Over the past couple of months, the stock market has been at an all-time high. Wait what does that even mean? It means that the many companies publicly listed have stock prices at an all-time high. For example, the Dow Jones Industrial Average (Dow) is a measurement of a section in the stock market. The Dow has 30 companies in it. Between mid-June 2016 and mid-July 2016, the index has gone up about 787 points or 4% which is a lot for one month. So what can one do to take advantage of this situation? Well famous investor Warren Buffett’s timeless quote is to “buy low, sell high”. He has a lot of other sayings as well and it’s important to read advice and opinions from experienced investors like Mr. Buffet whom have done well for themselves in the investment world. Now, since the market is high now we should sell stock that we own right? Well yes and no in my opinion.
Different people have different goals when it comes to stock market. Some people are in it to make a quick buck. Others are in it for long-term growth. So if you’re in it for the quick buck, then now may be a good time to sell some of your stocks. One method for selling could be to sell something that has gained a certain percentage. For example, IBM went from $151.16 on 4/16/16 to almost $160 on 7/14/16 (3-month period). That is almost a 6% increase in share price in 3-months. If IBM is in your portfolio and your percentage threshold for selling is for the price to increase by 5% or more then you could sell this stock. One thing to remember is that if you own a stock for less than only 2 years and sell it for a gain, then you have to pay Capital Gains tax on your tax return. This table is a simple illustration I pulled from Investopedia.com along with a simple explanation of how Uncle Sam gets his piece of the profit: http://www.investopedia.com/articles/00/102300.asp
|Bought 100 shares @ $20||$2000|
|Sold 100 shares @ $50||$5000|
|Capital gain taxed @ 15%||$450|
|Profit after tax||$2,550|
I like to hold onto stock because I’m not in it to make a quick buck. Rather I’d prefer to have my investment portfolio slowly grow overtime. I might sell a few holdings right now since the stock market is so high. Once I sell the stocks, I may just let the cash from the sale sit my account or in a Certificate of Deposit (may talk more about how this works in a different post) and wait for the market so come down to buy some other stock – remember, buy low, sell high!
Wait a Minute
Ok ok so how do I even get started you ask? The first thing to do is to open a brokerage account. This is an account you need to buy and sell stocks. Many companies offer one like Scottrade (this is the one I use), E-trade, Ameritrade, Fidelity, a bunch more, and a new one called Robinhood which I’ve heard doesn’t charge you commission to buy or sell stock! Just Google any one of these and you can sign-up on their website and follow the instructions to deposit money. Keep in mind though that right now is a good time to sell, not buy, unless you in it for the loooooonnngggg term and find something whose value you’re confident will continue to increase.
The volume of information and analysis on when and how to buy and sell stocks on the internet is ridonculous. One thing to always remember is that no one has a crystal ball and can predict what will happen in the future. When you invest in the stock market, you are taking risk, period. The amount of risk you take depends on the amount of money you invest, what stocks you buy, how long you buy them for, and how much of them you keep or eventually sell.