How much do I need to invest in shares ?

[Brendan Burgess]

I have always thought that you need about €20 000 to invest directly in the stockmarket. Having researched the dealing charges of the stockbrokers, I am now revising my opinion.
Campbell O'Connor charges 1.5% commission subject to a minimum charge of €25.40 per deal. That means that if you buy €1000 worth of shares in a company, the initial charge will be 3.5% in total (2.5% commission and 1% stamp duty ).
You need shares in 10 different companies to have an adequately diversified portfolio, so €10 000 is the minimum needed to achieve this.
But while a diversified portfolio is desirable, it is not essential. If you have only €1 000 to invest and it wouldn't be a disaster if you lose it , there is nothing to stop you investing in just one share. This is particularly so if you are expecting to have more money to invest in a few months time. You will in time build up an adequately diverse portfolio of shares.
This strategy only applies to people who are investing for at least the medium to long term. If you buy today and sell in 5 years time, there will be a 3.5% initial charge and a 2% selling charge which gives an acceptable average charge of 1% a year. If you intend to sell in a year's time, the total charge of 5.5% would be too high a charge to expect to cover with one year's stockmarket returns.
Let's say that you have €10 000 sitting in a deposit account. Why not leave €9 000 in the deposit account and test the stockmarket with a €1 000 investment in a share of your choice ? Even if the very worst happens and you lose the entire investment, it won't be a disaster. This small taste of the stockmarket will help you learn a lot about owning shares.
It is important to remember that a total loss in value in a blue chip share is extremely rare. A 50% drop in value would be very unlucky. And of course, a 50% rise is more likely than a 50% drop.
So, in summary, if someone asks how much do they need to invest in the stockmarket I will answer that the minimum is
€1 000 as long as they appreciate the risk involved.

 

[Various]

replies from old Askaboutmoney

Clubman replied:

This strategy only applies to people who are investing for at least the medium to long term.
Ah - that hoary old chestnut! So what is medium to long term when it comes to equities ... 3 years, 5 years, 7 years, 10 years ....?

Stung replied

You're probably right in your assumptions but people need to be very careful about investing in single shares.
I did exactly as you described in September last. I got a 'tip off' from someone who heard a 'rumour' that Intel were about to release their new chip along with announcing high profits for the preceding quater. In fact they did the opposite.
Foolishly I listened to him, had a spare £1,000 doing nothing at the time, and bought. Ever since it has tumbled.
"a 50% drop in value would be very unlucky"
Try a 62% drop and falling...
Not everyone has these experiences, I admit, but it's a point which needs to be reiterated. Make SURE it's money you can afford to lose.

Brendan replied

Hi Stung
Good point.
I should have emphasised that I was referring to blue chip, non tech shares.
Most people who invested in Intel did very well out of it. The unlucky few who bought at the top or close to the top have lost out.
That's no comfort to you - but as you say, it was a spare £1000, so it's not as if you have to cut down your socialising as a result.
By the way, just in case there is any misunderstanding about what I did say, I have never, ever, ever, recommended acting on tips.
Brendan

Brendan replied :
Hi Clubman
For direct investment in shares, you need to invest for about 5 years , so that the costs of buying and selling don't eat into your profits.
For buying through a no-load unit linked fund, you can invest for a month if you wish. YOu don't need a long term outlook, as long as you appreciate the risk/reward ratio.

Clubman replied:
For direct investment in shares, you need to invest for about 5 years , so that the costs of buying and selling don't eat into your profits.
On the other hand one could accept the currency risks involved and use a US online broker (c. $10 a trade) rather than our arguably exhorbitantly priced Irish brokers and at the same time pay much lower fixed charges (SEC charge of 1/30,000th the value of a trade compared to our 1% Irish stamp duty).

Dundee replied:
Do those stockbroking charges you refer to apply only to ISEQ shares or can one buy european stocks at the same rates.
Whilst investing money you can afford to loose in one single stock is fine I would buying a basket of shares say with £10k spread only on ISEQ shares to be just too risky.
One would need exposure to European stocks to protect against the ISEQ taking a beating and to protect against currency change if one was invested in UK and or USA.

UDS replied:
If you want to deal in stocks in other eurozone countries, look into using a French, Dutch, Belgian or German broker. I strongly suspect you will find much better value than with Irish brokers.