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School of Hard Knocks – Part 1

I’ve been playing around with shares and funds over the past few months, using the logic that even if I do lose $$, the sums would be small, and it counts towards “educational fees”.

I have learnt a few things:

1) No point playing the stock market with little capital.

It’s harder to make money with small capital, as your overall cost is higher once you take brokage fees into consideration.

For experimentation purposes, I bought 2 apple shares (AAPL) at about USD$122 each, and paid a brokerage fee of USD$14.95. To break even, my 2 shares have to rise to a price of $137 each! (Selling brokerage fee taken into account). Thankfully, I still made money of the share, as it rose even higher then that.

I think I might have sold it off too early!

2) Known companies vs Penny Stocks

In theory, when a penny stock costing 25cents rises 1cent, you make a 4% return, where as if you buy a large known company like apple, a 1cent increase is only a 0.8% return.

In theory, using the same amount of money on both stocks, you can buy more penny stocks then the other, and potentially earn more $$.

However, I found out that it’s easier to lose money in penny stocks then it is to make. I’m currently holding 3stocks with 1000+shares, and it’s all in the reds. AAPL on the other hand, even tho I owned merely 2 shares, made me money!

I’m hoping that I these stocks will at least pick up and allow me to break even. The buying and selling fee of USD$29.90 however, is affecting it a lot. If I had a larger amount invested in these penny stocks (ie. point 1 above), its possible for me to still make $$, however the brokerage fees meant that the stocks had to rise more then a cent or two to cover cost.

3) Dollar averaging is still the safest means of investment.

I wish I had more money to dump into my dollardex investments. I’ve been keeping my cash liquid just in case I do decide to buy property.

I might pump some money in though, once I get my finances figured out.

Thankfully, I still have a regular savings plan (RSP) of $150/mth. Hopefully that will serve as a good investment over 8 years. (And hopefully, I won’t find out that the returns are horrible due to high agency costs!!)

I’m thinking if I should start another RSP, but this one purely investments only (ie no insurance component). I’m afraid to commit though, because I currently don’t have a fixed paycheck.

4) Higher Interest + Liquidity

I wrote an article some time back about bank interest rates in Singapore. In general, interest rates have dropped a lot.

However, I also learnt that money markets are good places to put your money, and still get decent returns (about 2%pa). It’s not as liquid as going to the ATM to get your money out, but you can still get your money in about a week or two. The upside is, at least you can’t spend on impulse!

A good money market fund is the Lion Capital SGD Money Market. I’ve some money in there via dollardex.com, and the best part about it is there are no fees to put your money in it!

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