How to Buy U.S. Stocks-Comparison of Major Brokers, Tax Saving Cheats, Investment Experience Sharing

The U.S. stock market has entered a new round of long bulls since the financial crisis in 2008. As of March 19, 2021, the S&P 500 index has soared to 3913 points, with a cumulative increase of 88% in five years! Compared with the Chinese stock market, the Shanghai Composite Index has only risen by 14% in five years, which shows the global dominance and gold-absorbing effect of US stocks. No matter whether you are in China or the United States, if you have some spare money, no one wants to invest it out to maximize returns. The New York Survival List is here today to share the experience and lessons of investing in US stocks over the years to help all list readers realize wealth freedom as soon as possible🤑.

Source of the original text: How to Buy US Stocks - A complete guide on how to buy U.S. stocks - comparison of major brokerages, tax-saving cheats, investment experience sharing

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• Several ways to invest in US stocks
• How to choose an account broker
• How to declare and save tax on investment income
• How to identify bull market, bear market and stock market bubble

Several ways to invest in US stocks

There are two mainstream ways to invest in the U.S. stock market : 1) Directly buy individual stocks, such as Apple stock (AAPL), Buffett’s Berkshire (BRK.B) 2) Buy funds/ETFs to avoid investment risks in individual stocks. There are several ways to choose funds/ETFs: active/passive, industry/indiscriminate, growth/value, retirement funds for lazy people (TDF), etc.

Active funds are fund managers who actively select individual stocks based on the research and analysis of their own team, and actively adjust positions according to stock market conditions, with the goal of beating the broader market. The two most representative active funds are the Magellan Fund (Magellan Fund) managed by Peter Lynch in Fidelity and the ARK series fund owned by the "female Buffett" Cathie Wood, who has become an Internet celebrity in recent years. Passive funds generally aim at an index, such as S&P 500. The goal is to minimize the index tracking error and allow investors to invest in the index they are interested in with the smallest cost error. The most representative ones are SPY, VOO, VTI, VTASX , QQQ, VNQ.

Industry-based funds select companies in a certain industry to invest in, and provide an investment tool for investors who want to obtain excess returns through industry rotation investment. Common industries include energy, finance, healthcare, real estate, and technology.

Growth funds choose stocks that are considered to have high growth and relatively weak profitability, mainly companies in the technology industry, hoping to achieve higher returns with greater risks; on the contrary, value-based funds choose growth stocks. Stocks of established companies with weak sex and strong profitability, such as Johnson & Johnson and AT&T. Investors with different risk preferences and cash flow preferences can choose the appropriate type according to their own conditions.

If you don't want to spend time picking stocks, trading stocks, choosing funds, and buying and selling funds, but just want to invest your money in the right place for retirement, Target Date Fund is more suitable for you. Just choose the time when you expect to retire, such as 2050, buy the TDF fund of that year, and then you don’t need to take care of it. Professional fund managers will help you allocate various asset ratios. As you get closer to retirement Years, the proportion of the stock market decreases, and the volatility of your assets will also decrease, so that you can have a stable cash flow after retirement.

How to choose an account broker

Readers may be most concerned about how to open an account and how to choose a brokerage platform that suits them. Mr. List first introduces a few brokerages that I personally use or think are reliable, and then explain a few selection suggestions in common situations.

Robinhood: the best choice for beginners with small funds

As we said in the article on Robinhood usage strategy , as the pioneer of zero-commission trading, it is the first choice for young Americans to start investing. The company was successfully listed in 21 years.

advantage:

• The user experience of both web and mobile versions is very good
• Suitable for novices, easy to use and quick to learn
• Support fractional share, one dollar can also buy stocks
• Support fixed investment, save time
• Idle money can earn 4%+ interest
• Can lend idle stocks to others to earn interest (Stock Lending)
• Support the purchase of cryptocurrencies such as Bitcoin and Dogecoin
• Can buy stocks of listed companies outside the United States, such as Tencent and Nintendo
• High support for tax declaration software, tax declaration is very simple
• Support IRA pension account (with 1% Match)

shortcoming

• Only supports users in the United States, and requires an SSN to register and use
• The financial information of individual stocks is relatively simple, not suitable for users who want to study financial reports carefully
• The function design of option trading is not clear enough, resulting in several influential social news
• Limited customer service, slow response
• IPO is not supported
• Chinese is not supported
• Selling stocks supports FIFO mode, Tax Loss Harvest is not very friendly (advanced players sometimes use it)

Use our invitation link to sign up for a Robinhood account and you can get a random stock up to $200!

