Retirement Investors – Want more money to spend? Pay less taxes!

An equity buy and hold strategy produces 3.1% higher expected average annual after-tax returns than a typical short-term trading strategy that earns the same pre-tax profits.  Alternatively, a short-term stock trading strategy must earn 5.8% more average annual pre-tax profits to produce the same after-tax income as a long term buy and hold strategy.  There has never been a U.S. core stock mutual fund that has created that much excess return over a 30-year plus time period. 

  • Just the facts Ma’am
    • I analyzed the tax impact of a buy and hold strategy vs a short-term trading strategy for a New York investor with $500K in income (NY tax rates apply).
    • I assumed each strategy earns 10.2% per year (the average annual return on large US company stocks since 1926).
    • See this analysis for the supporting calculations.
  • What this means for you:
    • Any investment strategy that includes short term gains must be located in an IRA or another tax advantaged account.
    • In taxable accounts, a long term buy and hold strategy is substantially superior to investment strategies that generate taxable gains.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Source for all return data is “2020 Stocks, Bonds, Bills and Inflation Yearbook”, Roger G Ibbotson and Duff & Phelps. For our full disclosures, click here.