Different Makes a Difference

Stocks are struggling this year. The major equity benchmarks are down meaningfully, and many individual stocks are down considerably more. While it’s quite possible that equity markets will correct further in the near term, we are increasingly optimistic regarding the medium- and long-term prospects for the stocks we own and recommend.

Taxes are inevitable, and long-term investors often face the reality of paying capital gains taxes when they sell stocks in their non-registered investment accounts. When this occurs, investors are left with less money to reinvest and compound over time. To offset this impact, investors want the return from whatever new stock they buy to be higher than the stock they sell. Interestingly, the theoretical break-even return required from a new stock to justify a switch may not be as high as some think. This can be illustrated through an example.