I have found that by creating an end goal keeps investing interesting and fun. Your goal could be a vacation, new big TV, pay off or buy a car, or some new expensive item. Having a purpose as to why you invest will help you stay focused. I have found without the end goal I start to lose interest in my portfolio. I would recommend leaving “filthy rich”* off the list, it’s too generic. Make your goal specific and give yourself a reasonable deadline. This tip works best for short term investing, for long term investing make your goal a specific number.
My goal is to pay off my family’s van with my short term stock portfolio.
* I have met a rich person and I have met a filthy person, but I have yet to meet a filthy rich person.
A big mistake I made starting out was the idea to not sell. Several books and talking heads on TV said “Don’t sell!” My question for them was always the same, “Why not? Isn’t that how I make a profit?” Fortunately, the TV never spoke back to me.
Yes Virginia, its ok to sell your stocks.
Sell for only two reasons:
1. Take a profit
2. Limit a loss
Unless you have invested in a stock that pays a dividend, the only way to make money from your portfolio is to sell. It took me almost a year to figure that one out (duh!). If the stock is at a point where you are happy with the profit, don’t worry about the “what if”. Buy it again later and make more money. There is no reason you can’t re-buy a stock.
What about the commission?
There is no such thing as a free lunch. You have to pay a commission to both buy and sell. I’ve always made the commission part of my bought price. If the stock was $15 and I bought 100 shares, it cost me:
$1,500 + $14 ($7 buy + $7 sell) = $1,514
Divide that back to the individual stock price ($1,514/100) and I paid $15.14 (that’s my break even number, more about that later) for the stock. Now if the stock goes to $16.15 and I sell, that’s 10% profit ($100). It’s ok to laugh at my small numbers, I’m just a part-part time trader.
What about taxes?
Depending on how long you keep your stock determines how much taxes you pay. When I started out I was worried about paying the taxes. I read in the vast investing books that I collect, you were supposed to keep the stock for a year + 1 day. Bull crap! Really! If I can take a profit ($100, $1,000, $10,000), I’m taking a profit! Dear Uncle Sam is going to always get a cut, why jeopardize MY profit worrying about his cut.
Limit your loss
The stock market can go down, down ,down! And sometimes it can go down, down, down really fast. Limit your loss. Don’t let the sinking ship drown your hard earned money. Just like taking a profit, you can always re-buy later. Keep in mind there is a catch to re-buying on a loss. The IRS will not allow you to offset your gains with your losses if you re-buy a stock in a certain period of time (confusing, yes, more on it later as I figure it out!).
The only way to make money investing is to start investing. If you know nothing about investing then you can begin by learning. Read a book about investing, magazine, website, or listen to an investing podcast.
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