Quizmaster, Doug Hutchinson, has come up with another great quiz for us regarding how tax aversion can sometimes lead investors to make sub-optimal investment decisions.
Consider this scenario:
Your friend Jeff owns a mutual fund worth $100,000 in his taxable account. Jeff has been considering selling the mutual fund and replacing it with a similar investment with lower fees (and, therefore better projected net of fees returns). However, Jeff is leaning toward not selling his mutual fund because his cost basis on the mutual fund is $75,000, so selling it would create a taxable gain of $25,000.[+] Read More