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Day Trading 101: Learn the Basics

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

When most people think about “trading in the stock market” there’s a good chance they’re thinking about day trading. This perception of trading tends to get a bit of Hollywood glamour since we look at it as a way to make money quickly by hitting on the right trade at the perfect time.

But is it really as exciting and profitable as all that? Learning how to properly day trade takes work, discipline, and an iron stomach. Here’s what you need to know if you want to take the plunge.

What is day trading?

In his book, “Day Trading 101,” long-time trader David Borman made the point that most people are involved with long-term investing. They put money into their 401(k) accounts and wait for the money to grow over time, hopefully resulting in wealth at a later date.

He also made a distinction between “regular” stock trading and day trading. With stock trading, explained Borman, the goal is to make a profit off their moves. However, even with stock trading for profit, it’s possible to hold a position for months — or even years — until the trade reaches the desired level of profitability.

How day trading works is different from both of these forms of investing. The idea with day trading is to start each day completely in cash. Then, while the markets are open, you buy and sell with the hope that you can make a profit on each trade. All your positions should be sold by the end of the day, and you should, again, have nothing but cash in your account.

“Although the profit on each trade is often relatively small, the volume of their trades allow day traders to book huge profits on average-sized accounts over the year,” Borman said. “As the profits come in, the trader’s account grows in value, allowing larger trades.”

Risks of day trading

Jason Brown, an investing coach with more than 10 years of trading experience, pointed out that the biggest risk of day trading is the risk of loss. Most day traders operate using leverage — they borrow in order to make their trades. So, when a loss is realized, the leverage magnifies it.

“I once lost $75,000 in 24 hours on a trade that went against me,” said Brown. “For many people, that’s a huge deal. I had to get in there the next day and I made almost half of it back.”

It can also be difficult to deal with the emotions involved with day trading. “It doesn’t affect you as much to lose thousands of dollars at once after a while, but in the end it’s hard to have the stomach for it,” Brown said.

Another downside, according to Brown, is the fact that you have to sit there all day, every day. To be successful, you’re chaining yourself to the desk the whole time the markets are open. And, in the end, you might not see better results than if you’d just held on to something for a couple weeks or months.

“Sometimes, I’d see the direction of a trade and realize that if I waited a week or a month, I’d have seen a bigger movement,” Brown said. “I was there every day, trying to make five dollars, but I could have made 10 dollars holding something for a week.”

In the end, the risk of loss, small daily profits, the emotional rollercoaster, and being stuck at a desk weren’t worth it to Brown, so he quit day trading to focus on other types of investing.

Costs of day trading

To answer the question, “Is day trading worth it?” you first need to understand the cost. For the most part, you’re going to pay a per-trade fee. So, each time you make a trade, it could cost between $4.95 and $6.95 (or more), depending on what the online broker charges. If you make 20 trades per day, you can see how the costs could add up — with even the cheapest broker, you’re still looking at close to $100 per day in trading fees.

One way to reduce the cost of day trading is to look for brokers that offer discounts for active traders. Another way to reduce the cost is to use a broker like Interactive Brokers, which caters to day trading and charges about $1.00 for every hundred shares you trade.

However, realize that a broker that caters to day trading may not offer extensive research and education tools. Instead, you’ll be able to program your own shortcuts and even use algorithmic trading. For some beginners, it can make sense to use a more expensive broker and make fewer trades to limit costs until you have a good grasp of what you’re doing. After some practice, switching to a cheaper broker to make a greater volume of trades can potentially increase overall profitability.

If you’ve been designated a “pattern day trader” by your broker, you’ll also have to meet a threshold of having $25,000 equity in your account if you want to trade that day. A “pattern day trader” is a margin customer that day trades four or more times in any period of five business days, provided the number of day trades amount to more than six percent of the customer’s trading activity for that time period.

Don’t forget, too, that you’ll have to pay interest when you trade on margin. So that will cost you extra if you borrow to make your trades.

Rewards of day trading

When done right, day trading can be extremely profitable. Brown said that he made more than $100,000 in profits one year. However, it requires discipline to get to that point, and the learning curve (and losses) can be steep before you get to that point.

Plus, once you get going, day trading really does offer a thrill. When you make a good trade, said Brown, it’s a great feeling. On top of that, there’s something satisfying about working out the puzzle, trading with your gut and being victorious.

