Which one of these would generally be considered the most rational action for a tax-paying investor?
A)Trading frequently
B)Selling their losing and holding their winning securities
C)Throwing darts to select their portfolio holdings
D)Holding a less than fully diversified portfolio of securities
E)Ignoring taxes when making investment decisions

Question

Quizplus · Accepted Answer

Selling losing securities can provide tax benefits through capital loss deductions, while holding onto winning securities can defer capital gains taxes. This strategy is commonly known as tax-loss harvesting and is considered a rational action for tax-paying investors. Trading frequently (A) can increase transaction costs and trigger short-term capital gains taxes. Throwing darts to select portfolio holdings (C) is not a rational investment strategy. Holding a less than fully diversified portfolio (D) can increase risk and is not considered a rational action. Ignoring taxes (E) can result in missed opportunities for tax savings and is not considered a rational approach for tax-paying investors.

Which One of These Would Generally Be Considered the Most