Investing 102

[slow4dr]

So I started making a few purchases last week, just trying to get my feet wet. One particular planned long term holding has me thinking/overthinking. This was a $2K transaction netting 27 shares. This holding was one that had been very stable up to this point but dropped roughly 7% in the few days following my purchase.

Now, I had left additional money in the account for what Trey had already mentioned "being ready to pounce". Now, technically I had planned on using this money for other holdings but I went ahead and dropped an additional $2K on the same company(netting 29 more shares). Today, this holding is up nearly 10% from where I bought the 2nd shares.

Since I am just getting started and with minimal funds I'd prefer to diversify over having this much in one holding. I guess I am just looking for some opinions on what to look out for in this situation. I had never planned on selling anything short term like this but I tend to over think things. This wouldn't be a move to make money on the original shares, it would just be to lower my cost on that holding(technically 2 additional shares rather than cost savings) and free up that money to help diversify.

[GregWeld]

Originally Posted by slow4dr

So I started making a few purchases last week, just trying to get my feet wet. One particular planned long term holding has me thinking/overthinking. This was a $2K transaction netting 27 shares. This holding was one that had been very stable up to this point but dropped roughly 7% in the few days following my purchase.

Now, I had left additional money in the account for what Trey had already mentioned "being ready to pounce". Now, technically I had planned on using this money for other holdings but I went ahead and dropped an additional $2K on the same company(netting 29 more shares). Today, this holding is up nearly 10% from where I bought the 2nd shares.

Since I am just getting started and with minimal funds I'd prefer to diversify over having this much in one holding. I guess I am just looking for some opinions on what to look out for in this situation. I had never planned on selling anything short term like this but I tend to over think things. This wouldn't be a move to make money on the original shares, it would just be to lower my cost on that holding(technically 2 additional shares rather than cost savings) and free up that money to help diversify.

I do this all the time -- and when I can - I sell the most expensive shares and hold the lower cost ones. You have to usually check a box when selling (if you're doing so on line) to sell the shares on a FIFO basis --- First in - First Out... OR depending on how they word their selection process -- they might have a box to just sell the highest cost shares first -- or they might say something else. Be sure you know what you're checking!

[WSSix]

So you have $4k in one position that's a solid company that you're wanting to invest in long term and no other positions with other companies, correct? Is this your only retirement account, no company matched 401k or IRA elsewhere?

What I'm getting at is why not just keep it where it is and only add money to other positions? Yes, it's going to be rocky while you build up other positions to help diversify. How long do you think it would take you to get diversified? If we're talking months, I'd say just go with it. If a year or more, I'd say sell you gains and then diversify. If you have other retirement accounts, and this is just the one you want to manage, I'd let it ride.

[68SS2]

Originally Posted by GregWeld

I do this all the time -- and when I can - I sell the most expensive shares and hold the lower cost ones. You have to usually check a box when selling (if you're doing so on line) to sell the shares on a FIFO basis --- First in - First Out... OR depending on how they word their selection process -- they might have a box to just sell the highest cost shares first -- or they might say something else. Be sure you know what you're checking!

Please explain what you mean by this Greg. This doesn't make sense to me. Isn't that like saying FIFO of your bank account, as its all just money? Aren't they are just shares no matter what you paid for them?

Doug

[SSLance]

Each share you purchase has it's own cost basis which gains are figured off of when it is sold. When you sell a share, you get to choose which one of your total holdings you sell (choosing your cost basis if different). Your brokerage account keeps track of the cost basis of each share for you as well as a total cost basis.

If you have a widely different cost basis in different shares of the same stock, how you make this choice can have a big effect on the capital gain and taxes owed. (or loss if that is the case).

[slow4dr]

Originally Posted by GregWeld

I do this all the time -- and when I can - I sell the most expensive shares and hold the lower cost ones. You have to usually check a box when selling (if you're doing so on line) to sell the shares on a FIFO basis --- First in - First Out... OR depending on how they word their selection process -- they might have a box to just sell the highest cost shares first -- or they might say something else. Be sure you know what you're checking!

It is an online account so that's good to know.

Originally Posted by WSSix

So you have $4k in one position that's a solid company that you're wanting to invest in long term and no other positions with other companies, correct? Is this your only retirement account, no company matched 401k or IRA elsewhere?

What I'm getting at is why not just keep it where it is and only add money to other positions? Yes, it's going to be rocky while you build up other positions to help diversify. How long do you think it would take you to get diversified? If we're talking months, I'd say just go with it. If a year or more, I'd say sell you gains and then diversify. If you have other retirement accounts, and this is just the one you want to manage, I'd let it ride.

I have a total of 6 at this time. The plan is to offload the IS300 and add positions. That car will likely be tough to sell so I may be sitting on it for a while.

I don't have a 401K. I would actually like to discuss that with the owner. They offered a profit share a number of years before I started working there but they got burned by the guy managing the account (not a lot of details are discussed but the guy is in jail now)

[ErikLS2]

Originally Posted by slow4dr

I don't have a 401K. I would actually like to discuss that with the owner. They offered a profit share a number of years before I started working there but they got burned by the guy managing the account (not a lot of details are discussed but the guy is in jail now)

Just my opinion but unless a 401k through your job has some matching contributions from the company it does nothing for you other than take your money out of your paycheck for you, if you're not disciplined enough to do it on your own. Most have limited and not very good investment choices and you can do much better investing anywhere you choose through a traditional IRA and/or Roth IRA.

[WSSix]

Erik is correct. Without a company match a 401k or even a Roth 401k aren't anything special. You can do the same thing for yourself with a Roth IRA. I believe you can also set it up so that it automatically debits your banking account. You should definitely have a Roth IRA if you don't already. You can set up a brokerage account under that account and shield all the earnings from taxes. You're just limited to $5500 a year that you can invest. If you want to put away more, get a regular brokerage account after you've maxed out the Roth.

[GregWeld]

Originally Posted by WSSix

Erik is correct. Without a company match a 401k or even a Roth 401k aren't anything special. You can do the same thing for yourself with a Roth IRA. I believe you can also set it up so that it automatically debits your banking account. You should definitely have a Roth IRA if you don't already. You can set up a brokerage account under that account and shield all the earnings from taxes. You're just limited to $5500 a year that you can invest. If you want to put away more, get a regular brokerage account after you've maxed out the Roth.

There are INCOME limitations on who can open a ROTH IRA... I don't know what it is anymore but not everyone can open one.

[glassman]

As of 2016 tax code for Roth IRA

2016
Traditional IRA Contribution Limit if 50 or over $6,500
Roth IRA Income Limits (for single filers) Phase-out starts at $117,000; ineligble at $132,000
Roth IRA Income Limits (for married filers) Phase-out starts at $184,000; ineligble at $194,000

I would verify this with your CPA or tax accountant however....