02-10-2015, 05:54 PM
Maybe it's just me, but I think that as long as you aren't paying 10$ or more per trade, the importance of transaction costs is utterly dwarfed by the rationality of your buying and selling decisions. Think about it: a 10$ comission on a 500$ purchase is 2%, but while it's nice to keep your costs low, the difference between getting a 6% vs a 8% vs a 10% annuall return over the next 10-20-30 years is going to render it completely meaningless.
I think that especially for new investors just starting out, if they intend to go the route of picking stocks instead of buying a nice and broad basket via an ETF or a mutual fund, diversification is of vital importance. It's very easy to have a few poor performers that wreck a portfolio completely dissuade a beginning investor from continuing to invest any money AT ALL. I almost fell into this trap myself.
Of course, everything can be taken too far, if you have $20k spread between 50 stocks, it most likely means that you are buying things left and right without performing any significant due diligence "just to be sure" and if you aren't willing to spend the time to do research, you really should buy that Vanguard ETF instead and spend your time on something you deem more pleasant.
I think that especially for new investors just starting out, if they intend to go the route of picking stocks instead of buying a nice and broad basket via an ETF or a mutual fund, diversification is of vital importance. It's very easy to have a few poor performers that wreck a portfolio completely dissuade a beginning investor from continuing to invest any money AT ALL. I almost fell into this trap myself.
Of course, everything can be taken too far, if you have $20k spread between 50 stocks, it most likely means that you are buying things left and right without performing any significant due diligence "just to be sure" and if you aren't willing to spend the time to do research, you really should buy that Vanguard ETF instead and spend your time on something you deem more pleasant.