One thing I don’t like about stock investing is that it can be passively elitist. What do I mean?
Well, for starters, the terminology is almost like an alien or ancient language. They sound like words; maybe even like English words. But if you didn’t already know them, you understand nothing and might end up with a headache.
But what I really don’t like is when the discussion dwells on how much you really need to start investing.
Sometimes it’s a simple question and answer. For most Mutual Funds and UITFs, you need around Php10,000 to open an account, and at least Php1,000 every time you want to add. Some are even more affordable, requiring just Php5,000 to open an account.
But when it comes to direct stock investing, there are varied opinions.
One actual, professional stock broker on Facebook once commented that the stock market is ideal for those with 1 million or more; to feel every 1%, 3% movement or so. And there’s nothing incorrect about that. I’ve even read similar comments elsewhere.
Can you imagine getting Php10,000 in a day simply because your stock rose by a very attainable 1% during the trading day?
Other people’s opinions are relatively more modest by comparison. Some say you need at least Php8,000 to minimize the impact of broker fees and taxes.
That’s true also. When investing less than Php8,000 you pay the minimum fee of Php20 commission charge, whether you invested Php1,000 or Php6,000. Obviously the percentage you pay in commission (i.e. your “overhead” expenses) are less when investing Php8,000 or more.
But actually, some say investing Php5,000 or more is good enough. At such an amount, the “overhead” expenses aren’t so big anymore, at least relative to the amount you’re investing.
And then again, if you’re a member of the Truly Rich Club (or even if you’ve just heard/read of them) you may already know that Bo Sanchez’s maid reportedly invested just 2K per month. And she seemed to turn out well, right?
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And that’s why I initially said such a discussion is a little elitist. Of course there are efficiencies and advantages when investing a large amount. It’s sort of like having economies of scale work for you.
But that’s no reason why you shouldn’t invest early and often even with just a small amount.
In fact, the first stock I bought was BPI at around Php50-55 per stock back in December 2011. And I did it in 500+ increments – meaning I’d buy only Php500+ worth of stocks per transaction. And yes, the “overhead” was relatively huge, and it took me awhile before I turned a profit.
But if I had been wise enough to hold on to that stock, I would have practically doubled my money by early 2013, when it reached over Php100 per stock. The “overhead” would not have mattered.
And even if I had not sold at the peak and just held during the succeeding market correction, it would not have gone much lower than Php80 per stock – a profit of more than 45%. The overhead would still not mean that much.
In the end, it’s like our economy. Definitely the rich have advantages, but we just can’t let that get in our way.
For quick gains, a big fund is great; it can help you get satisfied with small price swings.
But a small amount – even if enough for just one boardlot – can be enough if invested regularly over a long enough period of time.
In the stock market, there are strategies for every type of investor. There is no “ideal” way or amount, except the one that can help you reach your dreams. So what you really need isn’t money but knowledge, and knowledge is out there and can be had for free.
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This guest post is contributed by Carlos, an IT professional and newbie investor currently dreaming of being an entrepreneur. You can visit his blog entitled, Personal Finance Apprentice.
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we have to be wary of the commission when we are buying stocks for it could easily erode our profits (if stock is profitable) or make our losses worst (if the stock loose or breakeven).
That’s very true when trading. You can’t just day trade or maybe even swing trade with just 5k or less, I think. definitely the commissions will eat up a big portion of the potential profits and it will take longer to cash out.
For investing though, it practically doesn’t matter. Let it sit long enough, and even with just 500 per month, you’ll end up with big gains. Bigger than if you had waited to accumulate 5k+ before starting to invest.
Of course, that’s after you have an emergency fund and know how to “sit” in the stock market.
Actually sir, this is what Bro. Bo wrote in his book My Maid Invests in the Stock Market: “My maids can only afford to save P2000 a month. So every third month, they invest P6000 into the stock market.” So I think they delay investing until the 3rd month and buy 6k worth of shares, not 2k.