Click to receive ROBINHOOD newcomer stock rewards

Webull/Webull (20 stocks for free when you open an account for a limited time🔥): the best choice for newcomers to the Wool Party

Founded by Wang Anan, a former Xiaomi financial executive, Webull has been a strong challenger to Robinhood in recent years. Friends who watch the NBA should have an impression of them, because they sponsored the Brooklyn Nets jerseys. The same goes for the zero commission route.

advantage:

• The user experience of both web and mobile versions is very good
• Suitable for novices and veterans, easy to use and quick to learn, rich stock information and strong readability
• Support Chinese and English
• Account opening rewards are much more generous than other brokerages
• Support fractional share, one dollar can also buy stocks
• Support for buying cryptocurrencies such as Bitcoin
• Support opening an IRA account to purchase stocks
• Support US Person and Non Resident Alien users
• Good tax software support (Turbotax)
• Can buy stocks of listed companies outside the United States, such as Tencent and Nintendo
• Support for new IPO
• Can lend idle stocks to others to earn interest (Stock Lending)

shortcoming:

• Idle money earns no interest
• Compared with Robinhood, there is no 1% match for IRA accounts
• The company is not yet listed, and the regulatory pressure is relatively small
• Selling stocks supports FIFO mode, Tax Loss Harvest is not very friendly (advanced players sometimes use it)

Click to receive WEBULL newcomer stock rewards

Click to read the details of stock rewards for new WEBULL users

Fidelity: the best choice for local tyrants

As an old-fashioned brokerage and asset management company with the same reputation as Vanguard, many companies use its 401K. As of 2022, the asset management scale will be close to 5 trillion US dollars. If you have more than 100,000 yuan of funds and want to invest in the stock market, it may be safer to choose an established brokerage firm in the long run, and you don’t have to worry about the company’s failure to continue and stop services (PS: All brokerage firms in the United States have insurance, even if the brokerage company goes bankrupt you The funds can also be taken back or transferred away). Due to the rise of Robinhood, the old brokers like Fidelity are now forced to take the zero commission route.

advantage:

• An old brand factory, stable and reliable
• Support traditional trading accounts, various IRA accounts, HSA, 529 education funds, a basket of investment account types you can think of, and a platform to handle various investment needs
• Investment research news and materials are very rich, far more than Robinhood and Webull
• Support fractional share, one dollar can also buy stocks
• Support fixed investment, save time
• You can buy some special assets, such as GBTC (such as investing in GBTC in IRA to avoid paying taxes when selling)
• It is said to be an American brokerage that is friendly to returnees (NRA)
• High support for tax declaration software, tax declaration is very simple
• Selling stocks supports multiple methods, Tax Loss Harvest is friendly (sometimes used by advanced players)

shortcoming:

• The web and mobile client interfaces are outdated, not as modern as Robinhood
• Most of the time, there is no registration reward for newcomers. If you want to get rich, it is recommended to register Webull and Robinhood first.
• Cannot invest directly in cryptocurrencies
• There are so many types of trade orders that newbies may feel overwhelmed
• IPO requires 100K funds
• Chinese is not supported

Click to register FIDELITY account

The above three brokerages can basically meet the needs of all kinds of readers. There are many other brokerages on the market, such as Vanguard, Ally Invest, Charles Schwab, TD Ameritrade, E*TRADE, Sofi Invest , Tiger Securities , M1 Finance , similar with minor differences, unless You are doing it to get rewards for opening an account, otherwise it is not worth opening multiple accounts. If you are a Non Resident Alien (NRA), such as an international student with an F1 visa, the NRA version of Webull is recommended first, followed by Fidelity. If you have an SSN and are a Resident Alien, it will be much more convenient. You need to choose a brokerage.

How to declare and save tax on investment income

As we all know, the United States pays a million taxes, and stock trading is no exception. There are two common taxes for investing in US stocks 1) Capital Gain Tax (capital gains tax) 2) Dividend Tax (dividend tax).

Suppose you buy 10 Tesla shares at $100 per share on January 1, 2020, with a total cost of $1000:

1. If you sell 10 shares at $300 per share on July 1, 2020, the profit will be (300-100)*10=$2000. Since you have held it for less than a year, it is considered a short-term capital gain. The $2000 gain needs to be calculated according to your 2020 personal income tax rate. The federal tax is assumed to be 30%, then you need to pay 2000*30%=$600 capital gains tax, So the final net gain is $1400
2. If you sell 10 shares at $300 per share on March 1, 2021, the profit will be (300-100)*10=$2000. Since you hold it for more than one year, it is considered a long-term capital gain, and the $2000 gain can enjoy a lower tax rate. If your total income in 2020 is less than 40K, you do not need to pay federal tax; if your total income is less than 440K, you need to pay 2000*15%=$300; if your total income exceeds 440K, you need to pay 2000*20%=$400
3. Whether it is short-term or long-term, if your state has a state tax, such as 8.82% in New York State, you still need to pay 2000*8.82%=$176.4 state tax

Dividend is the profit dividend of the company you hold shares in. Not every company chooses to distribute dividends. For example, Apple distributes dividends every quarter, but Google never distributes them. Dividend also has similar "long-term" and "short-term" points, and the tax rate calculation method is basically the same as the Capital Gain Tax calculation method above.

