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10 Mistakes Every Investor Makes and How to Avoid Them

10 Mistakes Every Investor Makes & How to Avoid Them
7
Mistake #2 – Ignoring Taxes and Fees
Investors often get excited about the potential income an investment
can make and forget to consider fees and tax implications that can
diminish their profits.
When trading stocks, for example, a single stock purchase can cost
you $10 or more, even with a low-cost, online brokerage account. If
you are buying 10 shares of a $10 stock, that value of the stock will
have to increase 10% before you can break even.
Add capital gains tax you now owe on the appreciation of this asset,
and you have actually lost money on your prudent stock purchase.
How much you are paying in taxes depends on the type of
investment and how long you hold the asset. Below is a break down
of common investment tax rates, but visit moneychimp.com for a
capital gains tax calculator,
Type of Capital Asset
Tax Rate
Short-term capital gains
(STCG)
One year or less Ordinary income tax
rates up to 35%
More than one year 5% for taxpayers in
the 10% and 15% tax
brackets
15% for taxpayers in
the 25%, 28%, 33%,
and 35% tax brackets
Real Estate Main Home One year or less STCG
More than one year LTCG taxed at 5% or
15% after any
exclusion amount
You’re not out of the woods yet in escaping fees. If you invest in a
mutual fund, you are paying additional fees. Typically you pay a small
management fee and you may even be paying an extra load fee to
your financial planner. The load fee is simply an extra charge that
goes to pay your financial planner a commission. These fees take
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Holding Period
Long-term capital gains
(LTCG)
 
 
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