What is Investment Interest Expense and Stock Loss?

As you invest it is important to understand investment terms as well as to understand tax consequences of your actions.  The tax man almost always has to be paid at some point, and the more you understand how investing works, the better you will be able to achieve long term wealth building goals.

When at all possible, you should utilize tax-advantaged accounts such as 401(k), IRAs and 529 college savings plans.  Also keep in mind that when taking profits, long-term capital gains rates are lower than short-term ones.

• Understand the type of investment account you are using.  If your investment account is self directed, it is probably funded using a brokerage account.  Cash is deposited into a brokerage account, and then those funds are used to purchase stocks, bonds, mutual funds or stock options as you see fit.  While the cash is waiting to be invested, it is sitting idle in your brokerage account, and earns a predetermined rate of interest. 


• Understand your investment fees.  In most brokerage accounts, fees are assessed at the point when trades are executed.  This means that each time you buy or sell, a specified fee is assessed and deducted from your available cash, or from the proceeds of your sale.  It is best to understand the fees that you will be assessed prior t opening your account so that you are not surprised later.  Consider that some of your expenses can be tax deductions such as investment advice and software.  Consult with your accountant for tax advice.


• Know when to take a loss.  No one likes to lose money on an investment, but it does happen, even to professionals.  It is not entirely negative to realize some losses when it comes to investments as these can help offset capital gains taxes.  Ideally, you will want to keep these losses to a minimum, but know how to take advantage of them when they do happen.