I recently did a review of ShareOwner discount brokerage, which promotes regular dividend stock purchases. One thing that came out of that review, is that regardless of how cheap the trading costs are – regular purchases of stocks are quite expensive.
In this post, I’m going to discuss some strategies to buy dividend stocks (or any other kind of stocks) in the cheapest manner possible at discount brokerages.
Some low cost strategies for buying stocks
- Buy one stock at a time.
- Buy less often. Save up for your purchases until the commissions are less than 1% of the purchase price.
- Shop around for lower account administration fees.
- Pick the appropriate brokerage for trading fees.
1) Buy one stock at a time
If you want to make regular purchases with your money, then don’t buy more than one stock each time. For example if you have $500 per month to invest and a portfolio of 5 stocks to add to – just pick one stock each month and buy $500 worth of that stock. Regardless of your trading costs, doing one trade per month vs five is 80% cheaper.
2) Save up your money and buy less often
If you can handle keeping some cash in your trading account for a while, then how about saving up your coins for six months and then make some purchases. If you have been purchasing stocks monthly and then switch to twice a year – your trade costs will be reduced by 83%
3) Shop around for lower account administration fees and other costs
Annual administrative fees vary quite a bit between financial instituation and between account types. At Questrade, there are no account fees regardless of the type of account or your balance. Most of the big banks charge $50/year in fees until your account balance is greater than $25,000. ShareOwner has no account fee for their unregistered account, but their annual RRSP fee is a whopping $79. ShareOwner also charges “withdrawal fees” which are applied if you remove money from your account.
4) Pick a brokerage that fits your trading patterns.
I picked Questrade discount brokerage because they meet my needs and are the cheapest brokerage in Canada. The trades are $4.95 and there are no annual account fees. However, it’s important for investors to look at their own situation when deciding on which brokerage to use.
If you like to buy several stocks at a time, then ShareOwner might be the best choice. They have a maximum fee of $40 per trade batch so you can make a purchase in 40 stocks and it will only cost $40. Bargain.
Active traders have to look at costs, but they also need to consider the trading platform. There is no point in saving $4 per trade if the best available trading platform doesn’t allow them to trade the way they want to. If you like to get more services, such as research reports then you might have to go to a more expensive brokerage.
Converting currencies? Interactive Brokers has the cheapest currency conversion rates by far. However, don’t even think of opening up an RRSP at IB because they don’t have them.
Any other suggestions on what to look for in a brokerage?