“For long-term investing, there’s not a lot of genius involved,” Brown explained. “You invest in an index fund and your performance is based on the market, not how well you pick stocks or execute trades.”

Popular markets to day trade

“Stocks and futures have always been very popular among day traders,” said Gary Norden, the principal of boutique financial markets consultancy Organic Financial Group. He’s a former pit trader with more than 30 years of experience in the markets. “In recent years, though, Forex markets have probably been the biggest growth area.”

Day traders can execute trades involving the movements of commodity and stock futures, as well as currencies in the forex markets, in addition to trading in the stock market. Norden prefers futures markets for day trading, though. He likes the transparency of the futures market as compared to options and forex, and finds futures a little more flexible in terms of trading than using the stock market directly.

However, it’s often a good idea to start trading in the types of markets you understand better. It can give you a chance to practice in an area you know, and have a better chance of success with before you begin allocating money to a new asset class.

What you need to get started day trading

It doesn’t require a lot of fancy equipment to begin day trading. If you have a good internet connection and a computer, you can get started. Some day traders do like to have at least two computer monitors, though, to better identify and manage opportunities.

When looking for a broker, it’s important to find someone who offers the tools you need. If you’re trading stocks, a broker with a good screening tool is vital, said Brown. You also need a trading platform that’s fast, since getting in and out of trades at the right time is one of the most important aspects of day trading. Also, consider the fees imposed and your frequency of trading. If you’re stuck paying $4.95 for each trade, it’s going to add up fast.

Find a broker that suits your style and offers you access to the markets you’re most interested in. You don’t need a lot of research and education tools from the broker to be successful, Norden said, but it does help if the broker or platform offers a news stream of current events so you can see potential impacts in real time. Research tools aren’t as important as the ability to trade immediately and find suitable trades as quickly as possible.

More important to getting started is your mindset. “Discipline is essential if you are to become a good day trader,” said Norden. “You must only trade when you have an edge and must cut losses very quickly.”

Because of the ability to trade with leverage and since you can start by making small profits, you don’t need a lot of capital to get started. A couple thousand dollars is usually enough to get going, although you’ll have to be patient with the growth of your money in the beginning.

Finally, you need a risk-taking mentality. It’s vital to be comfortable with the idea that you could lose a large amount of money in a short amount of time. You’ll also need to make sure that you’re only day trading with money you can afford to lose, or that you can tie up as you try to recover losses.

Bottom line

Day trading can be one potentially lucrative way to make money in the financial markets. However, it takes consistent effort and the ability to handle losses as well as gains. Before you begin day trading, figure out whether it’s the right fit for you. Consider your financial and emotional risk tolerance and make sure you’re prepared for the risks as well as the potential rewards.

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SIMPLE IRA Contribution Limits 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SIMPLE IRAs are tax-advantaged retirement savings accounts that benefit small business owners and the people who work for them. In addition, you can use the SIMPLE IRA to save for retirement if you are self-employed. Like many other retirement savings vehicles, SIMPLE IRAs are subject to annual contribution limits.

SIMPLE IRA contribution limits

The annual SIMPLE IRA contribution limits for employees and employers in 2020 are as follows:

Annual SIMPLE IRA Contribution Limits

Employees under the age of 50

$13,500

Employees 50 years and older

$13,500, plus $3,000 in catch-up contributions

Employer matching contributions

Up to 3% of employee’s salary

Employer non-elective contributions

2% of the employee’s salary

SIMPLE IRA contribution limits 2020 for employees

For 2020, the amount employees may contribute to a SIMPLE IRA plan is capped at $13,500 per year. That’s an increase from 2019’s limit of $13,000, and an even bigger leap from the $12,500 limit imposed from 2015 to 2018.

It’s worth noting that for employees who are also participating in other employer-sponsored retirement plans, such as 401(k) or 403(b) plans, aggregate annual contributions to all plans cannot exceed $19,500 in 2020. For those 50 and older, the overall annual limit for catch-up contributions is $6,500 for 2020, for a total ceiling of $26,000.

