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NurseCarmen 10-21-2002 04:05 PM

How do I throw away money (Stock Market)
 
When I bought my house, I was required to put a chunk of money in for some reason (I think it was the PMI). My house has nearly tripled in value since then, so I rid myself of that pesky PMI with an appraisal that showed the increase.

So now I find myself with $1500 sitting in a money market account making 2 percent.

I have watched 2 specific stocks for several years now (A buddy worked at one company, my sister the other). I had no real vested interest other than hoping they did well. Now that both are skipping along, down low one week, doubling the next, both with high volumes, I think to myself, well self, wanna jump in?

I'm serious, I'm willing to piss this money away. I don't think I will since my knowledge of the companies shows them both as stable, and both are beginning to hire again, so one would assume that as a good sign. Is it possible to start small, say 500? I see that etrade and ameritrade require at least 1k. Is this as simple as I think for what I want to do? Just open an account, buy low, and sell high? 15 bucks per trade is something to consider, and then taxes. What would a profit be taxed at? I have seen both of these stocks double, then deflate, about 5 times this year. I could have made some profit. But I don't have a clue.

So I'm saying this: I want to gamble with some money. How do I do it, and what other things besides the stock delisting/crashing/bankrupt do I have to worry about? If I buy 1k of shares at $1, and it goes up to $2, how much will I have actually made?

Manduck 10-21-2002 04:27 PM

Diversify. Buy an index fund. I think you'll find the ups and downs of the broad market exciting enough.

NurseCarmen 10-21-2002 04:35 PM

When it's hits a peak, can I pull the plug with an index fund? I end up staring at my computer an awful lot at work these days, so I could kee a fairly close eye on these. When I do sell, can I just leave the money in my ameritrade/etrade/datek account indefintely?

UrbanChic 10-21-2002 04:36 PM

With whom do you have your 401(k)? I ask because I'm with Fidelity. My plan has a nifty little option called Brokerage Link. With it, I can take a certain percentage and live out my fantasy of being a day trader. Maybe you can roll that money into your 401(k) and if you make money, it'll add to an important bottom line.

Manduck 10-21-2002 07:23 PM

Quote:

Originally posted by NurseCarmen
When it's hits a peak, can I pull the plug with an index fund? I end up staring at my computer an awful lot at work these days, so I could kee a fairly close eye on these. When I do sell, can I just leave the money in my ameritrade/etrade/datek account indefintely?
It's sounds like you want to day-trade. That's not a very good idea; most day traders go broke. The idea of an index fund is that you are investing in the market as a whole (or a broad swathe of it anyway) and holding it for the long term. Frequent buying and selling can cost you a fortune in fees.

Lorenzo 10-21-2002 07:43 PM

It's pretty boring, but buy and hold is one of the best strategies for younger amateurs like us. As previously noted, transaction costs can kill your return on investment if you are frequently trading.

Diversification is also key, to eliminate the unique risk of individual stocks. Of course, one cannot eliminate market risk.

None of the above applies if you just want to burn through your $1,500, though. In all seriousness, though, you might have more fun burning through $1,500 in Vegas.

To answer one of your questions, if you buy 1000 shares of ACME at $1.00/share and you sell all your stock when it hits $1.50/share, you will realise a gain of $500. You will pay a sales commission to execute the trade and the gain will be treated as ordinary income. If you're in a 28% tax bracket, you net $360 less sales commission, which may not seem like much considering you made a 50% short-term gain which is very hard to find.

For this reason, many people don't churn their assets and don't cash in until they're older and presumably in a lower tax bracket.


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