Hi Tackle Family,
It’s April and there are a lot of things about this month that makes it exciting. The NBA/ NHL playoffs, NFL draft around the corner and baseball season underway is great for those who love and follow these sports. For others is just being able to take a walk around the neighborhood after work because it’s still light outside. And of course, for some, it’s just enjoying the warmer weather. If I had to guess the one thing people dislike about April my guess would be filling taxes. The days leading up to the deadline I often see the news channels interviewing experts or making comments about deductions and filling for extensions and so on and so forth. Advertising for online filling software or the popular retail tax companies seems to occupy every thirty-second commercial slot. What I also notice are the investment brokerage firms with ads reminding people to make their IRA contributions for the prior year before the tax deadline.
The other day while having a general discussion about trading with an accountant, the accountant made a comment that got me thinking about the cost of ignorance. The discussion was about people who take on trading without proper education and knowledge of building a trading business. The accountant said every year people bring in their 1099’s from trading, none ever expense any education costs and sadly the 1099’s people bring in are reporting losses. Our mentors and coaches talk about treating your trading like a business and not a hobby. They also talk about your power team including Attorneys and CPAs who specialize in working with investors. I think it is a good reminder to work building a trading business if you are new or review your current structure if you have established a trading business. With that said, I am not a CPA or Attorney, therefore, seek the advice of one for your own your personal situation. Aside from having a daily routine and your core strategies and system of what you trade, the type of account you are trading in is just as important if not the most important. An individual account is where the majority of people will start their trading business and the same is true for our retirement accounts. When opening a retirement account aside from your company 401k, the 2 other common accounts are an IRA or a Roth IRA. Here’s a quick definition to distinguish the difference between the two.
Traditional IRA: Contributions to a traditional IRA are tax-deductible, meaning they reduce your taxable income for the year of the contribution. The money grows tax-free while inside the account and is then taxed when you withdraw it.
Roth IRA: Contributions to a Roth IRA are not tax-deductible, but the money grows tax-free and can be withdrawn tax-free in retirement.
Over time you will create a company and begin to trade in that account. Your company can offer a 401k or a Roth 401k for your retirement as other companies do. Again, seek legal advice to make sure that you have a business that is properly structured. Now going back to the TV ads. For those that do open and make contributions to an IRA or Roth IRA based on a recommendation from an online tax software or TV commercial, I wonder how that money ends up being invested? My guess is that once that account is open, the funds either end up sitting in a money account or some type of mutual fund until the following year when you make yet another contribution or not. Perhaps this was you at some point or maybe you are a new trader that needs to identify where all your retirement accounts are and what’s in them. This process can seem overwhelming especially when you are still trying to find your footing in trading, however, putting all the pieces together and being able to identify what you have will help with your overall portfolio design. The time you dedicate towards trading should not only be for trading. You need to allocate time to for self-development and also time to work on your business. Tax and asset protection is a vital part of your business and should not be ignored. It may make sense to consolidate some of your accounts if you have duplicate accounts. For example, if you have multiple 401k’s from previous employers, it may be beneficial to convert them into one IRA account as opposed to having an IRA for each 401k. Otherwise, for every trade you make in one account you’d have to log into the other accounts to enter another trade. How you run your trading accounts can be time-consuming if you don’t have a good structure in place. Portfolio design and asset allocation are key when running multiple accounts so set aside some time to make sure you are efficient with your time. If you have formed a company or considering to do so, seek CPA’s and attorneys to make sure your bylaws and articles are in order. The fees are the fees it’s the cost of doing business just like we pay commissions to trade. Trying to cut corners and not fully understanding tax and asset protection can cost you a lot in the long run. Speaking of commisions, check out Tyler’s blog on how to cut costs on commissions right HERE.
Think about your trading business and what is missing to take it to the next level. Invest in people who will help you grow, and of course, let us know in the comments how your trading journey is going.
Untill next time traders,
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- Emily Muiruri, an Entrepreneur, Real Estate Agent and Business owner. Born and raised in Nairobi, Kenya before her family moved and settled in Maryland. She began her trading journey in January 2015 after 17 years of Property Management in the Self-Storage Industry. Emily uses different strategies to trades stocks, options and forex. Although still a student learning and enhancing her trading skills, she has strong desire to teach women to take control of their finances and become traders. Writing blogs is one of the ways she’s is looking to spread the word and get more women involved. Emily knows that with the right education and trading system women can be successful traders
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