money guidance and how to get rich_266

_{Yes, you can — and you must. The expenses incurred in purchasing}

_{or selling a capital asset (stock, in this example) are capital expenses,}

_{and are required to be added to or subtracted from the cost basis of}

_{the stock for tax purposes.}

_{Let's say you buy $3,000 of stock and pay $50 in commission and other}

_{charges. Your actual cost is $3,050. You sell the stock later, when it's}

_{worth $4,000, paying another $50 to the brokerage. Your "net" sales}

_{price, or proceeds (generally, the amount reported to you by your broker}

_{at year-end on your Form 1099B), would be $3,950 ($4,000 less}

_{$50). On your tax return, you would report a gain of $900 ($3,950 less}

_{$3,050 equals $900.)}

_{Note that you've not had to pay tax on that $100 in commissions — so}

_{you've probably saved at least $20.}

_{Using margin means borrowing money from your brokerage, usually to}

_{buy additional stocks. For that privilege, you pay interest, just like with}

_{other loans. If the market turns against you, you either sell for a loss —}

_{plus interest costs — or hold on until the market picks up, paying interest}

_{all the while. If you're borrowing on margin and paying 9% interest,}

_{you should be pretty confident your stocks will appreciate more than 9%.}

_{receive a "margin call," requiring an infusion of additional cash. If she}

_{can't raise the cash, the brokerage will sell some of her holdings to generate}

_{the needed funds. This can sting, possibly resulting in short-term}

_{capital gains taxed at high rates.}

_{Margin amplifies your investment performance. As an example, imagine}

_{that you hold $100,000 of stocks and you margin that to the max,}

_{borrowing $100,000 to invest in additional stock. If your holdings double}

_{in value, you'll have earned an extra $100,000 (less interest expense)}

_{thanks to margin. But, if your $200,000 holdings drop by 50%,}

_{they'll be worth $100,000 and you'll still owe $100,000 (plus interest).}

_{That will leave you with… nothing. Your holdings dropped by 50%,}

_{but margin amplified that to a total loss. Margin cuts both ways.}

_{On the Fool's discussion boards, one of the most read and recommended}

_{posts is from a reader named "globalstreamer," detailing how he lost}

_{his entire portfolio, $60,000, in two weeks — by getting carried away}

_{with margin. Only experienced investors should use margin. Although}

_{you're currently allowed to borrow up to 50% of what your actual}

_{holdings are worth, it's smart to limit yourself to no more than around}

_{20%, if you borrow on margin at all.}