In the first part of this article, which you can find in my other articles here on InfoBarrel, I described the most important principles for investing and trading shares. In the second part of this article, I will continue describing the things you have to pay attention to when trading on the stock exchange.
There are four taxes that influence your trading activities on the stock exchange. These are the following:
This is a 0.5 % levy on some asset purchases.
Levied on the income you receive from your investments. This can be either 20% or 40%.
Capital gains tax
This tax rate is currently 18%. It is levied on net capital gains above a certain amount.
Tax percentage of 40% that must be paid on assets after death.
It is hard to identify bubbles, especially if you know that bubbles are mostly identified after they have occurred. Think of various bubbles throughout history like:
- The great stock market crash, 1929
- US Junk Bonds, 1987
- Dot Com crash, 2000
- Property bubble, 2007
Bubbles are easily identifiable in hindsight, but almost unpredictable beforehand.
Lessons to be learned
The lessons from previous bubbles can easily be applied to today’s stock market. It has become clear that bubbles can form in anything from real estate to shoes. Another example of a famous bubble is that of the handbags. Around 2007 you had to pay 950 dollars for a see-through plastic bag designed by the big fashion houses. Since 2007, global handbag sale have decreased with 2 billion dollar.
The next potential bubble may be China. China in particular is starting to mirror the worst characteristics of the dot com bubble. There is not much reliable information available about the economic situation in China.
Tips for avoiding a bubble
There are a few rules to follow if you want to avoid getting trapped inside a bubble. These are the following:
- Stop, if everyone is piling in. If even your housemaid can talk with you about the latest changes in a certain category of assets, it is time to step out.
- Know what you are investing in. Always research the asset before you invest. In this way you can avoid getting involved into schemes like Madoff scandal.
- Don’t put all your eggs in one basket. Keep other options open. If you suspect that you are caught up in a bubble, try to make a contingency plan.
The next big thing
Many people think it is wise to invest in emerging markets like China, India or Brazil. Others invest heavily in new internet trends like Twitter or LinkedIn. However, these ventures might not get you the return you think you might receive. There are a few things that you have to keep in mind.
Questions to be asked
Ask yourself the following questions about the venture:
- Is it addressing a real market need?
- Does management seems to know what they are doing?
- Are there any competitive solutions?
Don’t let complicated technology put you off
Just because you don’t understand what biotechnology is, doesn’t mean you must not invest in it. Companies in sectors like this made huge profits and are a trustworthy venture. Therefore, it is recommended to always do thorough background research.
You are not missing out
Most people are afraid they are missing out, when not investing in hot trends like Twitter or Facebook. Do not be misled by the fact everyone is investing in a particular service, this does not automatically mean it is a good investment.