(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)
Do you think you’re too small to begin investing?
Do you believe it takes huge capital to make your money work for you?
With only Php 5000, you can already start investing in Philippine stock market… and even Philippine mutual funds and Unit Investment Trust Funds (UITF’s).
One of the common misconceptions about investing in a stock market is the initial thought that it’s only a game for the rich guys. They believe that they need to be millionaires first, or close to that, to actually start making their money work hard for them.
Of course that’s one of the biggest financial illusions you can ever believe.
While it’s true that there are people in the upper class playing in this battlefield, that doesn’t mean it’s an exclusive playground for them.
A friend actually asked me if one would need any credential to dive into it.
I gave a short answer: “Appreciating your asset to produce more assets, much like a tree bearing it sweet fruits, that’s the only credential your will ever need”.
If you’re like that, you’re very welcome to this financial vehicle. Allow me to sing your first lullaby.
Personally, I started investing with a humble 10k initial deposit. Many hard-core players would really laugh at me, but I was more than happy just giving it a try. And looking back I just couldn’t imagine the journey that little initial amount had unraveled. It was year 2010, the same year I finished my college and landed on my first job. A sweet new voyage for a new phase of my life.
How Much Exactly?
Obviously, it’s not precisely as simple as that. So let’s do the exact math here.
In reality though, your broker will do it automatically for you each time you place an order, so you don’t really need to dwell on this. But just so you won’t be surprised with all the associated fees and charges that add to your buying amount (or subtract from your sale proceeds), it seems imperative to have a look on this.
Your transaction can be a BUY or a SELL order.
Either case, you will need to enter two basic data with your chosen stock (company) – your price and your volume (or number of shares). The two figures will dictate the amount of all the other accompanying charges. Below table summarizes the basic computation of charges involved in buying and selling transactions:
TYPE OF FEES
0.25% of the gross trade amount or 20 whichever is higher
Value-added Tax (VAT) on commission
12% of Commission
Philippine Stock Exchange Transaction Fee (PSE Trans Fee)*
.005% of the Gross Trade Amount
Securities Clearing Corporation of the Philippines (SCCP) Fee (or Clearing Fee)
.01% of Gross Trade Amount
ADDITIONAL FEE FOR SELLING
Stock Transaction Tax (or Sales Tax)
0.6% of Gross Trade Amount
*Varies depending on the stockbroker’s fee structure.
All these charges add to (in case of a buy order) or subtract from (if it’s a sell order) the Gross Trade Amount or Transaction Amount.
Elementary math tells you how to calculate that gross trade amount:
Gross Trade Amount = Number of shares*Price per share.
Note that the above 0.25% stockbroker’s commission applies to specific online brokers only. The 0.25% is actually the smallest commission any broker can get from every transaction. Personal live brokers can charge as high as 1.5% of the transaction amount given that they obviously get involved in a more tedious process compared to doing it all online. Now you see one of the beauties of using online brokers.
The 12% Value-added Tax (VAT) is levied on the commission charge. The PSE Trans Fee and SCCP Clearing fee are other miscellaneous charges as these institutions are also involved in the orders matching and processing cycle.
You will also notice that the only difference between buying and selling is the additional sales tax in the latter. The 0.5% amount actually makes it the largest slice among all the trading charges in all your sales.
You can watch the video below illustrating these fees and commissions involved in investing in the Philippine stock market.
Some Useful Notes
At this point, one will realize that with the presence of these transactional fees, you cannot get breakeven from a previous buy order by simply selling it at the same price you bought it. Doing so will definitely entail losses in your part. As a consequence you would need first to wait for the stock price to rise by around 2.25% to get by and get your whole money back. You can calculate exactly what that pivotal price is by doing your own math with the help of the table above, or by using a ready MS Excel-based stock calculator. (You can get your tool for this here).
It’s also to wise to consider maximizing your every commission by making the gross amount of your trades at around 8k at the least, since 0.25% of it is equal to the minimum 20 pesos commission charge. (If you don’t get this, read this blog for the explanation.)
Check exact figures from your broker.
The above table shows only the basic computation, but it can have slight modifications from the actual computation of your stockbroker.
As a practice example, you can look at below sample confirmation invoices from Citiseconline (COL) for a buy and sell transaction, and confirm that all the figures can be derived from the table above.
Dream Big, Start Small
It’s safe to say now that that you can actually have your first buy with as low as 5k.
In fact my first ever transaction cost me less than 4k (using Philstocks broker). It was the purchase of 2000 shares of MEG when it was still at 1.87 pesos per share, which I excitingly sold three days after at an appreciated price of 2.05. HAHA.
Never make that excuse of having not so much money to begin empowering your financial life. If you know Bo Sanchez, his maids and drivers have actually started investing earlier than me (which is by the way one of the things that pushed me to do the same). I’m pretty sure you earn way far bigger than those folks. So if they were able to do it, there’s no reason why you can’t. Just be very careful doing it though!
HAPPY NEW YEAR MY FRIEND!
May this year be a breakthrough in your finances!
Have fun investing,
PS: To be more honest, the story of Bo Sanchez’s maids investing in stocks is a big part of the motivation why I did the same. I just couldn’t accept that in the future, a maid will be better off financially than me notwithstanding the bigger salary I have.
Pride I think. HAHA. And so I’m spending all the time I have now to catch up with them.
Join me in that challenge too! Read and be inspired by their story here – Download Bo’s My Maid Invests in the Stock Market and Why you should too!
Do you want to receive STOCK PICKS and other lessons on money management & business ideas?Check out Truly Rich Club and receive 14 incredible gifts for FREE, including the opportunity to earn passive income every month!
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This Post Has 8 Comments
,,,,nice blog!!!,,,i’m 22 and i started investing,,,
Thanks to the materials sir Omeng I have started investing in stock market…
Good to hear! Happy investing sir Erwin!
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Great blog sir!
Just a question as im an OFW. Would there be any required other taxes once we get our profit?
Since COL financial is requiring the TIN in the profile, do we need to file ITR for any profit?
I want to invest my money im ofw. Hope to help me
thanks for the kind words ms Arlet!
blame google for the captcha 😀
This post is really encouraging for fresh grads like me. I’ll keep this in mind! Thanks, and please don’t stop blogging about investing!
The capthca are more like symbols than letters 😐 HAHAHA