UNEQUAL INCOMES

Eric M: ‘I make $36,075 per year as a program coordinator at a local community college. My better half, a full professor, endowed chair and about to be an associate dean, makes $172,000. He and I are both debt-free except for the mortgage and monthly expenses. What is an equitable division of monthly bill-paying for us?’

☞ Professors make $172,000? Cool! He must be awfully good.

The answer is, of course: I don’t know. There are a lot of ways to do this. But it seems to me that, for your part, you should insist on contributing as much it would cost you if you were roughing it on your own – and that, for his part, he should be impressed by your responsibility and graciously accept. If he then wants to help you in other ways, buying you the occasional car, or helping you to fund your Roth IRA each year, all the better. But if I were you, I’d rather have him feel you’re trying too hard than not trying hard enough.

DON’T WRITE A BLANK CHECK

Stephen Powell: ‘Do you have any rules of thumb about when to use limit orders vs. market orders when buying and selling stocks?’

☞ I almost always use limit orders. The deep discounter I use charges just $5 more – $13 a trade, of any size, instead of $8.

The only time I don’t is when I’m trading just a few shares of a VERY liquid stock. Even then you might have a reason to use limits, but at least you won’t get taken advantage of by a market-maker if there’s a tiny spread between the bid and asked prices, as is the case with highly liquid stocks.

To take two extremes: If I wanted to buy 500 shares of Microsoft, I probably would just buy it. ‘At the market.’ But if I wanted to buy 100,000 shares of some 40-cent bankruptcy speculation, I would unquestionably pay the whopping $13 commission for a limit order instead of the $8 commission for a market order. The extra $5 could easily save me $2,000 or $3,000, maybe more.

Just where to draw the line between those two extremes? When in even the slightest doubt, use a limit order.

The other reason to use them is that stock prices fluctuate. If you’re not desperate to buy this particular stock immediately, it could certainly dip back to the bottom of the day’s trading range (say) and you might save 50 cents on 500 shares = $250. And if you are desperate to buy it immediately . . . well, that alone is often a good reason to reconsider.

Then again, in trying to chisel for 50 cents a share by placing a limit order ‘under the market,’ if you’re buying (or ‘above the market,’ if you’re selling), you could watch the stock just move steadily away from you and never make the trade at all. You put in a $21.30 limit order when the stock was $21.50 and became increasingly loath to pay $22 – now $22.75 – now $23 – now $24.50 – when, if you had just put in a market order, you would have gotten it at 21.50 or $21.75.

Sometimes I do use limit orders this way, hoping to buy a little below (or sell a little above) the current market. More often, I use them just to be sure that I don’t get blind-sided by a sudden move or a greedy market-maker. In those cases, I often put the order in with a little room to spare, so I’m almost sure to see it executed. Ultimately, if you are a buy-and-hold value investor, a few pennies a share won’t make any difference.

 

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