Investors often get excited about the potential income
If you are buying 10 shares of a $10 stock, that value of the stock will have to increase 10% before you can break even. Add capital gains tax you now owe on the appreciation of this asset, and you have actually lost money on your prudent stock purchase.
How much you are paying in taxes depends on the type of investment and how long you hold the asset. Below is a break down of common investment tax rates, but visit moneychimp.com for a capital gains tax calculator,
You’re not out of the woods yet in escaping fees. If you invest in a mutual fund, you are paying additional fees. Typically you pay a small management fee and you may even be paying an extra load fee to your financial planner. The load fee is simply an extra charge that goes to pay your financial planner a commission.
These fees take 5% or more of your investment capital right off the top. If it is an upfront load fee, you pay this charge before your money is even invested.
Secondly, if you buy mutual funds at the wrong time, you can get nailed with paying a taxable dividend that you didn’t actually receive. According to SmartMoney: It’s always dangerous to buy mutual funds at the end of the year, since you may be buying right into a big taxable dividend. If you are purchasing shares of a fund in the fall, check the distribution date and wait until it passes before writing your check.
So how do you escape all of these fees and make money on your investments?
Thanks to Zecco.com, investors can now buy commission-free stocks and avoid trading fees all together. They offer 10 free stock trades per month, and only $4.50 after your 10 free trades. Zecco makes their money with advertising and margin spreads, so you can now invest for free. To avoid capital gains, you have a few options.
The most obvious would be to invest in a tax sheltered retirement account, such as an IRA or 401k. These programs offer exceptional tax benefits that can’t be beat. A stock investor can also offset their capital gains by selling losing stocks during the same year that they liquidate their winning stocks. Consult with a certified financial planner when considering this or any of these options.
If you are a real estate investor, you can roll your profits into a 1031,
According to The Motley Fool: The only thing that you really need to know and remember about mutual fund loads is that you don’t ever have to pay any. Everything that a broker could ever find for you in a load fund, you can find for yourself, and find much better.