We can buy stocks by buying a single board lot. We might do this as we initially want to risk as little capital as possible when starting our stock investment. Or we want to do peso cost averaging. However, buying in single board lot is not a bright idea.
For example, if the stock price is P7.50, the board lot would be 100 shares. This means 1 board lot is P750 and you can buy around multiple of P750. Side note: You can buy on Odd Lot Board, but that would be for a separate discussion.
So for P750, the fees are:
What is a board lot?
A board lot is the minimum unit of shares you can trade on the stock market. For example, if the board lot of a stock is 100, you can only buy in multiple of 100 (i.e. 100, 200, 300 ...). The board lot depends on the previous day closing price of the stock counter. You can refer to the following table for the board lot for different price ranges: |
| Board Lot and Fluctuation Table from COL Financial's FAQ |
For example, if the stock price is P7.50, the board lot would be 100 shares. This means 1 board lot is P750 and you can buy around multiple of P750. Side note: You can buy on Odd Lot Board, but that would be for a separate discussion.
A single board lot is not expensive, but the fees for that are?
P750 is not a big sum of money (at least for the investing world). What's expensive is the trading fees charged to you if you trade a small amount. These fees are payment for processing your investment trading. Below is the fees rate for COL Financial: |
| COL Financial's Trading Fees |
So for P750, the fees are:
| Commission: | 20 | (20 or 0.25%, whichever is higher) |
| VAT: | 2.4 | |
| PSE Tx Fee: | 0.0375 | |
SCCP:
|
0.075 | |
| Total Fees | P22.5125 |
|---|
So to buy 1 board lot, you need to pay P772.52. The fees are eating away almost 3% of your capital.
If you are buying every month (to do "peso cost averaging"), you would pay a sum of P9270.24 and P270.24 of that is for fees.
P270 is no big deal. I'll treat it as a gift for my broker.
Understandably, P270 is a very small amount to pay for one whole year. However, this is only for 1 stock counter. If you are diversifying to 5 stocks (which is still a pretty bad diversification number), fees would easily balloon to P1350.What should we do?
Looking at the computation above, the main culprit is the minimum commission fee of P20. The commission rate is only 0.25%, but because of the minimum amount, the effective commission rate increases to around 3%.To avoid this, we should transact in amount of at least 8000 (or close to 8000). 0.25% of P8000 is P20 which is exactly equal to the minimum fee.
Case 1: Investing only P750 per month
If you want to buy only 1 stock counter and willing to invest P750 pesos per month, I suggest that you collect your money for the whole year and buy once every year. You would be able to collect P9000 and the fees would only be around P26. You are saving yourself P250 of fees.If you want to do Peso-cost-averaging becase you want to avoid buying at a bad time, then you have to pay extra ~P250 in commission. My opinion is "Don't do that because it's stupid".
In addition, P9000 investment for 1 year is too small. That's just the price of one decent smartphone. At least invest yearly the price of a decent laptop.
Case 2: Investing P3750 per month on 5 different stocks
If you want to diversify (because "it's the smart thing to do"), better buy every two months. With P7500 (3750 x 2), the fees would be ~P23. For a year, it will be ~P276. That would be a lot smaller than P1350 in fees if you stubornly buy all your 5 stocks in single board lot every month.I'm not sure about other people but I don't want to make my broker P1000 richer than necessary every year.
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