Hi Evan,
I hope some other AIMers will respond to your question as well. In these days of deep discount commissions, the rules have changed a bit from a few years ago. I used to follow a strict 100 share rule for my minimums or $1000, but that was back when $50 commissions per trade was a "bargain!" I've always tried to keep the commission cost at less than 5% of the transaction's cost. With deep discounters, the share minimum and also the dollar minimum can be quite a bit smaller. (try to make them equal in value, however)
Mr. Lichello suggested that we set the minimum for trading at the share and dollar equivalent of 5% of the equity side of our accounts. I find this to be just as good as any other measure. I do go as low as 2.5% on some of the larger mutual fund accounts that I tend. Most of the time, however, my stock accounts are in the 5% range or higher.
The main "rule of thumb" to follow is that you want to make more money than Uncle Sam and also the Broker. Overall, this will make you very happy. It's like my Grandpa used to say, "First person you should pay is yourself (meaning savings), and then pay everyone else." I feel my efforts at investing are worth more than either of my silent partners - the IRS or the broker. Therefore, I make sure that I get paid the most. I use the LIFO method when figuring this sort of thing. (I use FIFO for my actual tax calculations, but that's "tradition" for me) If I assume I make a 20% gain on a LIFO basis, then 4% goes to the government, a max of 5% to the broker, then the remaining 10% to 11% is all mine. Remember, silent partners should be considered as a "cost of doing business" and nothing more. Keep their share as low as possible.
I hope this helps a bit. If anyone else has any thoughts on this, please chime in!!
Best regards, Tom |
