Capital gains taxes don’t just steal your wealth, they change the way you make bets
If you have a 70% chance of doubling your money or losing everything, a full Kelly bet is 40% of your portfolio
But if you are taxed 50% on your winnings, your true upside if win is only +50%, not a double (+100%). Based on these odds, you’d only bet 10% of your portfolio for what is otherwise the exact same bet
And if your taxes are 60%, you shouldn’t take the bet at all
This is such an important concept to understand
1) for yourself so you size correctly
2) so you understand how damaging raising taxes is to entrepreneurs and funding investments that have the chance to make the world a better place.
Source: https://twitter.com/tbr90/status/1733202123100201173
Interesting. Are you able to elaborate for my understanding . Just thinking out loud. If you make a gain you pay tax of let’s say 30% but if you lose you could write it off against gain of another bet of similar type.
Let’s assume it’s 50% tax, so I get your net gain will be 50% when investment gain is 100%. But how would it change your risk tolerance if investment in all you asset classes will be taxed at 50%?
