Chapter 6 · Open anytime · free play with taxes
Taxes and liquidity
Capital gain: the profit between what you paid and what you sell for. In most countries it's taxed only when you sell.
The idea
In short
- 1Capital gain: the profit between what you paid and what you sell for. In most countries it's taxed only when you sell.
- 2Deferring tax is valuable: while you don't sell, the money that will one day go to tax keeps working for you.
- 3Every sale “realizes” the gain: trading in and out makes you pay tax sooner and more often.
- 4Liquidity: how fast and cheaply you can turn an investment into cash. An ETF sells in seconds; a home takes months and buying plus selling costs about 15% in the game.
- 5Money you'll need soon shouldn't be in something illiquid or volatile.
- 6Benchmark: compare your result with the simple alternative (e.g. an index you never touched). Without one you can't tell skill from a rising market.
In the data
What history shows
US stocks with a 20% tax on gains: paid every year, or once at the end, 1928–1949
Real data, January 1928 to December 1949: years before any mission, so nothing is given away. Monthly returns from Robert Shiller and Aswath Damodaran.
Real figures
The numbers
Finish missions 1, 2 and 5 to see these real figures.
Remember
Takeaways
- That's why the best plan with hindsight barely beats buy and hold: every move pays tax.
- In the game a home needs at least $20,000, costs 10% to buy and 5% to sell, and the money arrives 6 months after you sell.
- In real life, tax-advantaged accounts (pensions and retirement accounts, depending on the country) are the first place to look.
2 more takeaways unlock as you finish more missions.
Practice, not scored
Quiz
1. You buy for $10,000 and sell for $15,000 with 20% tax. What do you keep?
2. Your portfolio made 8% this year. What's missing to judge it?