Taxes and the costs of trading are a serious hurdle
This comes back to #9, but it’s worth breaking down the basics. Here are the key terms to understand:
Short term capital gains tax – “Short term capital gains do not benefit from any special tax rate – they are taxed at the same rate as your ordinary income. For 2015, ordinary tax rates range from 10 percent to 39.6 percent, depending on your total taxable income.” – TurboTax
Trade Commission – Charge to buy or sell stock.
Order Execution Quality – Many brokers sell high frequency trading firms the right to “peek” at your order and more or less screw you on your fill. This is called payment for order flow. Despite being $.01 or $.02 per share, poor fill costs can add up real quick when you trade frequently.
Out performing the S&P 500 in any given year is a feat in itself, but when you then take into consideration taxes, commission costs, and research (those hot stock pick services, chat rooms, and market newsletters don’t come for free), the game becomes that much more difficult.
Lesson: When taxes, commissions, and other costs of trading such as research are taking into consideration, the challenge of outperforming the market year after year as a career are compounded.
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