Stock Markets Exposed

Is it easy to loose money in the stock market?

I am new to investing, and I want to make sure I have this right. When I buy stock and the stock price drops, I will not loose money unless I sell, right? If I just wait for the stock to rise again, I will be fine. I know that the key is to buy low and sell high, so as long as I don’t sell lower then I buy, all is great, no matter what the market does? Also, I have read that buying diversified stock is the best way to go, what are the main categories that I should buy from? (Tech, retail, etc...)

Public Comments

1. sometimes yea sometimes no
2. All is great IF the stock rises above what you paid and you're willing to hold it until then. There are no guarantees. Before you invest, educate yourself.
3. Yes, you can lose money. You need to learn the difference between unrealized and realized gains and losses. Look that up. Whenever you purchase a stock, it will always go down after you buy it. You have to learn to accept that. I know someone will say that is is not always true. Perhaps, but for over 95% of your stock purchaes, it is true. You must assume that before you buy. The only way you make money, is to wait until it goes up, then sell. If you sell before a year is up, and make money on it, you have a higher tax rate to pay. Short Term Capital Gains Tax. If you sell after a year is up, and make money on it, you get the lower, long term capital gains tax rates. If your stock goes way up, and you don't sell it, that is an unrealized gain, and there are no taxes on the gains, unless you sell the stock. Selling the stock is what makes them realized gains, and is a tax event. If your stock goes way down, and you don't sell it, you have not realized the loss, and cannot deduct the loss on your taxes. This is why people sell their down stocks in December, for a tax deduction. For example, say bought 100,000 shares of XYZ stock at $0.01 per share, for $1,000.00. The stock might drop shortly after that, to $.009 per share, a $100.00 unrealized loss. But say it goes up to $99.99 per share, and the stock is now worth $10,000,000.00, a unrealized profit of $9,999,900.00, plus it now pays a dividend of $12 per share per year, or $1,000.00 per month. You don't have to pay any Federal Income Tax on that stock, but if you sell it, you have an almost 10 million gain, which combined with federal and state taxes, could easily be $4,000,000.00. If you were to keep the stock, and take out a loan of say $5,000,000.00 on it, and put most if it in the bank and use the interest and dividends to pay off the loan, there are no taxes, because that is a loan, not profit. Consider a large corporate shareholder such as Bill Gates. His company stock goes way up, and he can make or lose billions every day, in unrealized gains and/or losses. He does not have to pay taxes on it, unless he sells it.
4. Yes, diversified stock reduces potential loss. The market is hard to read these days... I mean, its really crappy, but who knows if it'll pull up. And when the stock price drops, youre losing money already. It doesn't matter whether you sell or not, youre still losing money. Look at Countrywide last year for example, if you held onto your shares for the whole year, hoping it'd recover, you lost almost 80% of your investment! Remember too, that being new to investing, you still have to take in the trading fees to your whole investment cost. Investor's Business Daily (IBD) has a lot of good trading advice. They also have a list of 20 Rules for Success when it comes to investing in the market, so check it out:
5. Compare it to having a hole in your pocket
6. Companies and their stocks could go bankrupt.Certain stock prices could drop for years. Your money is that way tied and not making money. Sometimes it is better to take a loss and move the money to the faster growing stock. There is also the difference between an investor and a trader. Investor thinks in a long run. A trader makes money today whether the stock is falling or rising.
7. Lisa, from an IRS and tax standpoint, you are correct. But from your perspective...the day you check your account and the $ you have that day are less than what you put in, then you will feel like you lost it..It will play on your psyche very hard. Any stock at any time can go to ZERO. Thus you are always risking 100% loss of your money. Some stocks the odds of this happening are pretty small. But it is always there. My lessons from many years of investing is that the hardest part about stock investing is your own mental/emotional control not picking/buying stocks. And believe me, picking the rights stocks is hard enough. I would recommend that you consider initially buying ETF's such as the QQQQ or SPY or DIA and buy a little bit each month this year, and spend the rest of your money on reading as many investing psychology and strategy books as possible. I recommend anything by Dr. Alexander Elder as a great start.
8. The simplest way to answer is, a stock may fall after you buy it and it may NEVER rise again. This happens all the time. You can hold on to it until the cows come home, and you'll never make any money.