I would imagine that in a geared portfolio it is even more preferable to have capital gains as you can offset certain costs against realized profits.
Something you cannot do with dividends. AFAIK.
I often wondered about that mindset of trying to avoid CGT at all costs.
I haven't run the calculations but I'm finding more and more that certain mindsets that's prevalent among everyday investors makes no sense at all.
Maybe avoiding CGT is one of them.
Like the mania about franked dividends.
Which really is only a mechanism to transfer tax liability from the company to the individual. You don't get "extra" or any "discount".
It's just a mechanism to prevent double taxation!
But I digress.
Maybe there is a formula one can create with effective tax rate, cgt discount rate, frequency of trades, underlying share growth rate, trading performance on volatility.
Mmm just a quick ponder....
20% effective rate and 50% CGT discount.
Bull case.
$100 profit at 20% effective rate with 50% CGT discount is $90 in hand.
If you can invest that $90 and gain 11.1% again you break even, more than 11.1% you are
in the money.
Bear case.
If you currently have $100 in profit and sell because you think the share might tumble.
If the share falls more than 10% your are in the money.
At that point you can choose to buy back in. And have the same amount of shares and have some profit.
For example if you bought shares @ $25 and sold them at recent $75.
That is $50 profit, $25 inclusion amount with $5 CGT and $70 in pocket.
So buying back in @ $70 would be break even.
Buying in below $70 again you would be in the money.
There was plenty of opportunities at even $62 or $65 recently.
If you entered at $65 you would have the same amount of shares, plus $5 in your pocket and no pending tax liability - looks like a win to me.
Sooner or later you have to sell if you want the capital.
We are not talking big moves here.
Shares moving upwards:
%move up to break even = effective tax rate / (1-effective tax rate)
Shares moving down,
%move down to break even = effective tax rate
If you can take advantage of 50% CGT discount then halve this halves the % move
necessary to be in the money.
eg. @ 20% effective rate the share needs to move 20% down or 25% up.
@ 10% discount CGT rate it needs to move 10% down or 11.1% up
@ 30% effective rate the share needs to move 30% down or 42.85% up!
Clearly then your tax rate ( and concessions ) hugely effects how much the share price needs to move... if my calculations are correct.
Selling when you have a very low tax rate during a year with no other income or special concessions like retirement then things can change.
Another motivation would be off setting it against a loss incurred on another share you want to exit etc.
Unfortunately I don't have any insights to share about RHC itself, I have no idea how the upcoming results are going to go.
(20min delay)