How To Invest As Millennial Part 3
I AM IN NO WAY A MARKET PROFESSIONAL; USE YOUR OWN JUDGEMENT WHEN PURCHASING STOCKS AND OTHERWISE. I AM NOT RESPONSIBLE FOR AND GAINS OR LOSSES THAT YOU MAY EXPERIENCE.
THE MARKET IS INHERENTLY RISKY, AND YOU SHOULD ONLY INVEST WHAT YOU ARE COMPLETELY WILLING TO LOSE.
This is series of blog posts about finance build on each other go to part 1
Today I’m going to talk about fees & leverage.
From my limited understanding of what US Stock Brokers charge you.
Commissions are paid by you everytime you buy or sell a stock you must paid the broker a fee ranging from $0.05 up to $10 a order & I believe the $0.05 is per share so if you buy 10k shares you would pay $50 & I believe $10 is per order with no limit of shares.
Again this is from my limited understanding of what US Stock Brokers charge you.
This example is from http://www.accountingcoach.com/blog/what-is-financial-leverage
Financial leverage refers to the use of debt to acquire additional assets. Financial leverage is also known as trading on equity. Below are two examples to illustrate the use of financial leverage, or simply leverage.
Mary uses $400,000 of her cash to purchase 40 acres of land with a total cost of $400,000. Mary is not using financial leverage.
Sue uses $400,000 of her cash and borrows $800,000 to purchase 120 acres of land having a total cost of $1,200,000. Sue is using financial leverage. Sue is controlling $1,200,000 of land with only $400,000 of her own money.
If the properties owned by Mary and Sue increase in value by 25% and are then sold, Mary will have a $100,000 gain on her $400,000 investment, a 25% return. Sue’s land will sell for $1,500,000 and will result in a gain of $300,000. Sue’s $300,000 gain on her $400,000 investment results in Sue having a 75% return. When assets increase in value leverage works well.
When assets decline in value the use of leverage works against you. Let’s assume that the properties owned by Mary and Sue decrease in value by 10% from their cost and are then sold. Mary will have a loss of $40,000 on her $400,000 investment—a loss of 10% on Mary’s investment. Sue will have a loss of $120,000 ($1,200,000 X 10%) on her $400,000 investment. This is a loss of 30% ($120,000 divided by $400,000) on Sue’s investment.
My Experience using Leverage
Leverage is a both edged sword that could help me achieve my goals faster if I use it right & not be in the second example of Mary & Sue assets declining that is why I check my assets multiple times thru out everyday.
Before I started using leverage I wanted to learn how to invest in the stock market so for the first 15 months I didn’t use any leverage so any return or loss would’s hit as hard as if I had used leverage. I watch a pro investment manager say that 90% of people will loss 90% of whatever I put in the stock market within 90 days!!!
Lets say I can get extra $4k to use as leverage but I have to pay 6% interest yearly that means I have to buy assets that will make more than the 6% or $240 per year just to break even but, I’m not using leverage to break even, I’m using leverage to make a profit.
I been investing in the stock market since 2015 I have profited returns more than if I invested my money in index fund or put it in a saving account I am happy I started learning how to invest.
I am not a pro investor.