In order to simplify the process, “Neatkarīgā” used the commission fees applied by the four largest universal banks of Latvia, or as it is sometimes called, the “big four”, applying them to transactions worth 500 and 1000 euros on the stock market, both in the stock markets of Western and Baltic countries.
How much do you ask for a transaction?
In the “big four” of Latvian banks, similarly as elsewhere, the commission fee is calculated as a percentage of the transaction volume in monetary terms, but the minimum commission fee is also determined. It is this that should mainly be paid attention to for those who make small investments and if they do so regularly. If we are talking about the largest stock markets in the USA and Western Europe, then in three of the four largest Latvian banks, in terms of shares or investment funds traded on the stock exchange (“exchange–traded funds”), the broker’s commission is 0.1% to 0.25% of the transaction amount, but not less than 10 euros. It should be added here that in one of the mentioned banks the minimum commission in the amount of 10 euros applies to the Scandinavian and German markets, but for the shares of France, Belgium, the Netherlands, Switzerland, Great Britain, Spain and Portugal the minimum transaction commission is 15 euros. On the other hand, in one of the mentioned banks, the minimum commission fee for share transactions carried out on the London Stock Exchange is set at 14 US dollars. Meanwhile, in one remaining “big four” bank, the commission fee is set at 0.4% of the transaction amount, but not less than 20 euros per transaction. On the other hand, transactions on the US stock market in some banks cost the same as in Europe, while in others the commission is slightly higher, but its final cost can also be affected by fluctuations in the EUR/USD exchange rate. In order to understand how expensive or cheap investing is, this amount of the commission should be compared with the total amount allocated for investments. If we take the above-mentioned 500 or 1000 euros as a reference point, then the amount of the minimum commission will be applied to them. Thus, if there is a desire to become a small co-owner, for example, in the German automobile giant BMW or in the Swedish manufacturer of chainsaws, trimmers, outdoor tractors, etc., Husqvarna, the broker must pay 10 euros for the transaction. If the amount of the transaction is 500 euros, the amount of the commission is 2%, while if it is 1000 euros, then the amount of the commission is 1% of the amount of the transaction. Of course, in order to make a profit at the expense of stock price fluctuations, it is not enough to just buy securities, you also have to sell them, thus doubling the cost. The total costs in the case of 500 euros reach 4%, and in the case of 1000 euros – two percent.
How profitable in practice?
It may seem debatable whether the commission amounts are large or small, especially when it comes to investments worth hundreds of euros. However, it can be said with full confidence that, at least in most cases, an investor does not go to the stock market in order not to get at least a double-digit percentage profit. Especially if there is a plan to make money not at the expense of daily market fluctuations, i.e. to engage in so-called day trading, but to invest with a longer time horizon and possible higher potential profits in the future. We cannot know what the market dynamics will be in the future, but we can estimate its past dynamics and compare how much the return would be with the current brokerage commission payments. To some extent, it can serve as a kind of “spike” for future investments as well. For example, the market value of the already mentioned German automotive flagship “Bayerische Motoren Werke AG” has increased by 28% in the last five years, and by about a third in one year, according to the exchange rate on Friday afternoon. Meanwhile, Husqvarna’s medium-term performance has been much more modest, with its share price up about 14% in five years and 28% in one year. Investors who invest in the longer term have the opportunity to claim the payment of dividends, which increases the total financial gain. For example, on Thursday “Husqvarna” shareholders received a dividend worth two Swedish kroner, on April 5 this year one kroner was paid per share, and on October 10 last year – two kroner. For an investor who bought the shares of the Swedish company last September for 70 kroner a piece (they were also cheaper), the volume of these three dividend payments (five kroner) alone has already ensured a return of funds worth around 7%. It is no secret that no bank pays such high interest on deposits recently. In addition, in purely mathematical terms, the investor has already had the opportunity to recover the costs associated with brokerage commission payments with the mentioned dividend payments alone, while the shares that are increasing in value have not yet been sold.
Regarding investment opportunities, it is perhaps worth adding that the European markets also allow access to financial instruments, the price of which also follows the developments on Wall Street. If an investor wants to invest by profiting on changes in the value of the 500 largest companies of the US stock market “Standard & Poor’s 500”, he could do so by purchasing, for example, investment units of the fund “iShares S&P 500 EUR Hedged UCITS ETF” offered on the German stock market. Five years ago, one share of this investment fund cost about 65 euros, but on Friday afternoon its value was between 89 and 90 euros. Thus, within five years, their market value has increased by more than a third, thus everyone has the opportunity to evaluate what the medium-term profit potential has been.
Right here in the Baltics
An important consideration for those who are just starting their investment journey is identifying opportunities right here on the Baltic stock market. Transactions on the Baltic stock market are significantly more profitable, and certain market participants require a minimum commission of one euro for them, or in one of the banks mentioned above, they do not even charge at all. Of course, the market activity here is not comparable to that of the big European markets or Wall Street, but it would be a mistake to think that there are no profit opportunities here.
It should be noted that among the Baltic companies there are also those that regularly pay dividends. One example would be Tallinn’s water supply company “Tallinn Vesi”. Information about the time period from 2015 shows that the shareholders of this company have not remained without dividends for a single year. On the other hand, in the payments of the last five years, the total amount of the company’s dividends reaches 3.38 euros per share. Thus, at the expense of dividends alone, the shareholder of the company has made a profit worth more than 30% during this time, because five years ago the price of the company’s share in the stock exchange slightly exceeded 10 euros. True, the share price has fared much worse, its market value on Friday was only about 7% higher than five years ago. However, this modest indicator is related to the recent sharp drop in share prices. This is bad for the company’s existing shareholders, but creates more profit potential for would-be shareholders. It should be noted that along with high inflation, the value of companies also increases over time, and the increase in the cost of living, which is now emptying consumers’ wallets, promises long-term benefits for the owners of the company’s capital shares, or shareholders.
2023-10-09 02:15:07
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