Risks beyond taxes
The good thing about costs associated with capital gains taxes is that they’re fixed and predictable, with a rate of 15% for most people reporting income from $47,000 to $550,000, and 20% for those with ultra-high income, according to the IRS. You can work with a financial adviser to calculate your tax liability before you decide to sell.
In contrast, unlike taxes, the market is volatile and unpredictable, meaning the costs associated with holding an individual stock could be much greater than the capital gains tax you pay on selling it.
For example, Tesla stock lost 42.5% of its value in just a few weeks between December 2024 and February 2025. Selling that stock and taking the 15 to 20% capital gains tax hit before that dip would have been far less costly for someone who is overexposed to Tesla stock.
This is why investors like O’Leary believe diversification is more important than tax savings.
Invest in real estate without the headache of being a landlord
Imagine owning a portfolio of thousands of well-managed single family rentals or a collection of cutting-edge industrial warehouses. You can now gain access to a $1B portfolio of income-producing real estate assets designed to deliver long-term growth from the comforts of your couch.
The best part? You don’t have to be a millionaire and can start investing in minutes.
Learn MoreSetting guardrails for your portfolio
To limit volatility and risk in his portfolio, O’Leary told Stephan about his simple rule of thumb.
“I never let one asset class ever become more than 20% of my net worth,” he said. “So if that asset class really has a hard time it can't take you out of business.”
He claims to review his entire portfolio every 90 days to trim individual asset classes and maintain balance, regardless of the tax implications.
Most young investors don’t seem to have such guardrails on their portfolio, according to a recent report by Empower.
Investors in their 20s, 30s and 40s have roughly 43% of their assets in U.S. stocks and only 8% in foreign stocks. This cohort also has a bond allocation of less than 6%.
Meanwhile, investors in their 20s and 30s hold 27.4% and 24.6% of their assets in cash respectively.
Diversifying your portfolio to a broader mix of asset classes such as cryptocurrencies, gold or real estate could reduce the volatility of your overall portfolio and put you on a more robust path to financial freedom.
Of course, maximizing the use of tax-sheltered accounts such as a 401(k) plan or a Roth IRA also mitigates tax liabilities when you rebalance your portfolio.
For assets held in taxable accounts, speak to a financial adviser to see if you can lower your liability with tax-loss harvesting. This is a way to offset capital gainss on investments that have gained significant value by selling investments that have dropped in value.
This technique gives you more wriggle room to rebalance your portfolio regularly, just as O’Leary would recommend.
The richest 1% use an advisor. Do you?
Wealthy people know that having money is not the same as being good with money. Advisor.com can help you shape your financial future and connect with expert guidance . A trusted advisor helps you make smart choices about investments, retirement savings, and tax planning.
Try it now
