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Lucas makes a good point when he mentions capital gains taxea (as well as the NIIT). The majority of my investments are in taxable accounts because of the limitations on how much you can contribute to tax deferred retirement accounts. And most of it is in mutual funds that I've had for literally decades. I've added to them, escpially in the 1990's and early 2000's, but if I were to sell now, I'd pay a very, very larges sum in taxes. Of course, percentage wise, it's not really that bad, but you see the number by itself, it encourages you on some subliminal level to keep those index funds in place. And the greater your gain, the harder it seems to be to pull the trigger.
I think a lot of readlly har core buy and hold (and hold, and hold) investors are just going to ride the thing out just because they don't want to write a big tax check. And if you belive 1) in index funds effeciency; and 2) that you can't really time the market; that's probably the correct thing to do.
But I'm not pessimistic about this rally. I don't think I'd rush out to put more money in the market, but I'm comfortable where I am. There are huge forces that don't want to let the market tank during an election year. And I think that the underlying fundamentals of the economy are coming back a bit faster than some people anticipated. Meanwhile, there's some very early suggestions that perhaps COVID is somewhat transmision is adversely effected by heat, which was by no means a foregone conclusion. So that may -- MAY -- postpone the second wave just a bit. And finally, coprorate profits are going to be aided by the reduction in employment in the big business sector.
Originally Posted by TexTushHog
Agree with you on the tax issue, as I have added very little to my equity holdings since 2010-2011, and sold nothing. (Dedicated bargain hunter and deep-value contrarian investor here.) I and many people I know are, like you, strongly disincentivized to sell with the capital gains tax rate at 23.8%. By contrast, it was 15% at the time, so it was much easier to push the "sell button" in 2006-2007 when we had enjoyed a nice run-up after the 2000 post-dot-com selloff. (I'm glad, too, because that gave me a lot more chips to play after the 2007-2009 steep cliff-dive!)
Although there are currently risks and uncertainties (to say the least!), I agree with you that powerful forces drive markets during an election year, and think that's especially true in our bitterly divided political climate in which the stakes are particularly high.
One thing that's probably been said millions of times over the course of many years: For most investors, especially those who are in mid-career (or earlier), dollar-cost-averaging on a steady basis and holding for a very, very long time is the simplest and best strategy. What the market will do over the next two or three years is anybody's guess, but it's virtually certain to do you very well over the next 20 or 30.
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Originally Posted by Chung Tran
