When picking a bank for your stock account one of the most important aspects that you should pay attention to is the amount of fees that you have to pay when purchasing or selling stock. Estonian banks have different payment schemes for fees but in the end the majority of clients such as myself end up making LHV the home of their portfolio.
The reason for this is simple – LHV doesn’t have a monthly fee for “management” of your stock account. In most Estonian banks the fee is something like 0,8-2€, in some it goes up to almost 4€. This means an additional 12-60 euros that you have to earn yearly just to be even with the fees! Especially with a small portfolio this is highly unlikely to happen.
Fee model for puchases
The purchasing fees for LHV are quite straightforward. The cost of a deal is 3€+0,2% of the deal price. The flat fee means that the bigger your purchase the less you pay per 1€ spent.
For the LHV formula the cost per 1€ ends up looking like this:
You can see a lovely downwards curve that starts getting closer and closer to 0,2 cents per 1€ while never quite reaching it. This is why it’s important to think about how much stock you purchase at once. If you were to make a purchase that’s 250€, then the fee per 1€ would be 3 times higher than if you were to purchase 1000€ worth of stock.
To avoid fees making too big of an impact on your returns it’s reasonable to aim your purchases close to 750-1000€ because at that point the impact of the fees starts curving lower and lower. Of course it would be ideal to make purchases in the range of 10000€ to minimize the importance of fees but as a small scale investor it’s going to take a while to get to that point.
This also illustrates quite well why as a small scale investor you won’t be making much money quickly buying/selling stocks hoping to make money off that – the fees will just eat out any potential profits very quickly. For a dividend portfolio luckily fees are likely to be a one time thing since you’re buying to hold – and hopefully to never really sell. Any rebalancing should happen by buying into other stocks, which you would do periodically anyways.