Comments on: Smithee’s First Stock Sale http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/ A premiere personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Sat, 21 Nov 2009 16:42:00 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Adfecto http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194348 Adfecto Wed, 03 Jun 2009 18:11:38 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194348 Smithee, keep saving your money and wait until you have enough to make the commissions much less painful. Pile up the cash in a no load, no commission mutual fund that gives you diversification and minimizes fees. You will be ready to start picking stocks when you can own 5 positions (remember to stay diversified) and the total transaction costs will be less than 1% of your investment. That means if you pay $9.95 x 5 in fees you should have a total of about $5,000 split equally over your 5 selected stocks. Then every time you hit the $1,000 mark you can add another stock that you want to hold. The $5,000 starting target also matches nicely with the max annual Roth IRA contribution. On January 1 every year you should take $5,000 and drop it into 5 stocks (or ETFs) that you want to buy. ETFs are a great way to get the benefits of stocks but the diversification of a mutual fund (a much better idea imho than picking individual stocks). Now start piling up the cash! Smithee, keep saving your money and wait until you have enough to make the commissions much less painful. Pile up the cash in a no load, no commission mutual fund that gives you diversification and minimizes fees. You will be ready to start picking stocks when you can own 5 positions (remember to stay diversified) and the total transaction costs will be less than 1% of your investment. That means if you pay $9.95 x 5 in fees you should have a total of about $5,000 split equally over your 5 selected stocks. Then every time you hit the $1,000 mark you can add another stock that you want to hold. The $5,000 starting target also matches nicely with the max annual Roth IRA contribution. On January 1 every year you should take $5,000 and drop it into 5 stocks (or ETFs) that you want to buy. ETFs are a great way to get the benefits of stocks but the diversification of a mutual fund (a much better idea imho than picking individual stocks). Now start piling up the cash!

]]> By: My Journey http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194294 My Journey Tue, 02 Jun 2009 01:45:18 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194294 I am sure Flexo has an affiliate link - but I would check out Trade king - 5 buck trades. That would be additional 10% more or so! I am sure Flexo has an affiliate link – but I would check out Trade king – 5 buck trades. That would be additional 10% more or so!

]]> By: York http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194110 York Fri, 29 May 2009 22:38:13 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194110 Michael - IMO, Interactivebrokers.com is one of the best for low cost. Most equity trades will cost you $1. There software takes some getting used to, but is well worth it versus the $8 - $12 average for most brokers. Michael -

IMO, Interactivebrokers.com is one of the best for low cost. Most equity trades will cost you $1. There software takes some getting used to, but is well worth it versus the $8 – $12 average for most brokers.

]]> By: Jim http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194109 Jim Fri, 29 May 2009 21:48:05 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194109 Lily is right. You pay tax on the profit. The tax applies to the gains which is the proceeds minus the costs. I'd also point out that your 25% rate is because this is a short term capital gain and (I assume) 25% is your marginal tax rate. If this was a long term capital gain that you'd held for over a year then you'd be payin 15% tax rate on it. Lily is right. You pay tax on the profit. The tax applies to the gains which is the proceeds minus the costs.

I’d also point out that your 25% rate is because this is a short term capital gain and (I assume) 25% is your marginal tax rate. If this was a long term capital gain that you’d held for over a year then you’d be payin 15% tax rate on it.

]]> By: Eric http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194108 Eric Fri, 29 May 2009 20:43:13 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194108 I think it's because he's using the Schwab account by default since that's where his cash back is deposited. Nonetheless, the commissions are expensive. I think it’s because he’s using the Schwab account by default since that’s where his cash back is deposited. Nonetheless, the commissions are expensive.

]]> By: Naszaklasa http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194107 Naszaklasa Fri, 29 May 2009 19:42:07 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194107 Your commission is ridiculous. There are so many brokers with 1/3 of that or even 0 commissions. Also, as a recommendation, don't bother starting with that little money on stock market..commissions you will eat you alive. Your commission is ridiculous. There are so many brokers with 1/3 of that or even 0 commissions.

Also, as a recommendation, don’t bother starting with that little money on stock market..commissions you will eat you alive.

]]> By: Jacob http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194105 Jacob Fri, 29 May 2009 19:13:06 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194105 Oi! If you are going to have such tiny positions, find someone who offers zero commission trades. You really shouldn't pay more than 1% in commissions each way and even that is pushing it. Oi! If you are going to have such tiny positions, find someone who offers zero commission trades. You really shouldn’t pay more than 1% in commissions each way and even that is pushing it.

]]> By: Michael http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194104 Michael Fri, 29 May 2009 18:57:47 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194104 Congrats on your first stock sale! I've wanted to do this myself but was afraid of all the fees attached eating into any real profit. Are there other competitive trading sites/services you would recommend in which one would not rack up all the added costs? Congrats on your first stock sale! I’ve wanted to do this myself but was afraid of all the fees attached eating into any real profit. Are there other competitive trading sites/services you would recommend in which one would not rack up all the added costs?

]]> By: Lily http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194097 Lily Fri, 29 May 2009 17:27:43 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194097 I think you're calculating your capital gains tax wrong. The tax is on the capital gain, not on the cost basis. The cost basis is your purchase price, adjusted for commissions (both purchasing and selling). The capital gain is your sales proceeds minus your cost basis. In your case: Cost basis = Total purchase price + commission when buying + commission when selling Cost basis = 60 x $1.50 + $9.95 + $9.95 Cost basis = $109.90 It looks like your sales proceeds number is actually your selling price subtracted by the selling commission (since you use that number to calculate your profit). That means your actual sales proceeds is $292.19 before commission, which makes sense if you sold at the beginning of the day on 5/28. Then your capital gain is calculated as follows: Capital gain = Sales proceeds - cost basis Capital gain = $292.19 - $109.90 Capital gain = $182.29 The tax on your short-term capital gain would be more like $45.57, leaving you with a net profit of $136.72. The reason why your return is significantly lower than Google's return is the crazy commissions you were charged. I hope you don't plan to continue short-term trading with those commissions! I think you’re calculating your capital gains tax wrong. The tax is on the capital gain, not on the cost basis. The cost basis is your purchase price, adjusted for commissions (both purchasing and selling). The capital gain is your sales proceeds minus your cost basis.

In your case:

Cost basis = Total purchase price + commission when buying + commission when selling
Cost basis = 60 x $1.50 + $9.95 + $9.95
Cost basis = $109.90

It looks like your sales proceeds number is actually your selling price subtracted by the selling commission (since you use that number to calculate your profit). That means your actual sales proceeds is $292.19 before commission, which makes sense if you sold at the beginning of the day on 5/28. Then your capital gain is calculated as follows:

Capital gain = Sales proceeds – cost basis
Capital gain = $292.19 – $109.90
Capital gain = $182.29

The tax on your short-term capital gain would be more like $45.57, leaving you with a net profit of $136.72.

The reason why your return is significantly lower than Google’s return is the crazy commissions you were charged. I hope you don’t plan to continue short-term trading with those commissions!

]]> By: Erica Douglass http://www.consumerismcommentary.com/2009/05/29/smithees-first-stock-sale/#comment-194094 Erica Douglass Fri, 29 May 2009 17:04:31 +0000 http://www.consumerismcommentary.com/?p=6630#comment-194094 Cool; congratulations! They won't all work out that well, but that's awesome nonetheless. -Erica Cool; congratulations! They won’t all work out that well, but that’s awesome nonetheless.

-Erica

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