4 ms·
Or if you expect a major bear market and you were going to liquidate your holdings anyway.
by T-A 6y ago
Or if you expect a major bear market and you were going to liquidate your holdings anyway.
- gnicholas 6y agoRich people don’t liquidate due to the huge tax consequences. They would purchase derivatives to de-risk their portfolio.
- T-A 6y agoUS long term capital gains taxes are between 0 and 20% [1]. The popular definition of a bear market starts at 20%; if you are really bearish, you might "expect the S&P 500 to lose about two-thirds of its value over the completion of the current market cycle" [2]. Either way, giving up 20% of your gains beats losing between 20% and 66% of your entire holdings (initial investment + gains). Regarding derivatives, they are (1) not free, (2) of limited duration [3] and (3) only as good as the counterparty [4]. They can make sense if you have good reasons to expect a short blip. The longer and deeper you think the downturn will be, the less useful they become. [1] https://www.bankrate.com/investing/long-term-capital-gains-tax/ https://www.bankrate.com/investing/long-term-capital-gains-t... [2] https://www.hussmanfunds.com/comment/mc200901/ https://www.hussmanfunds.com/comment/mc200901/ [3] https://en.wikipedia.org/wiki/LEAPS_(finance) https://en.wikipedia.org/wiki/LEAPS_(finance) [4] https://en.wikipedia.org/wiki/Option_(finance)#Counterparty_risk https://en.wikipedia.org/wiki/Option_(finance)#Counterparty_...