The Power of Long-Term Investing & Tax Efficiency
For many investors, taxes aren’t a major concern when their assets are in 401(k)s and IRAs. But for taxable accounts, the difference between short- and long-term capital gains can be significant—up to an 18% difference. Some financial advisors try to mitigate this by offsetting gains with sales that create losses.
Over the past 20 years, the average holding period for investments has dropped from 6 years to just 6 months. More and more investors are treating their retirement accounts like trading accounts rather than long-term investments.
At Stars, we take a different approach. With an 8-year holding period, an average of 12% per year is subject to long-term capital gains at 20%, leading to an average tax impact of just 2.4% plus state tax. This strategy ensures that even during market corrections, gains remain long-term since the entry price typically dates back four years or more.
While early sales in a Stars account may generate some losses, these are quickly offset by future gains. The bottom line? A long holding period means significantly lower taxes and greater efficiency.
Are you taking full advantage of long-term investing for tax efficiency? Let’s talk.