Many friends who started to speculate in U.S. stocks in the bull market were as fierce as a tiger in one meal, and felt that they had made a lot of money when they bought what went up. When I filed my tax return next year, I was shocked to see that I had to pay tens of thousands of yuan in capital gains tax, because they frequently bought and sold, and the gains they got were short-term capital gains, and they had to pay more taxes. Is there a way to avoid these taxes? The answer is yes! It took Mr. Manifest many years to find out. If I had read this article many years ago, I would probably have a lot more money in my account now. The strategy is to buy and sell stocks in the IRA account. No matter how frequently you buy and sell, you don’t need to pay any tax until you retire. If it is a Traditional IRA, you will pay personal income tax when you withdraw money; if it is a Roth IRA, you will pay one cent You don't have to pay taxes, it's too buggy! Readers who want to understand the difference between the two are suggested reading list | Beginner's Guide to Financial Management in the American Workplace .

An advanced tax-saving technique for stock trading in non-IRA accounts is Tax Loss Harvest (TLV). Reasonable use of annual tax returns can save a lot of money. Suppose you bought BABA (Alibaba) stocks worth $1,000, and after half a year it fell to only $500, but you are still optimistic about China's e-commerce industry in the long run. At this time, you can sell these BABA stocks that are losing money and buy With a $500 PDD (Pinduoduo) stock, you can deduct the $500 loss on BABA when you file your tax return, while maintaining your position in the Chinese e-commerce industry. The IRS stipulates that the maximum deductible loss is $3000 a year, and the excess can be carried over to the deduction in the next year.

How to identify bull market, bear market and stock market bubble

It is easier to judge a bull market or a bear market . When the taxi driver, Tony the barber shop, and Aunt Li, the neighbor, all start discussing the stock market, it means that there is a high probability that it is in a bull market; if these people disappear, the investment news you usually see is mostly negative Yes, indicating that the high probability is in a bear market. Stock investment is affected by many aspects such as economic cycle, national social economy, government debt deficit ratio, market enthusiasm, geopolitics, etc. It is a category with higher risk and higher long-term compound return rate among many asset classes. Readers who want to get started with deep learning can check out these books:

1. The Debt Cycle: amazon
2. The Intelligent Investor: amazon
3. Irrational Exuberance: amazon
4. The Road to Wealth and Freedom: amazon

If you don’t mind reading articles in English, Lyn Alden is a professional blog about investment research that Mr. List often reads. You can learn a lot of knowledge; Wealthfront’s blog is also a very good entry resource.

In the end, there is still the same sentence, there are risks in entering the market, and investment needs to be cautious! The above is the editor's summary of investing in US stocks, I hope it will be helpful to you! If you have anything else you want to know or add, please leave a comment below !

Extended reading

• Checklist: Beginner's Guide to Money Management for the American Workplace
• How to use the Robinhood Zero Commission US Stock Trading App
• Bear Market Survival Checklist: How to progress to become a long-term investor across bulls and bears?

common problem

How to buy US stocks in China?

Webull and Tiger Securities are two brokerages recommended by List Jun, please refer to the text for the invitation link.

Are US stocks T+0?

Yes, unlike A-shares, stocks bought on the same day in US stocks can be traded on the same day.

Can American international students buy US stocks without an SSN?

You can use the Webull NRA version to open an account, and you can invest in US stocks without an SSN. See the text for the invitation link.

Do you have to pay taxes on US stock investment?

Ten thousand taxes in the United States, and of course investment income from U.S. stocks are also required. See the text for how to calculate taxes and how to save taxes.

Can U.S. stocks hit new markets?

Yes, but the cost of renewing is relatively high, generally unaffordable><

Is Robinhood reliable?

Except for the Gamestop accident in early 2021, Robinhood is generally reliable. It would be better if the system could be more stable.

Can foreign students keep US stocks after returning to China?

A Fidelity or Webull NRA account could theoretically be kept; Robinhood is a gray area.