Lesson 01: Steps you need to knows before you invest.

Investment is any vehicle into that your fund can be placed with an expectation that it will produce a positive income and/or that its value will be preserved or increased.

Return is the reward for owning an investment which means your income increase in value.

Debt is investor lends funds in exchange for interest income and repayment of loan in future (bonds)

Equity represents ongoing ownership in a business or property (common stocks)

Risk chance that actual investment returns will differ from those expected (Low Risk or High Risk)

Short-Term: mature within one year

Long-Term: maturities of longer than a year


Steps in Investing

•         Step 1: Meeting Investment Prerequisites

a.       Adequately provide for necessities of life, including funds for meeting emergency cash needs

b.      Adequate protection against losses from death, 
illness and disability

•         Step 2: Establishing Investment Goals

            Examples include:

1. Accumulating retirement funds
2. Enhancing current income
3. Saving for major expenditures
4. Sheltering income from taxes

•         Step 3: Adopting an Investment Plan

a.       Develop a written investment plan

b.      Specify target date and risk tolerance for each goal

•         Step 4: Evaluating Investment Vehicles

a.       Assess potential return and risk

b.      Chapter 4 will cover risk in detail

•         Step 5: Selecting Suitable Investments

a.       Research and gather information on
specific investments

b.      Make investment selections

•         Step 6: Constructing a Diversified Portfolio

a.       Use portfolio comprised of different investments

b.      Diversification can increase returns or decrease risks (Chapter 5 will cover diversification in detail)        

•         Step 7: Managing the Portfolio

a.       Compare actual behavior with expected performance

b.      Take corrective action when needed

Next -> Lesson 02

Referance:

1) Gitman, Joehnk; Fundamentals Investing 10th Edition; 2008

How to calculate tax

Any investment that is hold for less than 1 years are taxed the same way as normal income. This is how you calculate your tax.

It is based on how much money you earn. You don't simple calculate the value of your income by the percent. You have to break it down into different brackets. Let's use the 2011 Tax Bracket for example.

U.S Tax bracket 2011

Marginal Tax Rate	Single	Jointly
10%	$0 – $8,350	$0 – $16,700
15%	$8,351– $33,950	$16,701 – $67,900
25%	$33,951 – $82,250	$67,901 – $137,050
28%	$82,251 – $171,550	$137,051 – $208,850
33%	$171,551 – $372,950	$208,851 – $372,950
35%	$372,951+	$372,951+

Like you earn $8,000, you can do $8,000 *10%. But if your income is $8,351, which is $1 above the 10% bracket, then you have to do it this way. $8,350*10%+($8,351-$8,350). This way is to make it fair. So if you are a little above the range of 10%, you still pay 10% for the income that is within the range. The amount over the 10% range is calculated separately

So this is the equation for Single/individual:

Income less than or equal to $8,350

•Federal Tax = Your_income*(0.10)

Income between $8,351– $33,950

•Federal Tax = $8,350(0.10) + (Your_income-$8,350)(0.15)

Income between $33,951 – $82,250

•Federal Tax = $8,350(0.10) + ($33,950-$8,350)(0.15) + (Your_income-$33,950)(0.25)

Income between $82,251 – $171,550

•Federal Tax = $8,350(0.10) + ($33,950-$8,350)(0.15) + ($82,250-$33,950)(0.25) + (Your_income-$82,250)(0.28)

Income between $171,551 – $372,950

•Federal Tax = $8,350(0.10) + ($33,950-$8,350)(0.15) + ($82,250-$33,950)(0.25) + ($171,55-$82,250)(0.28) + (Your_income-$171,550)(0.33)

Income greater than $372,951

•Federal Tax = $8,350(0.10) + ($33,950-$8,350)(0.15) + ($82,250-$33,950)(0.25) + ($171,55-$82,250)(0.28) + ($372,950-$171,550)(0.33) + (Your_Income-$372,950)(0.35)

Example 1: Your annual income is $500,000

Federal Tax = $8,350(0.10) + ($33,950-$8,350)(0.15) + ($82,250-$33,950)(0.25) + ($171,550-$82,250)(0.28) + ($372,950-$171,550)(0.33) + ($500,000-$372,950)(0.35)

Federal Tax = $152,684

So you income after federal tax is $500,000-$152,684=$347,317

Example 2: Your annual income is $50,000

Federal Tax = $8,350(0.10) + ($33,950-$8,350)(0.15) + ($50,000-$33,950)(0.25)

Federal Tax = $8,687.50

So you income after federal tax is $50,000-$8,687.50=$41,312.50

Example 3: Your annual income is $5,000

Federal Tax = $5,000(0.10)

Federal Tax = $500

So you income after federal tax is $5,000-$500=$4,500

How to Open an E*TRADE Brokerage Account for investing in STOCKS

What is good about using E*TRADE?
1. The website for trading stocks are easy to use. Better then Scottrade.
2. It is easy to transfer money in and out of the E*TRADE Brokerage Account.
3. You will get FREE trades for up to 60 days which means they will give you back $500 after 60 days for the commission you pay (usually $9.99).


Before you start, you need the following things to open a BROKAGE ACCOUNT if you are a U.S. residents:
1. U.S. Permanent Residential Address
2. Date of Birth
3. Social Security Number
4. Employer Name and Address

This is the steps for how to open an E*TRADE account:
1st Go and search up using the search bar above or click on the E*TRADE advertisements.

2nd Click on the upper right corner "OPEN AN ACCOUNT"

3rd Under Brokerage Account, click APPLY NOW

4th On the next page, it will tell you what you need for applying for a BROKERAGE account and click BEGIN MY APPLICATION

5th Just filling all your information. For account type, most of you will probably choose Individual account. For these of you who are planning to open with 2 or more person, choose "Joint account." You don't have to care about the other two choice.


6th For individual account, if you just want to trade stocks, choose Margin Account. This account allows you to trade immediately after you buy and sell. If you choose Cash Account Only, then you can't immediate trade again until the money comes back from the previous trade. Which sometime can take a minute to a few days.

7th you just need to enter your Personal Information and mailing address and you can continue.

8th Next, you will have to enter your Tax and citizen information, Employment Information and Investment Profile (which is how much experience you have with investment).

9th. They will ask you if you want a debt card from E*TRADE and checks. Just follow the step through.

10th, you just have to agree with their polices and finish.

Last, You need to link your bank account with your E*TRADE Brokerage account. You just need to enter the Routing Number and account number and verify it. You probably have to wait a few business day before they release a hold on you before you can start trading. So you are done. Good luck in trading.

H. Wu