It’s a good idea not to be too active in your investment strategy. But the time may come when you may want to do some buying and selling to switch things up in your portfolio. When you do, keep in mind that you’ll have to pay capital gains taxes.
A capital gain is the profit you earn when you sell an investment for more than you paid for it. There are short-term and long-term capital gains, and they both get taxed. If you hold an asset for a year or less, that gain gets taxed at your regular income tax rate. But if you hold your investment for a year or more before selling, you only have to pay long-term capital gains taxes. The rates vary depending on your taxable income but are lower than your regular income tax rates.
If you’re investing for the long term anyway, this may not come into play for you. But before you make any quick decisions with the assets in your portfolio, check the calendar to make sure you won’t pay a higher tax rate than you absolutely need to.