i have a question which which affect people who have a longer term view of the market. the fact is that do people sell out during a correction only to buy back in later. this would mean you pay tax on your gains and then reinvest.
i have a number of scenarios which play out this idea. this is if you think market is just correcting itself. all hypothetical and assuming you have originally invested $50 000 and your portfolio has increased 100% so on paper its $100 000
you sell everything and get taxed 50% on your gains $50 000.
paper = $0
cash = $75 000
you hold your entire portfolio and market corrects 10%
paper = $90 000
cash = $0
sell down original investment and retain other half. market corrects 10%
paper = $45 000
cash = $50 000
so from these scenarios it is obviously more viable to hold for long term or sell down original investment (avoiding taxation) and re-invest following correction.
does anyone use this method or do they just sell out completely during correction. i feel that my portfolio is for the medium term to longer term and dont wish to sell out or i will have to pay tax on current gains.
i feel if i am to sell out i would sell out my original investment and then be able to average down in correction and not be taxed at all.
obviously this is from the long term viewpoint. short term would be completely different.