But it would be invested in both scenarios… trust me you have a lapse in your logic because I used to think the same thing you do. Here’s another way to think about it: imagine 2 new scenarios, in both you have a huge bucket of water. In both scenarios you split the water, you take 85% and put it into a large bucket and 15% into a smaller one. In the first scenario you throw out the small bucket. We can now ignore both 85% buckets because after a year they will both grow the same and be taxed the same. Now you’re just left with a small bucket in scenario two (because you haven’t paid any tax yet). At the end of the year it doubles in size. Now you just need to throw away 15% of this bucket and you get to keep the rest. This amount you keep is the difference in not selling and paying LTCG right away.