Here a few tidbits about stocks followed to links to some of my posts.
- Stocks, also known as “shares”, represent a portion of ownership in a company. The average return for stocks since 1900 to 2013 adjusted for inflation is around 8.5%, nominally over 11%.
- Investors can either buy shares – which is called having a “long” position, or short sell shares – which is called a “short” position.
- An upward trending market is called a “bull” market, while a downward trending market is called a “bear” market. These expressions are rumored to be from how a bull and bear fight – bulls fight by going under and jabbing upwards with the horn while bears go up and come down with their claws.
- Some stocks pay dividends, a portion of the companies earnings in order to reward owners (shareholders) of the company. Many growth stocks do not pay dividends and instead invest in themselves figuring that that would be better for the investor in the long term.
Types of Stocks
- Value – These stocks are undervalued and can be purchased when bad news or some other non-essential data causes the price to dip below its value. They can be held until its fair value and then sold for a profit.
- Income – Income stocks pay good dividends and folks can make money by pocketing the interest or reinvesting the interest into more shares.
- Growth – Growth stocks make money by increasing profits over time causing the price to go up, these stocks usually do not pay dividends.
Capital Gains Tax
- In the United States, stock gains are taxed at different amounts based on the length they were held. Stocks held for more than one year and sold at a gain are considered long term capital gains. These are taxed at a lower amount than short term capital gains, and these taxes change constantly. Recently President Obama allowed the capital gains tax for the highest tax bracket to increase to 20% – any short term capital gains are taxed at a persons ordinary tax rate. To see a list of tax brackets click here.
- In Canada, only 50% of capital gains are taxed at a persons ordinary rate.
- In the Cayman Islands, there is not capital gains tax.