What to do with Tax Return?

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Permalink Reply by NowUKnow, Inc. on March 2, 2009 at 4:24pm

Let me just add, the Dow Jones industrial average has fallen below 7,000 for the first time in more than 11 years.

The market, battered by the recession and worries about financial companies, tumbled again Monday after insurer American International Group Inc. posted a staggering $61.7 billion in quarterly losses and accepted another bailout from the government.

According to preliminary calculations, the Dow is down nearly 300 points at 6,763.06. It is the Dow's lowest finish since April 25, 1997.

The Standard & Poor's 500 index is down 34 at 700, while the Nasdaq composite index is down 55 at 1,322.

About 15 stocks fell for every one that rose on the New York Stock Exchange. Volume was a heavy 1.96 billion shares.


With the new stimulus bill, taxpapers will be putting a few extra dollars in their accounts once they file their returns. So what to do with this money?

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Permalink Reply by ChrisKidd.com on March 2, 2009 at 10:43pm

Chad,
There are several things that your question brings up and I'll try to bullet point them to keep it short.
1. Absolutely DO NOT put your money in these stocks that are trading for pennies (they are there for a reason). Many people are atracted to these because they can buy more, but infact these are some of the riskiest stocks you can buy. I won't get into the stocks like C, AIG, FNM, FRE, etc... but don't touch them.
2. A few hundred dollars won't go very far in the market (unless it is in options), and it would probably be better used in a savings account or CD, until it is built up to several thousand dollars. Then you can make something. Which brings up point 3.
3. What is your time frame? The market is not going to come back anytime soon. We should see another rally here shortly,but don't be fooled into thinking that the pain is over. In this market you either have to take quick gains, or have a tim frame of 5 years or more. In the case of the long term strategy, it still doesn't make much sense to contribute capital now, because the market is not going to recover anytime soon. It probably won't even start until the 4th qtr this year at the arliest, or next year.
4. Do you already have money in the market? If not, see point 3 - save up enough to do something with. If you don't have enough to work with you can make it virtually impossible to make money, because you also have to factor in the trade fees.
5. Bottom line I would not contribute a few hundred dollars right now, maybe not even a few thousand. Make sure you have cash even if you are invested. Have at least 50% cash in your portfolio right now.
6. Do you have a business of your own? There are several businesses that you can start with little capital and that don't requirre a lot of overhead. I think that would be a much better investment. Then you can build a your business to a point that it will fund your investments.
7. Check out some of my blog postings for more info on the market and econmy http://www.ChrisKidd.com/blog
Also I have a FREE monthly newsletter and it has a Stocks to Watch section. Also I am offering a FREE 60 trial on my StockWatch program on my website http://www.ChrisKidd.com. All you have to do is set up an accout with a user id and password. It would be a great learning tool and it is FREE. I don't recommend subscribing after that unless you just want the info, or if you already have a decent sized portfolio. Give me a call for a free 30 minute coaching call if you like. The number is on the website.

Oh and I like TD Ameritrade for a trading platform. There are some other good ones as well, but I'm impressed with them.

I hope this helps. Let me know if I can be of any more assistance.

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Permalink Reply by Brian Turner on March 3, 2009 at 10:51am

ChrisKidd - you hit the nail in the head, just because a stock used to be $50 and now its $1 doesn't mean it going to come back. In most cases, they are that low for a reason. I make no recommendations, just know that cash is king and the most important investment you can make right now is to get educated on investing. There are a few tools that are available to learn how to start investing on your own like www.investools.com. There is a fee to get started, but I've had success with this program.

Some of the of the trading platforms I recommend for people just getting started are TD Ameritrade and Scottrade just to name a few. Plus they allow you to get started for only a few hundred bucks. Another idea is to go through a company like TRowe Price and invest in mutual funds by dollar cost averaging. Once again, they allow you to get started with a few hundred bucks and you can get it automatically withdrawn from your account each month.

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Permalink Reply by chad on March 3, 2009 at 11:34am

I have never purchased stocks before so I'll give u an example of my train of thought when it comes to doing so...if I take $100 to td ameritrade I can purchase 714 shares of sirius @ 14 cents each minus any fees they charge...assuming Sirius does not fold in 2 yrs I can then sell those shares @ $2(that is just an example) ...therefore making $1,328 minus any fees...is this the utmost basic concept? Also I can grasp the concept that it is really bad in the market but some of these companies have to turn around at some point, even if it is 1 or 2 yrs down the road. I'll be checking that website soon chriskidd!

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Permalink Reply by Brian Turner on March 3, 2009 at 4:48pm

Using your same example, take that $100 worth of Sirius stock. You have to pay commissions on the buy and sell of the securities. So say the commission is $15 on the buy of the securities and $15 on the sell of the security. Your .14 Sirius stock can go to zero. So if the Sirius stock goes to zero, where is that $30 going to come from? Also, keep in mind that it's easy to get into a trade, but a lot harder to get out.

Just because it's at .14 don't mean it's gonna make it back to $2. Look at the chart of Sirius since it's been $3:

With stocks they can always go lower!

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