Hobby Investing in the Toronto Stock Exchange

The number one rule of hobby investing is that it's only a hobby if it's money that you can afford to lose. Although I'm a conservative hobby investor, I've bought a couple of companies that I would have been better off leaving alone.

The second rule of hobby investing is be clear on your numbers. Most banks in Canada charge $28.95 plus 3 cents per share for a buy, and charge $28.95 for a sell.

So, say I have a spare thousand bucks that I want to start investing with. I know that $57.90 is gonna be taken off the top just to buy and sell the stock ($28.95 * 2). If the share price of the company that I want to buy is $25.00, and I buy 37 shares of the company, that's gonna cost me an additional $1.11 (37 shares * $0.03).

$57.90 plus $1.11 = Fees for buying and selling the stock = $59.01
37 shares at $25.00 for the stock itself = $925.00
Total for the trading fees and the stock is $984.01

Remember that you have an actual $925.00 invested. If the price of the stock rises 7 percent (from $25.00 per share *1.07 = 26.25), then you've earned $64.75 ($925.00 * 0.07). $64.75 is just enough to cover the cost of buying and selling the stock.

A 7 percent gain is pretty big, especially when you're investing in large companies.

The more you have to invest, the more profitable a hobby it becomes because your buying and selling fees don't change too much, regardless of the amount you invest.

Let's look at the same example above if you have a spare $5000 to start your hobby (a nice way to use your tax free savings account because all the gains are tax free).

Number shares you can buy = $5000 (spare cash) - {$57.90 (trading fees) +(0.03 price per share commission fees)($25 share price)}= 197
Trading fees = $57.90 (trading fees) plus 0.03*197 (number shares to purchase)= $5.91 = $63.81
Actual Stock Purchase = 197 * $25 = $4925

Trading fees plus stock purchase = $63.81 + $4925 = $4988.81 (you have $11.19 cash to spare from your original $5000)

Now you have $4925 invested in the actual stock.

If the stock price goes up 2%, you've earned $98.50 ($4925 * 0.02), more than your trading fees, and anything above $25.50 is a capital gain for you (versus the $26.25 that you need to break even on a $1000 investment).

If math isn't your strong suit, don't worry, I'll post the actual break even forumla so you can just plug your numbers in to make your hobby investment decisions.

Have a great Family Day watching the Olympics Canada!