SIMPLE IRA contribution limits 2020 for employers

If a small business owner chooses to offer a SIMPLE IRA plan, they are required to make contributions to their employees’ accounts. They may choose to either match their employees’ contributions, up to a certain limit, or make non-elective contributions.

If an employer chooses matching contributions, their match is capped at 3% of an employee’s annual compensation. While an employer can make matching contributions of less than 3%, the match cannot be less than 1% of the employee’s annual compensation — and it cannot be less than 3% for more than two out of five consecutive years.

If an employer chooses non-elective contributions, they are required to put money into their employees’ SIMPLE IRAs regardless of whether the employees themselves make contributions. With non-elective contributions, the employer must make fixed contributions of 2% of their employees’ compensation. For 2020, the maximum amount of an employee’s total compensation that can be considered for calculating a non-elective contribution is capped at $285,000, up from 2019’s cap of $280,000.

What are the contribution deadlines for a SIMPLE IRA?

Employers are required to deposit their employees’ SIMPLE IRA contributions within 30 days after the end of the month in which those contributions were withheld. Employers are required to make their matching or non-elective SIMPLE IRA contributions by their tax return filing deadline, including extensions.

For people who are self-employed, the deadline for depositing SIMPLE IRA contributions for a calendar year is 30 days after the end of year, or Jan. 30.

SIMPLE IRA contribution limits vs. Roth contribution limits

While SIMPLE IRA contributions are capped at an annual limit of $13,500, annual Roth IRA contribution limits are much lower. For 2020, Roth IRA contributions are capped at $6,000, with an additional $1,000 allowed for catch-up contributions for those 50 and older.

Another differentiating factor of Roth IRAs is that they have income phaseout limits. Depending on how much you make, you may be limited to how much you can contribute or whether you can contribute at all. For 2020, single filers cannot contribute to a Roth IRA if they make more than $139,000, and if married and filing jointly, you’re only able to contribute if you earn less than $206,000.

Can you contribute to both a SIMPLE IRA and a Roth IRA?

You can contribute the maximum allowed amounts to both a SIMPLE IRA and a Roth IRA, as their contribution limits are not cumulative. In fact, most financial advisors recommend you max out both your SIMPLE IRA and Roth IRA if you can afford to do so, as they offer different tax benefits.

While SIMPLE IRA contributions are made pre-tax, and therefore lower your taxable income, your Roth IRA contributions are made with after-tax dollars, so qualified distributions are tax-free.

“Advisors talk about diversification all the time, and usually they are talking about stocks and bonds,” said Gregory Kurinec, a certified financial planner with Bentron Financial Group in Downers Grove, Ill. “But investors will want to diversify their accounts into different tax categories as well. By having a combination of pre-tax (SIMPLE IRA), after-tax advantage (Roth IRA) and non-qualified, this will allow the investor to pick and choose which account to take funds from to best impact their tax situation.”

What is a SIMPLE IRA?

A SIMPLE IRA is an effective retirement savings match plan, especially for small business owners. SIMPLE IRAs are available to small businesses with 100 employees or fewer.

SIMPLE IRAs require employers to make contributions on behalf of their employees, either up to 3% of their employee’s compensation as an employer match or a flat 2% of the employee’s compensation.

As with most financial products, when it comes to saving for your golden years, a SIMPLE IRA is just one of the many options available to you. Explore all of the options at your disposal when deciding how to build your nest egg.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Review of Altfest Personal Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Altfest Personal Wealth Management is an investment management firm based in New York City. The firm typically only accepts clients with a minimum investment of $1 million. For these high net worth clients, Altfest Personal Wealth Management provides customized investment portfolios with comprehensive financial planning services. The firm has 16 employees who provide investment advisory services, and currently oversees $1.21 billion in assets under management (AUM).

All information included in this profile is accurate as of February 10th, 2020. For more information, please consult Altfest Personal Wealth Management’s website.

Assets under management: $1,210,000,000
Minimum investment: $1 million (waivable at the firm’s discretion for young professionals)
Fee structure: A percentage of AUM, ranging from 0.50% to 1.40%, depending on account size; hourly fees; fixed fees
Headquarters:445 Park Avenue
Sixth Floor
New York, NY 10022
www.altfest.com
212-406-0850

Overview of Altfest Personal Wealth Management

Dr. Lewis Altfest launched Altfest Personal Wealth Management in 1983. He is still the majority owner of the firm and acts as CEO. He runs the organization along with his wife, Dr. Karen Altfest, the firm’s executive vice president, and their son, Andrew Altfest, the firm’s president. Both Lewis and Karen hold Ph.Ds; Lewis is an associate professor of finance at Pace University.

