Welcome. Lets talk about my portfolio.
I realize that I will be making a lot of mistakes with my portfolio. Because I will be contributing a small monthly income, the amount of fees I will be paying is unreasonably high. Let me clarify.
If I am paying Capital One a commission of $4 to invest only $100, then my transaction cost is 4%. I’m already down by 4%. Better is to wait until I have $200 to invest, in which case my transaction cost is 2%. Even better is to wait until I can invest $1000. in which the transaction cost is only 0.4%. I have more of my money working for me.
Starting my account with $0 and investing small amounts of money is NOT necessarily the wisest approach. Nonetheless, I have decided to do just that. I know you’re asking why? Well, the truth is that I know me. If I wait until I have $1000 saved before I start to invest, I may never get started. It’s not mathematically the best approach, but it works for me.
I waste a LOT of money on stupid stuff. This includes going to the casino, playing bingo on a REGULAR basis, eating out, etc. I sometimes spend $60 one night playing bingo. When I go to the casinos, I may lose $100 in ten minutes. So, if commissions to purchase stock is $4 and I do that once every month for 12 months, I am spending $48 a year to contribute to one stock on a monthly basis. That might be high relative fee to my small investment, but given all the other crap I spend money on, I think it’s well worth it.
Also, I don’t expect my monthly contributions will remain small. As I get my financial house in order, I intend to stop wasting money and focus on building shares and growing my dividend portfolio. I will get started even though I know it’s expensive. As the months go by, I will no doubt increase my investment size, and thereby reduce the overall cost of fees as a proportion to my investment size. Again, my goal isn’t so much to have you do things my way. However, I hope you will be inspired to follow your own path to fulfill your own strategy to achieve your financial dreams.
You will also notice that I have a very small portfolio size. It’s best to have a well diversified portfolio. Dividend Mantra has over 50 stocks in his portfolio. Having a diversified portfolio makes sense. If you only own 3 stocks and one company goes into bankruptcy (think Enron), then you would have lost 1/3rd of your investments (assuming equal amounts in each). However, if you own 20 stocks and one of those stocks fail, then that will have a much lesser impact on your overall bottom line.
So, I do recognize that I have a very small portfolio size in terms of the number of stocks I own. I will obviously increase the portfolio size when I have reached my goal of having 100 shares in each stock. My portfolio is a starter portfolio and will only get better with time and additional money.