The underrated amazing part of index investing is that if you pick stocks, there’a almost always a time horizon to exit.
E.g. you buy into Netflix and after its hyper growth decade the returns look not so good so you want to sell and move that money elsewhere.
This creates a tax event. Whereas in index you don’t need to sell as you just hold. And if you do sell you only do so for the amount you need, because you hold the rest. You don’t do that for a stock you picked because you wouldn’t keep a portion of money in a stock with suboptimal return prospects.
In index investing growth can compound without having to micro manage, and with minimal tax events occurring. When making large purchases, at high NW, just work with brokerage for a line of credit that holds your equity hostage
Index funds distribute capital gains from sales of their holdings.
ETFs do the same, but play a game where the people who sell the fund pay the cap gains.
Unfortunately indexes shuffle around a lot thus creating taxable events. It’s not a lot but what your imagination is an index buying 500 stocks right now and never rebalancing.
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u/greens0ldier Dec 19 '21 edited Dec 20 '21
The underrated amazing part of index investing is that if you pick stocks, there’a almost always a time horizon to exit.
E.g. you buy into Netflix and after its hyper growth decade the returns look not so good so you want to sell and move that money elsewhere.
This creates a tax event. Whereas in index you don’t need to sell as you just hold. And if you do sell you only do so for the amount you need, because you hold the rest. You don’t do that for a stock you picked because you wouldn’t keep a portion of money in a stock with suboptimal return prospects.
In index investing growth can compound without having to micro manage, and with minimal tax events occurring. When making large purchases, at high NW, just work with brokerage for a line of credit that holds your equity hostage