Saturday, June 26, 2010

Cheapest Way to Invest

I 0ften get questions from readers of my blog asking what is the cheapest way to invest.

This question is abit baffling to me sometimes as I do not really understand what exactly they are asking about. I am supposing that the question is actually twofold:

1. What investment incurs the lowest brokerage charges, sales charge or commissions?
2. What is the cheapest form of investment (cheapest in the sense of lowest monthly premium committment or lowest initial capital outlay)?

So the question on what is the cheapest way to invest perhaps is a question on what is the lowest amount of money one can invest in and at the same time incur very low charges or fees that could potentially "eat" into the initial investment amount.

Well, if you ask me, the lowest amount of money one can invest is actually in shares. This is considering the fact that you can buy like 10 shares of SingTel which together with brokerage charges will cost you less than a $100. But that is of course not very efficient as the brokerage charges will make up more than 50% of your initial investment.

For example, a person buys 10 shares of SingTel and the brokerage charges is for example $25 per trade.

If SingTel is trading at $3.00, 10 shares of Sintel will cost $30 while the brokerage charges will make the total investment cost $55! What this basically mean is that for buying 10 shares of SingTel, the investor has paid $55 which brings the average cost of purchase per share to $5.50 compared to $3.00.

What I have shown in the example above is just to show that if you put in a low amount of investment capital, it might be cheap and expensive at the same time. Cheap in the sense that you only required $55 to invest but expensive because the commissions and charges make up a huge percentage of your initial capital outlay.

Well, to cut the whole story short, one needs to balance both the intial capital outlay as well as the charges incurred. I hope to expand on this article in the near future...

So what is the cheapest way to invest? Any tips from anyone?

5 comments:

  1. Hi,

    if u buy unit shares , which is defined as shares lesser than board lots , u dun have to pay the min brokerage of 25. based on poems platform,the min commission is 10 only.

    ReplyDelete
  2. I think ETFs are a cost and effort efficient way to invest. In terms of management fees and transaction costs, it's significantly lower than traditional unit trusts. It also requires minimal monitoring and effort from investors.

    ReplyDelete
  3. Sometime I really don't understand why some retail investors are penny-wise pound-foolish.

    The brokerage cost of less than 1% of a completed transaction (bought and sold) is really a very small variable overhead if we treat investing as a serious part-time business.

    Where can we find a part-time business that have no fixed overhead?

    Investing in stocks as a serious part-time business is really cheap!

    http://createwealth8888.blogspot.com/2009/10/good-part-time-business-to-own.html

    ReplyDelete
  4. There is no cheap way to invest in anything. If you want to invest you need to educate yourself on the sharemarket and other investment strategies. If you blindly go into any investment you will lose money whether it is a little or a lot. Check out this free DVD on investment strategies for the 21st century it can be found at http://new21stcenturyeducation.com

    ReplyDelete
  5. Thanks LP, CW8888, Royston and Coffee Diva for the comments.

    WIll be good if you all can share what are the cheapest way to invest in Singapore based on your varied experiences.

    ReplyDelete

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