Including the Altfests, the firm has 37 total employees, 16 of whom provide investment advisory services. Altfest Personal Wealth Management specializes in creating customized, actively managed investment portfolios for high net worth clients. The firm and the Altfest family have won numerous awards for their performance, and both Lewis and Karen are regular contributors to financial news programs and publications.

What types of clients does Altfest Personal Wealth Management serve?

Altfest Personal Wealth Management primarily works with individual investors. A client usually needs a portfolio of at least $1 million to open an account with the firm — however, Altfest does make exceptions to this account minimum for “young professionals” who they believe will become high net worth clients in the future. The firm’s individual client base is currently split 40/60 between individuals and high net worth individuals, with the SEC defining high net worth individuals as those with at least $750,000 under management or a net worth of at least $1.5 million.

While the firm works with a diverse range of clients, it specializes in advising women, executives and healthcare professionals. In addition to individual investors, Altfest Personal Wealth Management also works with pension plans, profit-sharing plans, trusts, estates, corporations and other business entities.

Services offered by Altfest Personal Wealth Management

Altfest Personal Wealth Management specializes in investment management and financial planning. However, the firm’s investment management services are available to individuals and small businesses only; these services are not offered to investment companies, pooled investment vehicles, large businesses and institutional clients.

Most of the firm’s investment accounts are run on a discretionary basis, meaning that Altfest Personal Wealth Management advisors can make trades on behalf of the client. The firm does have a few nondiscretionary accounts, where the client must approve all trades themselves.

If a client only wants a few investment recommendations, rather than the management of their entire portfolio, the firm can provide this service as well.

Altfest Personal Wealth Management also offers comprehensive financial planning, as many of its advisors hold the certified financial planner (CFP) designation, a professional certification for financial planners. The firm’s financial planning services include the creation of a detailed financial plan outlining the necessary steps to achieve their goals and objectives. The plan can address specific areas, such as college savings, estate planning and debt management.

More specifically, Altfest’s services include:

  • Investment advisory services and portfolio management (mainly discretionary but some non-discretionary)
  • Financial planning
    • Retirement planning
    • Trust and estate planning
    • Charitable planning
    • Education planning
    • Tax planning
    • Cash flow forecasting
    • Budgeting and strategic planning
    • Long-term care planning
    • Debt management
    • Divorce planning
  • Insurance and risk management
  • Workshops and seminars
  • Newsletters and publications

How Altfest Personal Wealth Management invests your money

Altfest Personal Wealth Management builds unique, customized portfolios for each client based on their time horizon, risk tolerance, income level and long-term goals.

As part of this analysis, the firm follows a system called Total Portfolio Management. Rather than only looking at a client’s investment history, the firm also gets to know their entire financial plan, including income, debts, spending requirements and future earnings potential. The firm uses this information to finetune a portfolio comprised of stocks, bonds, mutual funds, ETFs and private funds.

Altfest Personal Wealth Management follows an active investment approach: this means the firm is regularly trading in an attempt to earn above-average portfolio returns.

Fees Altfest Personal Wealth Management charges for its services

For portfolio management services, Altfest Personal Wealth Management charges a fee based on a percentage of assets under management, with the rate ranging from 0.50% to 1.00%, depending on the size of the client’s portfolio. Altfest does not charge trading commissions or performance-based fees.

Portfolio SizeAnnual Asset-Based Fee
First $3 million*1.00%
Between $3,000,001 and $6,000,0000.75%
Over $6,000,0000.50%
*If a portfolio falls below $2 million in value at the end of the quarter, the firm will assess an additional 0.10% fee on top of the asset-based fee listed above.

For “young professional” clients who don’t meet the firm’s portfolio minimums, Altfest charges the following fee schedule:

  • In the first year, the firm charges an annual fee of either 1.10% of assets under management or $2,500 whichever is greater.
  • After the first year, the firm charges 1.10% of the portfolio value or $1,500 per year whichever is greater.

