I don't see a reason to believe that paying taxes now and switching investments is worse than holding investments and paying all the taxes later.
  - harryh 10y ago
    The longer you can put off paying taxes the longer you can keep that portion of the money and earn a return on it.
    - redcalx 10y ago
      There's also an annual allowance (in the UK anyway), so you can sell enough to make 11k (approx.) profit a year before capital gains tax kicks in.
    - ChuckMcM 10y ago
      Yes and no. If you hold a stock you avoid paying taxes on it and if that exact stock goes up, you "win" because you get more for it later. However there is no way to get a "return" on the capital that is tied up in the stock in some other way without some shenanigans. One dubious way was taking a loan out at the full value of the stock (stock is collateral) and then using the proceeds from the loan to invest in other funds. Back when day trading was "the thing to do" I met a guy who was full of these schemes and like the mortgage crisis later, when the crash came I'm not sure how they unwound, even if they did.

cesarbs 10y ago

Sorry for being pedantic, but wouldn't that be $[some_large_number + some_large_numer*(1 - tax rate)]? :)

ajmurmann 10y ago

I think this is actually a very real problem. What would happen if I could sell one investment and immediately buy another investment vehicle and not have to pay taxes till I transform it to something that's obviously not an investment. If done right this should just make the market more efficient because it prevents lock in.

jnicholasp 10y ago
This is possible in some circumstances with real estate - it's called a 1031 exchange, and you can sell one piece/set of real property, roll the profits directly into purchasing another piece/set of real property, and not owe capital gains taxes on the profits from the first sale, although they will be owed if you eventually sell the second set of properties for cash.
- yoloswagins 10y ago
  In California, and across some counties, you can also move your lower property tax assessment thanks to prop 60/90[1] [1] http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1 http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1