For heavily taxed investors, the benefits of holding onto their investments as long as they continue to grow and compound are significant. Selling investments triggers taxes, which reduce the amount of capital available for reinvestment. As a result, the new investment would need to generate a significantly higher annualized return to match the after-tax value of the original investment. Therefore, avoiding unnecessary sales is a key strategy to preserve more capital for compounding over the long term.
High turnover can also increase explicit costs such as fees and transaction costs because each trade typically incurs brokerage fees, custody feed, and applicable market costs. In addition, the larger the trade, the higher the impact of implicit costs, such as market impact and bid-ask spreads.
The less taxes and transaction costs paid, the more money invested.
“Our favourite holding period is forever” Warren Buffet, 1988.