Thursday, October 11, 2012

Before we get serious— Some stuff you may want to know

Before we move in to real investing and opening your first real online brokerage account, transferring money and making your first real trade among many other exciting things I feel the need to make some final points.
(As a reminder; we are continuing with the very BASICS here so if you are already a seasoned investor or feel that you are familiar with the basics please feel free to skip this post! Future posts will be a little bit more advanced but this blog is a one step at the time educational tool).
How exactly do people make money from investing?
Simple math: Buy low and sell high. The difference is your profit (minus commission cost). Your profit is directly proportional to how much money you invest. The more money you put in, the larger your profit when the stock appreciates. But REMEMBER--- is better to start with a low amount of money and slowly increase your investment confidence. As you gain more knowledge you can increase your investments. Start slow! Slow and steady wins the race!
What exactly makes a stock go up or down in price? The market can be very volatile and there could be a million reasons why shares increase or decrease in price. Some main reasons are:
Suppy and demand, stock buy backs, popular company news, the overall market is up, good news about the economy, any positive news by the Federal Reserve or news that seems like it would help ‘boost’ the economy, market security, confidence among shareholders, hyped up IPOs, a positive company announcement (ie: increase in dividends), a company investing for future growth (this can go both ways depending on the kind of market we’re dealing with). These are just some examples and I will explain each further as we move along.  
Do making money in stocks affect my taxes? It can. The profits made are added to your gross income. This may or may not affect your tax bracket and hence the % at which your are taxed. Profits from stock investing and dividends gained are called “capital gains” and are taxed slightly different than your regular income. The tax subject is a littl more complex but not necessarily in a bad way. More on that to come!
Long term or short term investing? Good question. It is really up to you but one thing you should know is this: don’t get emotionally attached to your stocks! Like a lot of things in life-- if you don’t see them going anywhere and you’ve been patient maybe is time to reassess.
How ‘Safe’ is the stock market?  One thing you need to understand is that the market can be very volatile. It can go up or down at any time for any reason. The money you put aside to invest should be part of your disposable income. Extra money you may have and that you wont need for a while (I will repeat this several times throughout the course of this blog). You don’t put your rent money, morgage money, gas money or any money you need to survive in the stock market. Maybe I should repeat this: You don’t put your rent money, morgage money, gas money or any money you need to survive in the stock market.
I sometimes call it educated gambling but since I don’t know how to gamble I see investing as a way safer, more predictable than gambling and an amazing tool to build wealth. Again, education is key.
Again, these are just some basic points and I will continue to elaborate as we move along. Next posts will start getting a little bit more intense (for my beginner investors) as I will explain step by step how to: open an official brokerage account/how to choose one and all the exciting things that come with that! I will probably break the posts in to several parts in order to make it simpler to understand.
As always, any questions or anything else you’d like me to explain before we get “serious”—email or comment below!

PS: You can follow me on twitter: @teachmetoinvest.