I'm about to invest in stocks and plan to invest a small amount (say 500) per month at a maximum total amount of 50,000. Say my target percentages are as follows (they will change in a monthly basis).

Company-A: 15%
Company-B: 15%
Company-C: 35%
Company-D: 5%
Company-E: 30%

Rebalancing is straightforward when you already have a size-able portfolio. You sell stock you have too much of then buy stocks you have too little of.

But if you're just starting, what are the steps to attaining this target balance provided that I only invest a fraction of the maximum at a time?

  • Do you have enough to buy some of each in the designated proportions? – Lawrence Dec 17 '19 at 13:46
  • Are there any trading fees? – Chris W. Rea Dec 17 '19 at 13:46
  • Trading fees total to 0.265% of the gross trade amount and tax is 12% of the commission. – Helix Quar Dec 17 '19 at 13:49
  • @Lawrence. I cannot buy everything at the set percentage in one go. – Helix Quar Dec 17 '19 at 13:50
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    Have you considered to just buy an index fund? – Philipp Dec 17 '19 at 15:53

The main problem with investing small sums is that trading fees can take up a larger percentage of the total. For example, if you invest $100 and are charged a flat $5 fee, you retain $95 in your investment. If you invested $5, you retain $0. (Fees can switch to a proportional basis for larger sums invested, but they are often a flat rate at the lower end.)

It only gets worse if you split a small sum among several stocks. $100 into 1 stock at a flat $5 per trade nets you $95 of stock, but the same $100 into 20 stocks nets you $0 of stock.

One strategy would be to pick any of your stocks to start with - but keep it to just one stock each time. You avoid the multiple-fee trap at the cost of diversification. The next round can be invested in a different single stock, and over time, you’d get the portfolio you aimed for.

Another approach is to find an index fund that sufficiently matches your ideal portfolio. Keep investing in that (one) index fund until you’ve built up enough equity to diversify manually, then sell the index fund and buy your individual stocks in the desired proportions. You get diversification at the expense of precision (and you might have to pay management fees, but some index funds can have low fees).

You can, of course, keep everything in cash until you’ve built up enough money to execute your strategy. This gets you diversity and precision at the cost of time in the market.

Disclaimer: the above is not to be construed as financial advice. Please seek appropriate professional advice before investing.

  • 3
    +1 "but keep it to just one stock each time" Essentially, given the OP's desired breakdown, in a 20-month period they want to buy Companies A & B three times each; Company C seven times, D once and E six times. Something like A, B, C, D, E, C, E, A, B, C, E, C, A, B, C, E, C, E, C, E. – TripeHound Dec 18 '19 at 8:46

I would strongly advise to start with index funds in a brokerage account that doesn't charge fees for buying and selling ETFs.
Then you build your portfolio from there and after 10 months of investing you can invest in one of the stocks you want to buy and still be well diversified.

Still depending on your account and the related fees it might be better to stick to index funds for quite a while (considering how difficult it is to beat the market, maybe forever, maybe until you're sure you can do better than the market).

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