April 18, 2014
What is the difference between a long term capital gain vs. a short term capital gain? Why should you care?
What is the difference between a long term capital gain vs. a short term capital gain? Why should you care?
Long term capital gains is when you hold an investment for more than a year, short term is under a year. This is important because the long term capital gains is taxed at a lower level than the short term capital gains which is taxed like normal income, its important to know what your taxes will be at the end of the year for your investments, managed accounts normally have high short term capital gains due to all the trading, index funds have much lower, the total stock market index has the lowest short term capital gains of them all if you hold it over a year. Its good to know the tax code so you dont pay more than you have to on taxes.
Long-term capital gains are taxed at a much lower rate than short-term capital gains. You should care, because in order to achieve wealth, you have to know how to do so efficiently. The wisest way to invest money is to buy no-load index mutual funds and hold on to them for a long time.
Well said, you two! Let’s review.
Long term capital gains (requires securities held more than a year) are taxed at a much lower rate than short term capital gains (securities held 1 year or less) in the vast majority of cases. This tells us we want those long term capital gains we should try to avoid the short term ones. How?
Own index funds outside of your retirement accounts. These type of investments have very low turnover (less buying and selling), which means you will end up with more long term capital gains and fewer short term capital gains. Winner, winner, chicken dinner!