The noise of capital gains

I have seen people in various online forums, and some of my clients have recently asked, about the impact of capital gains on their investments.

“How will my Kiwisaver be taxed”?

“How much will my rental property be taxed”?

“Will my business be affected”?

I can see why people are talking about it. The online media are running stories on capital gains at least 3-4 times a day. There has been a real onslaught of articles for the last few weeks and there is no sign of them slowing down.

One of the key components of achieving financial independence though, is ignoring the noise. It is well publicised that investors that try and time the market because of what is being said by “experts” and talking heads, have much worse results than investors that stay the course and ignore the noise.

When ignoring the noise, not only is your investing performance better, but it is also easier. Basically set and forget. That really is the key to life and financial independence. Stay the course, ignore the noise, form good habits. Life becomes so much easier when you are true to yourself, have confidence in your decisions, and stay the course.

This leads to a life of simplicity. When life can be hard, simple is good. Simplicity frees up time to focus on more productive and more enjoyable things.

Instead of worrying about a potential tax, focus on how to build a better diversified investment portfolio.

Instead of worrying about a potential tax, enjoy socialising with friends, not online strangers.

Instead of worrying about a potential tax, find ways to help your partner and spend time with the family.

Instead of worrying about a potential tax, read a book or learn something new.

Worry does not empty tomorrow of its sorrow, it empties today of its strength.
— Corrie ten Boom

Focusing on a capital gains tax that hasn’t come in to effect is not a good use of your time. You could be doing so much more fun things with your time than taking up valuable head space with something that may or may not happen, or affect you.

The tax report is just that. A report. Nothing has been decided on. Stop acting like it has. It is all just noise. Pure speculation. No fact. Not yet anyway.

All of the recommendations could be implemented, some of them, or none at all.

Not until any changes have been proposed and implemented should you start analysing the repercussions on your assets. And that is still some time away. Even if the Labour party agree to make certain changes, the changes being implemented rely on them remaining in power.

And even then, it’s important not to avoid investments for tax reasons. Tax considerations should only make up a small part of your investment decisions. The key to investing still remains a well diversified portfolio of assets that suit your risk profile and time horizon. Then, you can consider tax. Don’t consider tax first or you may miss out on some great opportunities and your portfolio may not be well balanced.

There is still a lot that needs to happen before any tax changes, if any, are made.

So keep things simple, ignore the noise, and focus on more important things.