Stop throwing your money away

Just Starting To Invest In The Stock Market? How Can You Maximize Your Returns?

Whether you’ve recently accepted your first post-college job and are excited to begin saving for retirement or have been squirreling away money for years in a savings account and are tired of earning abysmally low interest rates, you may be eyeing the investment market with interest. Many analysts view investing in the stock market as one of the only reliable ways to ensure your funds win the battle of inflation over time. However, there are a few rules of thumb that can help you maximize your potential returns in just about any situation — whether you’re investing in conservative bond funds or more aggressive stock indexes or real estate investment trusts (REITs). Read on to learn more about structuring your burgeoning stock portfolio in a way that helps you keep as much of your earned investments as possible.

Evaluate the tax treatment of your investment account and the timing of withdrawals

In Canada, half of any capital gains realized in a calendar year (including the earnings from stock and bond investments) are taxed at your top marginal tax rate. For example, if you’re in the 35 percent tax bracket and sell some shares of stock to realize a $5,000 total gain, you’ll only be required to pay a 35 percent tax rate on $2,500, or around $875 in total taxes. Because of this tax treatment, when it comes time to sell your investments, you’ll want to carefully evaluate the timing of sale. If you have losses in another account, you may want to sell to “lock in” these losses (and then buy again at the low sale price) so that you can use these capital losses to offset any gains realized. 

In other cases — especially if you’re expecting a dramatic change in your tax status from one calendar year to the next — you’ll want to time your stock sale so that the proceeds are taxed during the year when your marginal rate was lowest. 

Keep an eye on fees and commissions 

Earning a 10 percent return on your investment may sound great — until you look at your statement and realize trading costs and account fees eat up 9 percent of this total. Keeping your costs low by investing with traders (and funds) that charge minimal ongoing rates is one of the best ways to preserve capital on a long term basis. To do this, you’ll want to steer clear of actively managed funds and instead look for index funds or exchange traded funds (ETFs) based on a broad market index or sector.

Actively managed funds may carry higher fees to compensate for this hands-on attention and responsiveness to market conditions, but aren’t shown to dramatically outperform the market (and in some cases even underperform the market). When factoring in lower carrying costs, this can mean that your account in a plain vanilla index fund winds up being a much better investment than a “designer” fund managed by an industry expert.

For more information, contact a stock trading company like TradeZero.