Minimum amount to invest in a single share

Sunday, Dec 23 2018 by
10

Hi,

If it's not too much of a personal question, what do other people use as a minimum amount to invest in a share, to consider it worthwhile? (otherwise fees and stamp duty means it takes longer to get into profit)

For example, with one of my brokers a trade size of £2,000 results in an entry cost of 1%. Worked out as:

£10 for the broker fee,
plus 0.5% stamp duty (another £10)
equals £20/£2000 or 1%.

Anymore than 1% (eg, less than £2,000 stake) and I feel I am not being efficient with market entry. I like the idea of holding 20-30 stocks for diversification, but that's a little out of reach for the short term based on £2K lots. I intend to hold and grow my portfolios for the next 10-15 years.

Am I being overly restrictive on myself for no good reason? Obviously I can increase portfolio diversity by relaxing my rule and allow trading with £1,000 sizes ...

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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13 Posts on this Thread show/hide all

jonesj 23rd Dec '18 1 of 13
4

Many years ago, when starting I had a minimum trade size of £1500, although the limit was slightly flexible.

I was quite prepared to have just a few stocks & not diversify much, as there would be many years of adding capital to follow.
With a much larger portfolio, I now deal in a minimum of 1% of portfolio size.

Another factor is how often do you intend to trade? If it is every 6-12 months, losing 1% is too much for people with average stock selection skill. If you are holding for 10 or more years, then 1% lost in fees when you buy doesn't matter much.

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jjis 23rd Dec '18 2 of 13
3

I also started out many years ago when the allowance for what was then called Personal Equity Plans or PEP's (which are now ISA's) were introduced with a limit of £6,000. I used £2,000 and started off with three holdings and built this up over the years with further subscriptions & by accumulating and reinvesting dividends to the best part of a tidy bit.

In this way, I built up to more holdings and a greater unit size over time as you suggest. Back then I seem to remember paying about £20 a trade for commissions too! The advent of online brokers has reduced this along the way for me.

So I think you're on the right lines and just make sure you do it in an ISA wrapper as while you may not be saving much tax in the short run, the savings can certainly mount up over the years. You can also get brokers like I-WEB and X-O who only charge £5 & £5.95 a trade with no other ongoing fees, although I-web charges a modest sign-up fee I believe. This could allow you more diversification with a £1,000 unit size, at the same cost as you indicated or to halve your commission costs by sticking with the £2,000.

Good luck with your investing whatever you decide to do.

Merry Christmas
Jamie

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jared007 23rd Dec '18 3 of 13
1

I decided to take control of everything this year and opened up a SIPP and personal trading account with ii. I also opened up an ISA with Vanguard directly, and then another ISA for my wife with Fidelity. So most trading occurs within the tax free wrappers.

Although it's fairly no-frills, I must say I plan to migrate everything for both of us to ii soon. Mainly for the low ongoing fees and low cost of £6 trades if you trade often. So I do get better value trading with ii, which can afford me more diversification right now. I figure my Stockpedia subscription is money well spent on all the extras in conjunction with a very basic but functional broker like ii (instead of HL etc).

I am fortunate in that next April I can assign another 20K to my ISA immediately to fund some more share selections. So I'm trying to figure out if that will be 10 shares or 20 shares.

Cheers, Jared.

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AnonymousUser252054 23rd Dec '18 4 of 13
7

As a micro-investor with spare capital of only about £5K starting a couple of years ago my average buy tended to be about £800, but during the second half of this year that tailed off to around £500. Next year I might go down to £250. I use X-O which is a bit cheaper, at £6 per trade.  I have to admit I put in a ton of reading for a micro-profit of only £498 this YTD, which is actually a useful amount for me but probably works out at pennies per hour for all that effort and which most people will laugh at.

Best of luck.

Pete

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jonesj 24th Dec '18 5 of 13
1

In reply to post #429908

Assuming you are relatively young, what you learn now will serve you for decades & profits can be much larger in future. Although there will be years with large losses too.

The advice from jjis to use an ISA wrapper is very important. This might not matter much at present, but the tax free benefits are mportant in the long term. Also there is time saved in not adding this to your tax return and there is value in not having taxation distorting your analysis as well.

Note: A SIPP might be better if your marginal rate of taxation is 40% or more.

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mmarkkj777 24th Dec '18 6 of 13
6

Another cost of dealing is the spread. It can be small (usually the large Caps), but it can be very high for a small illiquid stock (10% plus) so should not be ignored.

@At shine66. I agree with JonesJ. Self education is really important (plus ISA for tax efficiency) and make your mistakes whilst learning with smaller amounts at stake. Too many starter investors want tips. Far better to lean how to select and trade for yourself. Its pays manyfold in the future.

I can assure you no one will laugh at your £500 profit (say,10% with £5K invested?). There will be a lot of investors (and fund managers) who this year wished they had made £500 profit. Some with millions invested!

Lets hope 2019 is is a good year for all.

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herbie47 24th Dec '18 7 of 13
1

I would not go below £1,000 myself unless you have very cheap dealing. Stamp duty is a % and not payable on AIM shares. I would avoid spreads of over 5% if you can, it tends to mean shares are illiquid as well.

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BH1991 24th Dec '18 8 of 13
2

As a general rule, I want to keep all fees (including spreads) below 1%. Therefore, when I first started trading I had a minimum amount of £2,500 and always bought shares using limit orders. This mean't I had to run a more concentrated portfolio. Initially, I felt uncomfortable with this but I soon realised diversifcation simply dilutes your trading "edge". The risks of running a concentrated portfolio can be easily mitigated using stop losses and effective portfolio management.

As you suggest, each investment needs to make mathematical sense. If your trading account is too small, then you need to be more concentrated or transfer more capital into your account.

Merry Christmas!

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jared007 24th Dec '18 9 of 13
2

Thanks everyone for the feedback and advice, it's all reassuring for me.

Merry Christmas all, and best wishes for a 2019!

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skinner66 24th Dec '18 10 of 13
1

i try to limit mine. to £10 profit per point. bank at 20% plus unless shares keeps going up.. which this year not worked to plan. so depending on share price amount i invest differs .but as robbie burns says in his books. listen to no one. have your own plan and also do your own research.. we are all in the same boat investing hope next year will get easier. merry xmas to all

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doug2500 26th Dec '18 11 of 13
1

The way I see it the spread and stamp are proportional anyway so no point in worrying about them.

The commission does impact on the percentage lost in trading so I tend not to trade less than £1000,but generally more.

Currently when I'm torn between what I see as attractive prices but low confidence in the markets I'm having a few small top up's of £1000ish so that if markets rise I won't be worrying about a fraction of a percent lost but if they continue falling I have more to spend. I would say 'normally' my top ups would be a bit more and my opening positions a fair bit more. I would say my opening positions would normally be double what they are just now.

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Armorduck 28th Dec '18 12 of 13
4

In reply to post #430298

Yes there is nothing to be done about the spread and stamp duty. Many brokers (e.g. Halifax, AJ Bell) offer cheaper trading rates (2 quid or less) if you trade on specific days each month. This is how I usually invest, partly to save trading costs but also so that i don't need to obsess too much about share prices going up and down, by the minute, hour or day. Using this approach I started investing 250 quid a time. Now I invest a bit more but still use the regular investment days most of the time.

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jared007 28th Dec '18 13 of 13

In reply to post #430858

Armorduck, I can see how that discount trade day would be really helpful. I tend to obsess about getting a certain price rather than just getting in when I've made a decision to buy a share. Wish ii offered that discount (although they do offer a reduced £6 commission if you trade a bit more often).

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