Your Questions About Money Making Stocks To Buy

George asks…

Is there a limit on how big an order you have to make to buy stocks?

Using only the money I’ve deposited into my stock account, would I be able to buy as many shares as I want up to my available cash balance?

John answers:

If you want to buy tens or hundreds of thousands of shares of the same company, you may have to contact your broker and speak to somebody in person before making the trade. Otherwise, you can buy as many shares as you want, as long as you have enough money to pay the comission. You have to account for the comission, so if have $2500 you want to use all of your money to buy shares of a stock with an ask or limit price of $25 per share, and your comission is $15 per trade you can only buy 99 shares, and you ending cash balance will be $10. The price you pay is not the most recent quoted price, it is the ask price for market orders, or for limit orders, the limit price you offer to buy at.

Mary asks…

Investments – Stock – Money Making?

Hello Folks,
I’m young, still on Middle School (8th grade) I always liked the “business world” so I decided to make the first move into the world of investments, talking to my social studies teacher he recommended stocks ; any recommendation on what do I need to know about stocks?? and how can I begin buying and selling and making money??

I know I will need money to start with, well I have 500.00 dollars (from baby-sitting) which I will be more then happy to invest it.

Thank you, all recommendation will be taken to consideration.

John answers:

First thing I think you should do is read a copy of ” investing for dummies”. Your library should have a copy. Despite the title it is a good book for beginners. With $500 to start you can invest in an individual stock, but choosing a good one will require some research. That in itself can be a fun task. There are quite a few internet sites that provide a lot of good information including Yahoo Finance.

Now you will not be able to buy stocks on your own. One of your parents will have to establish an account for you under the uniform gifts to minors rule. But when you become 18 the account becomes yours. That is just a minor inconvenience.
Also since you do not have a great deal of money to begin with you might consider spreading the risk by investing in a closed end mutual fund which trades like a stock or an exchange traded index fund which also trades like a stock. I would also recommend looking at open ended mutual funds but you do not have the minimum requirement for most. American Funds requires only a $250 minimum but has a 5.75% front end load. But they do have some really good mutual funds and are in fact one of the largest mutual fund companies with over one trillion in managed investments.

Mandy asks…

When the market is making new highs for the year , is it a bad time to buy stocks and bonds?

What is the best buy at this point in the market? Corporate Bonds, Government Bonds, Stocks, REITS, stay in money market ????

John answers:

Every stock investor should know about bonds. Bonds are the other side of the investing coin that may help keep your portfolio afloat in troubled times.

A bond is an IOU issued by a corporation, government, or governmental agency to cover money the bondholder has lent. If you own stock in a company, you are a part owner of the company. As a bondholder, you are a creditor.

Although less exciting than stocks, bonds play a critical role in our economy and an important role in every well-balanced portfolio.

Returns from bonds are generally lower than stocks; however, they’re a much safer investment. Bonds’ safety and stability act as a counter to the fluctuations common to stocks.

Most investors should have a mix of stocks and bonds in their portfolio. The more risk you are able and willing to take the higher percentage of stocks in your portfolio. The more conservative investor will want a higher percentage of bonds. Look at my article on the basics of asset allocation .

Who Issues Bonds?
Corporations issue bonds as a way to borrow large sums of money. Companies have two basic ways to raise money for expansion, acquisitions, or other uses. They can issue stock or borrow the money.

Corporate bonds usually come in $1,000 denominations and have maturities ranging up to 40 years, but are usually shorter.

Governments and governmental agencies also use bonds to raise money. U.S. Treasury Bonds are the most secure investments in the world because the U.S. Government backs them with its “full faith and credit.”

U.S. Treasury issues come in several maturities and denominations. Other U.S. Agencies issue bonds to fund such things as mortgages and other government programs.

Municipal governments also issue bonds, which they often use to build roads or perform other infrastructure projects.

Basic Bond Concepts
There are four basic concepts that will help you understand bonds:

* Par value – Par value, also known a face or principal value, is how much the bondholder will receive at maturity. A $1,000 par value bond will be worth $1,000 when it matures.

* Coupon – Coupon is the interest rate the bond pays. It is called the coupon rate because bonds once came with a book of coupons, which the holder had to clip and send in to receive an interest payment. Bond investors are still referred to sometimes as “coupon clippers.” This interest rate does not vary over the life of the bond, although there are some bonds, which have a variable interest rate tied to an external index.

* Maturity – Maturity refers to the length of time before the par value is returned to the bondholder. It may be as short as a few months, 50 years, or more. At maturity, the bondholder receives the par value of the bond.

Understanding Yield

The term you will hear about bonds the most is their yield and it can be the most confusing. I broke this concept out separately because there are really three different types of yield to explain:

1. Nominal Yield – This is the coupon or interest rate. Nothing else is factored in to this number. It is actually not very helpful.

2. Current Yield – The current yield considers the current market price of the bond, which may be different from the par value and gives you a different return on that basis.

For example, if you bought a $1,000 par value bond with an annual coupon rate of 6% ($1,000 x 0.06 = $60) on the open market for $800, your yield would be 7.5% because you would still be earning the $60, but on $800 ($60 / $800 = 7.5%) instead of $1,000.

3. Yield to Maturity – Yield to Maturity is the most complicated, but the most useful calculation. It considers the current market price, the coupon rate, the time to maturity and assumes that interest payments are reinvested at the bond’s coupon rate. It is a very complicate calculation best done with a computer program or programmable business calculator. However, when you hear the media talking about a bond’s “yield” it is usually this number they are talking about.

This brief introduction to bonds is the first in a series of reports on these important investments. Look for more articles coming soon.

Ruth asks…

Where does the money go when i buy stocks?

does it go to the company, then they use it, and you get some of the profits the company makes or is it just whoever bids highest looses? im confused

John answers:

When you buy stock, you are buying a share of the company who offers the stock for sale. The money goes to that company, who uses it ( along with all the money of all the other investors ) to pay salaries, by equipment, and pay the companies expenses of operation. If the company makes money, you will receive a portion of the profit in the form of a dividend that is equal to the percentage of the shares you own.

Ken asks…

how does tax wok when you buy and sell stocks?

what if i buy a stock and sell and make a profit. i know that i have to be taxed on the profit but what if i use all the money to buy more stock? what happens then?

John answers:

You will receive a 1099B at year’s end reporting your ‘proceeds’ which means all that is being reported to IRS is the money you r’cd from selling the stock
you need to have the purchase dates and prices of all you sold to calculate your actual gain or loss
taking the money to buy other stocks has no bearing, you will need to make sure you report what is on your 1099B as proceeds less the cost
Sch D

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