This rate includes cash flow analysis, investment analysis, investment management and 401(k) recommendations. Clients who want additional financial planning services will be billed at a rate of $250 per hour.

If a client only wants standalone investment recommendations, Altfest Personal Wealth Management charges either an hourly fee ranging from $500 to $800 an hour, or a fixed fee of at least $3,500 for specific investment recommendation requests.

Finally, some of the investments included in Altfest’s portfolio recommendations may carry additional fees. Clients are responsible for covering these costs, though the money won’t go to Altfest Personal Wealth Management.

Altfest Personal Wealth Management’s highlights

  • Wide range of awards: Over the past few years, Altfest Personal Wealth Management has been recognized as a top investment advisor by publications including Barron’s, Forbes, Financial Times and Financial Advisor magazine.
  • Highly educated management team: The heads of the firm, Dr. Lewis Altfest and Dr. Karen Altfest, both hold Ph.Ds; Lewis is also an associate professor of finance at Pace University. In addition, many of the financial advisors at the firm hold the CFP designation.
  • Customized investment approach: Altfest Personal Wealth Management designs a customized portfolio for every client, tailored to their specific needs, and don’t lump people into one-size-fits-all funds as some firms may do.
  • Extensive financial planning in addition investing: Altfest Personal Wealth Management also specializes in financial planning. When the firm creates a portfolio recommendation, it goes over a client’s entire financial situation before designing the portfolio, not just their existing investments.
  • Specialty in advising women, executive and healthcare clients: The firm specializes in advising women, executives and professionals in healthcare. Additionally, Forbes named Dr. Karen Altfest one of the top women advisors in the country in 2017, 2018 and 2019.

Altfest Personal Wealth Management’s downsides

  • Above-average investment fees: Altfest Personal Wealth Management charges an annual 1.00% asset-based fee on the first $3 million in a client’s account (plus an additional 0.10% per quarter if their portfolio value falls below $2 million). In comparison, the median investment management fee charged by firms for accounts over $2 million is 0.75%, according to Kitces.
  • High minimum to open an account: It takes at least $1 million to open an account with Altfest Personal Wealth Management. While the firm does waive the minimum at its discretion for “young professionals,” the typical investor would need to be quite wealthy to make use of the firm’s services.
  • Only has one location in New York City: The only way to visit the Altfest Personal Wealth Management office in person is in New York City, the firm’s only location.

Altfest Personal Wealth Management disciplinary disclosures

Whenever an SEC-registered firm or its employees or affiliates face disciplinary action, including a criminal charge, a regulatory infraction or a civil lawsuit, the firm is required to report that incident in its Form ADV, paperwork filed with the SEC. Altfest Personal Wealth Management reports in its Form ADV that it has faced no such incidents over the past 10 years, indicating a clean disciplinary record.

Altfest Personal Wealth Management onboarding process

To start the onboarding process with Altfest Personal Wealth Management, you can request a free consultation with one of its advisors. You can contact the firm either by phone at 212-406-0850, by email at [email protected] or by filling out a form on the firm’s website. As part of the onboarding form, the firm asks you to share your story, which helps the firm start determining whether you are a good fit based on your income and profession.

If it seems like a good match, the firm’s advisors will then get to work designing your customized investment portfolio based on your goals, risk tolerance and overall financial situation. When you’re ready to launch, the firm’s advisors would then take care of opening your new accounts, transferring over your existing accounts, making the necessary investments and keeping up with the records for your portfolio.

The bottom line: Is Altfest Personal Wealth Management right for you?

If you’re a high net worth individual or a young professional who wants personalized investment recommendations combined with financial planning, Altfest Personal Wealth Management could be a good choice. This may be especially true if you are in one of the firm’s specialty client categories: women, executives and healthcare professionals. Since Altfest Personal Wealth Management only has one location in New York City, however, the firm might be a better choice if you live in the Northeast rather than other parts of the country.

On the other hand, Altfest Personal Wealth Management’s comprehensive services do not come cheap. The firm’s fees are higher than average, and you’d need at least $1 million to open an account (unless Altfest waives the minimum because you’re a young professional). If you want a simpler investment strategy or prefer to manage your portfolio more on your own, you could find less expensive advisors than Altfest Personal Wealth Management.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.