Stock Trading Options
A Look Into Trading Stock: What Are Your Options?
Investing is easier than ever in 2019. With the advent of stock trading apps such as Robinhood, Tasty, and others, investors are no longer needing to look to brokers to trade their dollars. That being said, it’s more important than ever to be educated on investment options and their implications in order to make profitable and educated investing decisions.
The two main types of investments are debt securities which represent a loan from the investor to a company or government entity, and equity securities which represent ownership of a part of a company. Stock falls within the equity securities category. When investors buy stock, they become owners of a “share” of a company’s assets. If a company is successful, the price that investors are willing to pay for its stock will often go up and shareholders who bought stock at a lower price then stand to make a profit. If a company does not do well, however, its stock may decrease in value and shareholders can lose money. The rise in the price of a stock is termed appreciation or “capital gain.”
6 Stock Trading Pitfalls to Avoid
1. Using a Cookie-Cutter Approach
Most investors, along with many of the people who advise the, are satisfied with a one-size-fits-all investment plan. The “model portfolio” is useless to most investors. Your individual needs as an investor must govern any plans you make for investment.
2. Taking Unnecessary Risks
You do not have to risk your capital to make a decent return on your money. There are many investments that offer a return that beats inflation and more-without unduly jeopardizing your hard-earned money.
3. Allowing Fees and Commissions to Eat Up Profits
Many investors allow brokers’ commissions and other return-eating costs to cut into their returns. Be aware of all fees that you will be charged to buy/sell stock and also if you will be charged to take out money earned.
4. Not Starting Early Enough
Many investors are not cognizant of the power of interest compounding. By starting out early enough with your investment plan, you can invest less, and still, come out with double or even quadruple the amount you would have had if you started later.
5. Ignoring the Cost of Taxes
Every time you or your mutual fund sells stocks, there is a capital gains tax to pay. Unless you are in a tax-deferred retirement account, taxes will eat into your profits, therefore, you should invest in funds that have low turnover (i.e., funds in which shares are bought and sold less frequently). Your portfolio, overall, should have a turnover of 10 percent or less per year.
6. Letting Emotion Govern Your Investing
The key to a successful portfolio lies in planning, discipline, and reason. Emotion and impulse have no role to play in investing.
Do you trade often? Contact Steven Lissner CPA to learn your options and to get the best possible return when tax season comes.