Making a decision on your investments

08/19/10

Before you decide what to invest in, you need to decide how much you can afford to invest, this way you’ll know if fractional share investing is a good idea for you.

One of the biggest mistakes I see from new investors is to think that they can afford the returns of the fund. That’s not realistic because investing for your portfolio is never about buying a piece of property in London. Your portfolio must be the same size as your cash, and that’s usually a much smaller amount.

Your investment in the fund should include all the assets that you have, and there are many different ways of determining this. You should also be able to tell how much is left at the end of each year. Seeking the advice of some investment experts like Andy Defrancesco will help you have the best decision making on your investments.

You should also look at your overall returns from the investment. Does the fund return less or more than the returns from the cash in your bank account? Is there a big gap between the returns from your portfolio and the fund’s? This means that your returns from the fund are not a fair reflection of your investments.

In addition to these questions, you should look at how your funds are managed. How much investment work goes on at the fund and how it is allocated are important aspects of fund performance.

Your goal when investing should be to make money so you can reinvest. As a general rule, if your money can be used to make a return of 3% or more then it should be invested in a taxable account. If you are invested in a non-taxable account then you should look to convert to a taxable account if your investment performance shows your return will be less than 3%. For a longer discussion on taxes see: Income tax: a guide for investors.

Income tax: a guide for investors

The following list is of the current taxation rules for those who are self-employed, either as sole traders or with a partner:

Single people and couples over 18 (or 18 and 21 in Northern Ireland)

If you are not eligible for a relief (see below), it is important to understand that you will pay income tax at a rate of 31%.

Your tax rate can be higher if you: are a sole trader or have a partner, or

are self-employed Other expenses You should be able to deduct the following expenses. These are allowed if they have been incurred in the course of trade or business. However, the tax on them may be charged, and they are not deductible for other purposes. If you are paying tax at the higher rate, there will be extra charges, which will be reported on your return. These include the Goods and Services Tax (GST), the Excise Duty (which includes GST and service tax) and the Value Added Tax (VAT). These charges will be added to the price of the goods, and if the price is above the amount charged by the GST, the GST will be charged.

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