How can we grow our funds without a broker?

We have about $100,000, or I should say we HAD $100,000. In less than a month, our broker has managed to lose $10,000 of it on poor decisions. We would like to take the remainder from them and invest it into a blue chip stock that offers membership to the public. We would then like to reinvest the dividends back in to the stock on a regular basis. My wife thinks that if we cash out from the broker, we will get taxed on all that money. What is the best way to get this money to where we want it without using a broker?

Investing, Stocks, Taxes
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February 2017

First, you should know that the safest way to grow your money is NOT by investing in a single stock. A better option would be to diversify into a number of stocks and/or bonds. In buying a single stock, you needlessly bear lots of company-specific risk. You can eliminate most of this idiosyncratic risk with an indexed mutual fund or exchange-traded fund (ETF). Diversification is the only "free lunch" in investing. Large numbers of securities cancel out a lot of volatility in individual stocks. The S&P 500, for example, has less than one third the volatility of most stocks.

The next question is how an individual invests in large numbers of stocks and bonds. There are a number of discount brokers such as Vanguard, Schwab, and TD Ameritrade that can help you. You can ask one of their salaried employees to buy a US total stock and total bond market index on your behalf. Schwab and Vanguard have their own low cost funds.  For example, VTSMX and VBMFX are Vanguard's total stock and bond index funds, respectively. You can reinvest the dividends and interest with index funds. 

Despite what you may have read about the prospects of your favorite stock, be assured that you do not have any unique material information. The market price of a public stock reflects a consensus of a large number of well-informed traders. Even seasoned professionals cannot outguess the market. You should not expect to do better. 

As to taxes, if your account has less than you put in, you would generate a net capital loss by selling out of your various positions with the broker. That helps your tax liability. If not, you can specify an in kind transfer of stock to the new discount broker. The cost basis information will transfer over as well. You can then coordinate the sale of positions to minimize your tax liability.

February 2017
February 2017
February 2017
February 2017