Don't Turn Your Stock Expenses into Stock Losses
When you deal with your stock investments an important aspect you should pay special attention to is the expenses you incur.
Since expenses eat up your profits, you should keep a close eye on them since too many expenses may leave you with no profits and thus hamper your goal achievement. Expenses come in variety of forms, the most often met ones being broker fees, taxes and inflation.
Inflation is viewed as one of the main enemies of investors. It represents the cost of doing business. Inflation can have high levels or it can keep a normal pace. No matter what its levels are, you can undertake different strategies in order to counteract its negative effects. However, you cannot completely control its effects.
On the other hand, broker fees and taxes can be maintained under control. Since broker fees and taxes have an effect on your long term investing goal achievement, you should do your best to minimize these expenses. They usually occur when you trade with stocks either when you sell or buy an investment.
Broker fees and taxes represent factors that greatly hamper day trading. The latter represents short term trades that are frequent in their nature.
Imagine that you have purchased a particular number of shares. Once the price of the shares has increased you decide to sell the shares at the higher price and thus enjoy the profits. However, these profits will be subject to some charges.
As a start you will be charged a commission fee for the executed trade, which will reduce your profit. The commission you will be charged depends on your broker.
Next Uncle Sam will take his fair part in terms of taxes. The tax you will be charged depends on the tax bracket into which you fall.
So, from your profits two deductions will be made, which may end you up with a very minimum amount. In other words, if you feel comfortable and satisfied with the profit you have got, you should expect your stock to return you more in order to compensate for the taxes, commission fees and inflation your profit will be subject to.
In order to minimize the negative effects of these charges you should do several things.
- Keep a close eye on the commission fees you pay. This is especially recommended if you plan to execute frequent trades. In such a case try to hire a broker who offers discounts if you are to execute more trades.
- Be careful about the time you hold a particular stock. Long term capital gains taxes are more favorable, thus it will be a good idea to keep a stock for at least a year and a day.
- Use capital losses to offset your capital gains. This strategy should be applied only after you have made the appropriate consultations with your tax advisor.
So, whenever you consider the frequent selling and buying of stocks you should pay close attention to the mentioned above factors so that you minimize their negative effects and avoid ending up with no profits.
Minimize your expenses by being an educated investors and applying the necessary strategies. All that matters are the money you get after all other charges and expenses are deducted.
Opening a OptionsHouse account to benefit from their low $3.95 stock trades (currently they offer 100 free trades) is a smart idea.
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