what book did you get? I want to get into it aswell but someone told me no point unless you have thousands to put into it. How true is this?
Hi,
I haven't really got into investing directly in shares yet but have read up alot about it. The reason people say that you need thousands is due to charges.
These tend to be people that haven't shopped around for a stockbroker and use their banks stockbroking service or some other equally expensive stockbroking service.
For example, with Goodbody (which AIB use), you will pay a minimum of €32 commission for each share purchase and sale. You will also pay an annual charge of €26.
It is not advisable to invest all your money in one or two shares. If you do this and one drops by 20% after some sort of accounting scandal or something, you will have lost alot of money. Ideally, you'd want to have a bare minimum of 5 different holdings and preferably closer to 10.
If you used AIB's service to purchase the bare minimum of 5 different shares, it would cost you €32 * 5 = €160 to buy the shares and €160 to sell them. You'd also have the €26 per year annual charge on top of this. That's a total minimum charge of €346 to buy and sell 5 shares. In other words, if you invested €3,500, your shares will have to rise by 10% before you make a cent.
If you use a foreign stockbroker, your investments will not be eaten up so much by charges. Your choice of a foreign stockbroker depends largely on how you intend to invest.
For example, if you only want to invest in the USA, 'ETrade USA' may be a good choice. If you'd like to invest in the USA and Europe (excluding Ireland), 'Interactive Brokers' may be a good choice and if you'd like to invest in the UK, 'Hoodless Brennan' may be a good choice.
Personally, I am leaning towards 'Interactive Brokers' as my stockbroker and I've set up an account and am ready to lodge money to it. They do not allow you to purchase Irish shares. However, I don't want to purchase Irish shares anyway because there is an additional 1% stamp duty to pay in Ireland which you don't have to pay with European or USA shares (the UK stamp duty is 0.5%). Also, my job is reliant on the Irish economy so I don't want all my eggs in the one basket with my investments reliant on the Irish economy too. Therefore, to start with, I'm sticking to Europe which has the advantage of no currency risks.
With 'Interactive Brokers' there is a €4 fee for buying or selling shares (as long as it's less than €4000 worth of each share your buying or selling) and there is a minimum charge of €8 per month. That means that, provided you only make two trades per month, the total cost in any year will be €96.
What I like about this is that you can start with €1,000 and purchase 2 different shares. Then, you can add €500 per month (or whatever you can afford) and purchase a different share each month. If you decide you want to sell a share, you can do so without any extra cost (because you're allowed 2 trades a month within your minimum commission charge).
When handled correctly, the maximum charges you will ever have is €96 per year and this allows you a total of 24 trades per year (2 per month). You can add whatever amount you want each month and skip months if you like.
Obviously, when compared to a good unit linked fund that will usually charge 1%, the €96 annual charge with 'Interactive Brokers' will be more expensive than the unit linked fund until the value of your shares is €9,600. At this point, the charges in the unit linked fund will continue to rise whilst the 'Interactive Broker' charges will stay the same.
However, you get to pick your own shares to buy and sell and are not heavily weighted in one sector (banking) as with most of the Unit Linked funds. You also avoid the 8-year rule which involves you having to pay tax on the unit linked fund after 8-years (even if you didn't sell any units).
Also, if you have less money to invest, you could consider 'Hoodless Brennan' who charge €12 per trade with no minimum monthly or annual charge. This allows you to buy UK shares or a choice of 500 US and European shares. Basically, if you're willing to risk not being diversified initially, you could open an account, save up a certain amount and buy one share at a time until you are diversified. You could then add to your positions. The reason I didn't pick these is that, at €12 each, if I make 8 or more trades in a year, it will be more expensive than 'Interactive Brokers' and to make a trade worthwhile at €12 commission, you should really be investing a minimum of about €500 in each share for a minimum of 5 years (this would make the cost of buying and selling 4.8% - just under 1% per year). I'd prefer to be able to buy/sell shares every month and to be able to buy as little as €200 - €300 worth each time.
However, if you chose the 'Hoodless Brennan' route, I'd suggest saving up €1,200 each time and purchasing €1,200 of each share. If you were saving €300 per month, you could make a purchase every 4 months and would have 3 different shares after a year with total costs of €36 to the stockbroker. After 2 years, you'd be relatively diversified and would have dividends to add to your €1,200 investments.
