More about Stock Trading:
- In the US, investments through a broker are usually insured by the SIPC for up to $500,000. If you have more than $500,000 with a broker, consider transferring some of your funds to another broker to protect against the risk of one broker going bankrupt or failing in some other way.
- Although you should “diversify” your portfolio by owning stock in several industries, buy stock primarily in industries you are familiar with.
- Maintain meticulous records of all your stock trades. Include the company name (stock ticker symbol), size of the trade, cost basis (purchase price including commissions, fees, and adjustments), selling price, and dates of transactions. You will need this information to calculate capital gains taxes. From time to time, you will need to adjust your cost basis to account for return of capital, splits, depletion, spin-offs, and distributions.
- Don’t buy too much stock in one company. Five percent of your total portfolio is the most you should devote to any one stock, and an even lower figure would be smarter. This will insulate you from the risk that an individual stock may lose substantial value because of unexpected, adverse developments in the issuing company. Diversified portfolios tend to increase in value over time.