Your Questions About Money Making Stocks To Buy

Mandy asks…

What tax do I need to pay on stocks bought online?

I have recently bought stocks using Scottrade and want to know what how much tax I need to pay when I sell. As a college student, I am a dependent of my parents so will my capital gains tax be the same as theirs or because I currently have an income less than $7,000, I won’t be taxed.

John answers:

Three basic things you need to pay taxes on: 1) dividends 2) short-term capital gains 3) long-term capital gains. Dividends are the cash distributions the company makes to shareholders. Capital gains are the gains from selling the stock at a price higher than what it cost you. You are allowed to add fees including commissions within “what it cost you”. Short-term capital gains are based on sales within 12 months of purchase, long-term capital gains are based on sales of stock you’ve held for over a year.

Dividends have their own dividend tax rate, which is currently 15%. Short-term capital gains are taxed like regular income, and long-term capital gains are taxed at the capital gains rate, currently 15%. Whose rate you pay depends on how you and your parents file (the account holder will be responsible for paying so I’m assuming this is you). If you file separately, you pay your own rate.

If you manage to lose money through a capital loss, you can actually use up to $3000 of that loss every year as a deduction against regular income.

Really important fyi, always consultant your or your parent’s accountant/tax advisor instead of online forums if you have one, but this should be ok as a general guideline.

James asks…

Is it possible to make a living by only buying and selling stock?

Is it possible to make a living by only buying and living stock? I’m guessing that you would need so much money in the first place to invest that you really wouldn’t need to worry about making money if you had alot in the first place.

John answers:

The way most people make a living at it (not including stock brokers who make a living by placing orders or clients, they don’t actually invest their own money) is by taking advantage of arbitrage opportunities. These are very rare circumstances which last for small moments. When you watch the stock report, they will usually talk about the 2 major stock exchanges NYSE and NASDAQ. However, there are many different stock exchanges across the country and around the world.

For example, If one sees that a stock is trading for $39 on one exchange, but trading for $40 on another exchange, they can by one share at the first exchange for $39, then turn around and sell it on another exchange for $40. That investor, in a matter of seconds, has just made a profit of $1 per share. So if they do this with 1000 shares, then they made $1,000 (minus any fees that they have to pay).

Opportunities like this don’t last long, so the only way to make a go at it is to be constantly watching the prices of many stocks from around the world.

You may hear about people who Day Trade. They buy a stock, and as soon as it goes up a little bit, they sell it. It is my experience that nobody knows when a stock goes up or down. I have found people that make a living doing this, only do it for a short while.
My advise is if you want to be a Day Trader, is to not quit your day job. If you want to be an Arbitrage trader, then learn how the stock market works first. You also need to learn how currency markets work too. After you know how they work, you should be able to figure out arbitrage.

Thomas asks…

Can you make alot of money buying stocks? How ?

John answers:

Most people do not make a lot of money buying stocks. To make a lot of money, one has to invest a lot of time and effort and have a little luck also. Some of your responders answered that you need a lot of money to make a lot of money and that is basically true. But it is also true that if you make a wise investment, you can reap a very large % return. And within a reasonable amount of time–ten years say–you can have a relatively lot of money. In any given year there are litterly hundreds of stocks that double in price. There are some that triple in price. There are some that even increase 5 fold and even 10 fold. Chances of latching onto a 5 fold stock are slim but nevertheless quite possible. I have latched onto a couple. The more effort you put into it, the better your possibilities.

However, it is very important to weigh risk against reward. Many investors do not consider the risk and as a result loose a great deal of money. There were thousands in 2001 that lost most everything they had invested.

Paul asks…

How much money can I make buying only 2 to 3 shares on one of each stock?

Even if they all have a substantial high yield on dividends, what if i only had about $200 to invest with and with no means to invest more.Could I turn $200 to $2,000. I think so maybe even more. I mean I bought four stocks last year 2 from foreign oil companies and the other was JP Morgan and Walmart. Each were like $28 to $42 bucks a share. After a month in a half I sold them all for $360 dollars and to me I thought that was a sound investment because I only bought one share from each stock. And that was my first time were I didn’t lose money on investing in bad stocks. But what can you tell me of what stocks to buy this year that can have a substantial gain in the next 6 to 12 months?
This is why I hate to ask questions on yahoo answers or in general online because you never get a professional considerate answer, and than you talk to me in such a snotty way which to me only indicates that you are wrong and you are not smart enough or respectful enough to be giving advice to anyone on stock trades. And guess I have news for you, it is very possible to make a substantial return on buying limited shares on a stock, its just a matter of knowing which stocks are progressive and which are more lucrative.Its a simple as that, simple management. I hate where people are so easily arrogant about there experiences in stock trading that they are so strongly convinced that there skills on it are bar none. Its amazing and it makes no sense, just because you did before, it don’t always work the same way. Stop being arrogant, and answer the damn question!

