As a long-term investor, you will find that it is possible to amass a small fortune through the stock market. To do so, you must learn to properly account for stock market investments. Effective stock market accounting helps you to analyze the stock ticker and your brokerage statements. This will allow you to coordinate an effective investment strategy.
The stock ticker provides real-time stock market information. Quote streams begin with a ticker symbol, before presenting price and volume information for the last trade of a particular stock. To learn a corporation’s ticker symbol, you can visit its investor relations page through its official website. Volume information describes the amount of shares that have traded hands during one particular trade or time frame. TV news channels, such as CNBC and CNN, stream stock tickers to their viewers throughout the day.
Your monthly brokerage statement summarizes account activity. The brokerage statement highlights your total account balance, and the size of each investment position within that balance.
Beyond account balances, you should review each brokerage statement to analyze your trading record. The brokerage statement organizes trades according to date, buy and sell orders, and dollar amount for each transaction. For real-time information, you can also monitor your trading activity and account balances through online trading portals.
Stock market indexes help you to gauge the performance of your portfolio. As an aggressive investor, your goal is to build a portfolio that outperforms its applicable stock market index. As a conservative investor, you are more likely to accept lower returns, in exchange for reduced volatility.
The three major stock market indexes for American stocks are the NASDAQ Composite Index, the Dow Jones Industrial Average, and the S&P 500. The NASDAQ Composite is associated with technology stocks. The Dow and S&P 500 track large capitalization stocks, such as General Electric and Wal-Mart, which are more representative of the overall U.S. economy. You should consider selling stocks if your domestic investments significantly under-perform the major indexes for more than two years.
At tax season, your brokerage prepares 1099 forms to account for your investment activity over the prior tax year. In general, you will be responsible for paying taxes on realized capital gains and dividends from stocks. When holding shares of stock, you are likely to receive quarterly dividend payments. Capital gains, however, are realized when you sell stocks at a profit.
Tax law is structured to reward long-term investors. As of 2010, long-term capital gains are taxed at maximum 15 percent rates. Alternatively, short-term capital gains taxes may be as high as 35 percent. To qualify for long-term capital gains tax treatment, you must own stock for more than one year.
Investment accounting helps you minimize the risks of identity theft. The SEC warns against phishing scams, where criminals break into your online trading account to place unauthorized trades and balance transfers. Quickly alert brokerage management to any suspicious activity that appears on your statement. From that point, the matter can be resolved with your broker and reported to law enforcement officials.