This is where your finance takes place

In my quest to get back to the trading basics, I have to look at all the factors that could influence my return on investment. In the end, what really matters is what is left in your pocket. This is why it is crucial to take a deeper look at anything that could affect your yield. I identified 4 types of trading money eaters that should affect the way you trade on the market.

Taxes

Being a Canadian, this first point is particularly affecting me. Living in Quebec makes it even worst! However, there are some tips that could help you pay less tax. There are three types of income you can earn from the market: Interest, Dividend and Capital Gains. Each of them has their specifics in term of taxation rules. In Canada for example, interest income are taxed according to your marginal tax rate as compared to only half of your capital gains are being counted as taxable income at your marginal tax rate.

There are several ways to reduce your taxes as well. For example, you have the right to carry forward any loss in order to offset future capital gains. Then, you can also use a RRSP plan or (401K in the US) to grow your investment in a tax sheltered environment. Finally, interest paid for most leveraging strategies are usually tax deductible as well.

Market Volatility

This factor is particularly important at your retirement. You certainly don’t want to see all your money bouncing up and down like a rabbit on speed because this could mean that you have to go back to work at Wal Mart to pay off your bills.

A wrong asset allocation mixed with a wrong investment profile could potentially take away a lot of money from your investment portfolio and a lot of hour of sleep from your nights. Be sure to revise your investment strategy once a year and don’t become too proud to get help from a financial professional.

Inflation

Everybody knows what inflation could do to your portfolio. This is more powerful than waves on the ocean shore. To read more about inflation and your investments, I suggest you read my post on GIC’s and their real yield. You might be surprised!

Management fees

Regardless if you manage your investment portfolio or if you have somebody doing it for you, you will have to pay fees somewhere. In fact, pretty much everybody gets in the line to collect their part of the cake when it comes down to investments transaction fees.

You can find transaction commission, trading fees or mutual funds management fees (MER’s). Those are one of the biggest yield eaters you can find!

In the end, you must be pretty careful before building your portfolio and trading. There are several trading money eaters around the corner waiting for you waste your money in the system. Be smarter and manage accordingly, this is my resolution for 2008!

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