Dear Fellow investor

 

blackboard with chalk drawing of a piggy bank thinking trend graWhat do I do if my portfolio is still quite small?

This is a very good question I have received from quite a few subscribers and is not unusual because we all started with a small amount of money to invest.

 

Here’s the problem

Here is the problem.

If your portfolio is relatively small, a 2% investment in each recommended idea may result in you paying very high transaction costs.

For example, if the total amount of money you have available to invest is €50,000, a 2% position, which I normally recommend in the newspaper, is equal to €1,000. And if your broker, like mine, has a €9.90 minimum brokerage fee your trading costs (before any other costs, like exchange fees) is already 1%.

And that is for an order inside Germany. It gets a lot more expensive if I buy or sell on an exchange outside of Germany.

 

This is a problem I also had

When I started investing this was a problem I also had.

I started with basically no capital nearly 30 years ago. I saved for about three months to make one investment.

And even then my investments were small which meant brokerage made up a large percentage of each investment.

But I didn’t let that hold me back.

After saving for a further three months or so I would invest in another company until, over time, my portfolio grew to the point where brokerage costs became relatively small.

 

My portfolio also started out very concentrated

When I started investing my portfolio was also very concentrated, simply because I did not have enough money to invest in a lot of companies.

But, over time, as I saved more and re-invested profits, I was able to buy more investments and my portfolio became more diversified.

 

What to do with a small portfolio

So what can you do if your portfolio is small?

 

As I mentioned in the frequently asked questions of the newsletter, I suggest that you need about €40,000 (this can also be in US dollars) to start following the ideas in the newsletter.

I say about €40,000 because then the newsletter subscription price will only make up around a not too high 1% of your portfolio.

Invest 5% in each idea

For a portfolio of this size, I suggest that you increase the percentage invested in each investment idea to 5%, or €2,000 (€40,000 x 5%).

An investment of €2000 will result in brokerage costs of around 0.5%, if your broker charges the minimum fee of €9.90 per transaction that my broker does. If you buy on a foreign market it will be higher, but that can unfortunately not be avoided.

Slightly more volatile

If you invest 5% of your portfolio in each idea it may result in your returns being slightly more volatile (larger up and down movement), but a portfolio of 20 investments is already quite diversified.

Large losses limited

And because the newsletter uses a strict 20% trailing stop-loss strategy large losses in your portfolio will be kept small.

 

Look for a cheap broker

The other thing you can do to lower your transaction costs is look for a low-cost execution only broker.

Safety more important than low cost

But remember that when looking for a broker the safety of your investments and the cash held by the broker, not price, should always be your first priority.

Therefore, do a lot of research (and read all the small print) to be absolutely sure that your cash and investments can be easily and quickly returned to you, or transferred to another broker, should your broker run into financial difficulties.

 

This month’s ideas

In Europe, I am recommending company and a French recruitment company and a German bioethanol producer.

In North America, I am recommending a company that designs and manufacturer’s optical sensors.

In Asia, I am recommending a Japanese company that sells seedlings, gardening products and agrochemicals.

 

Wishing you profitable investing

 

Tim du Toit

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