investing

4 tips for buying stocks with 'play money'

Choose the right type of account
Choose the right type of account © Goodluz/Shutterstock.com

More than a dozen members of the National Association of Personal Financial Advisors weighed in to answer our question on whether and how investors should experiment with a special account for buying stocks.

So that trading commissions don't take a big bite out of the relatively small sums relegated to the play money account, many of the NAPFA experts advise seeking out a low-cost brokerage account.

And, most favored using a plain vanilla taxable account instead of a tax-advantaged retirement account.

It's smart to keep your tax accountant and/or financial adviser in the loop, whether you're profiting or losing on trades, since both can have a significant tax impact, says Thomas Duffy, a financial planner with Jersey Shore Financial Advisors, LLC, in Red Bank, N.J.

Advisers may have ideas on how to mitigate taxes due when profits are made, Duffy says.

Indeed, Gugle agrees that losses on trades can offset taxes on gains, and when losses exceed certain yearly limits on deductions, they can be used to offset gains made in future years.

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