John answers:

Study the company valuation. Its a lot of discount companies out there and under value stocks

2012 was the year of the housing recovery—and the year to own housing stocks.
2013 will be the year of the auto recovery and the year to own auto stocks.

I am not going to sale… Now is the time to make some serious money. Buy and Hold is the best approach for right now. The name of the game is buy low and sale high. Losing money is not easy but the pay off will be wonderful. Financial stocks are cheap and they should be consider. Even with the risk within the next 3 to 5 yrs, they will be doing better. When your money grow, Keep a cash cushion so you could buy within the up and downs of the market. Every body was selling because of fear of the fiscal cliff and tax hikes. It is silly to try and avoid taxes because we will all pay more taxes either way. Get rich off people fear, when they are selling and its a good company buy more shares. Stay invested, if you could afford to do it and buy more shares.I strongly suggest that you get your self a Roth IRA account asap. Some people do not start until they are within their 40s, which they are regretting. You are young, you have many years of compound interest ahead of you. You can never go wrong with investing and saving for your future. You could be a millionaire before you reach your retirement age so get started with the Roth IRA account by contacting T-Rowe Price or Fidelity. Yesterday is History, Tomorrow is a mystery, its all about what you do in the moment. You can get started today. It is suggested that you pick the Roth IRA target year fund set for the age 65. A target-date fund – also known as a life cycle, dynamic-risk or age-based fund – is a collective investment scheme, usually a mutual fund, designed to provide a simple investment solution through a portfolio whose asset mix becomes more conservative as the target date (usually retirement) approaches. Listed below are a few companies so that you could get started today.


Take Care

Michael asks…

Do Stock Options make you more money than buying and selling stock itself?

I’m hoping to get involved in the stock market and was just wondering which way would produce more profit over a shorter period of time.

John answers:

You can control a higher amount of stock shares through the use of options than you can by using the same amount of money to purchase the stock itself.

For example, with a stock such as Google which sells for $310.17 a share you can buy roughly 4 shares for around $1,200.00. Not bad, if you’re looking to invest $1,200.00. Keep in mind that I am just using this to illustrate an example and off the top of my head I don’t know whether this would be a good thing to do or not). Or, if you use options for a comparable price ($1,290.00 on 12/20/08 for the 320 strike price which is actually at 12.9 but multiply it by 100 or simply move decimal point two spaces to the right) you can control 100 shares of Google stock for the next 27 days. Let’s see… Own four shares or control 100 shares? Hmmm. What to do?

Let’s suppose that Google jumps up to it’s November 4, 2008 price of $440.72 before the expiration date in January 2009 (27 days from now) and you own 4 shares. Bless you, you have roughly made 4 X $130 ($440 – $310= $130) = $520 dollars. Wow. Not bad. But let’s suppose that you “controlled” 100 shares of Google stock via the use of a single option contract. What would happen? Let’s see: 100 X $130= $13,000. Wow! Now that’s really not bad. $520 dollars versus $13,000 dollars. If all choices were so easy!!

Of course, this is very much over simplified. There are many more factors to consider than mere change in price – such as implied volatility; however, the general gist of this is accurate.

Notice that I said “control” when I spoke of options rather than “own”. Basically when you purchase an option you are merely “renting” 100 shares of stock for an agreed upon amount of time. You have no ownership and when the amount of time is up you longer have control over the stock – but up to that time (the time of the expiration) you do have control. You can sell the option back at any time before expiration, and potentially make a profit (if the price movement is right), or you may be able to “exercise” you right to buy the actual stock.

There is an allure to trading options and your question indicates that you are somewhat becoming aware of this allure. You are right in that options can make you more money than stocks, if you consider investment dollar for investment dollar and then compare the potential returns as I have done for you above. Be warned, though, that options trading is similar though vastly different than just trading stocks, and if you don’t understand the difference you will get burned.

I hope this helps you. I am including below a website that offers free instruction about options, including a free virtual trader (powered by optionsxpress). The site is a very respectable site and it should help you out quite a bit if you desire to pursue this further.

Good luck in your investing.

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