After a certain point, it's better to borrow against investments than to pay cash for things. This is especially true when selling your investments would trigger a capital gains tax, which would normally have a far higher rate than a loan with your investments as collateral. Plus, your investments stay in the market the whole time unless you default.
One of the life lessons I've learned from wealthy people is that they know how to use debt as a tool to keep their investments in the market and avoid taxes.
Similarly I did not want to sell my shares in Google to buy shares in the Facebook IPO (even though I felt Facebook would generate better returns) because I would have to pay capital gains tax.
This shows why a simple model for capital gains tax leads to inefficient capital allocation.
Instead, the CGT rules should be cumulative like this: Let's say you buy at $1 million and then sell at $10 million after 10 years: That is an annual return of 25.9%. If the annual capital gains tax rate is 20%, that would leave you with a return of 20.7% per annum. So after 10 years your $1 million investment is worth $6.56 million after tax. That is, you must pay $3.44 million in capital gains tax.
One of the life lessons I've learned from wealthy people is that they know how to use debt as a tool to keep their investments in the market and avoid taxes.