Financial Temperature

What are the tax implications of investing in the stock market? What are the risks?

I'm am 20 and in college, and thought I would invest some money in the stock market. I am new to stock investing and am planning to invest a $200 first. How do taxes come into play with stock investing? What companies should I invest in currently?

Public Comments

1. With that small amount of money it would probably be best to find a high-yield savings account and build up your investment capital. Once you have about $1000 you can put it into an index fund (small and mid cap do best in a recovery). When you have around $3000 then you can start buying individual stocks. You need that much money in order to be able to have meaningful amounts invested over a diversified portfolio of 5 or 6 individual stocks. Taxes come in to play when you sell shares, you will have to pay capital gains taxes on any profits you make when you sell. How much your capital gains tax is depends on what tax bracket you are in. If you own the stock for less than a year you pay regular federal income taxes on your gains, if you own the stock for over a year then you pay the long term rate. If you are in the bottom 2 tax brackets then your long term capital gains rate is 0%, if you are in the top 4 brackets then your long term capital gains rate is 15%.
2. If you're a rookie in investing or stocks, go to www.finance.yahoo.com. Open up a portfolio without using real money. You can give yourself as much or as little money to try out the market. The stocks you want to focus on is consumer staples, consumer discretionary, and healthcare. These are DEFENSIVE stocks that will survive through good and bad times. Most of my positions are in these stocks. Some names include 3M, Procter & Gamble, Kimberly Clark, Exxon Mobil, Walmart, Costco. Everybody's got to eat and wipe their butts regardless of the state of economy. Many of these companies survived through the Great Depression. That's the benefits. You can sleep at night knowing your money is doing well. There are NO guarantees that you won't lose money. It's just that these stocks are the best. They pay good dividends too. Then once you're comfortable and test the waters of the market, you can finally put some real money in. Go to Scottrade.com. They're excellent for beginners.