Why am I always told only buy stock in multiples of 100??

Question

I want to buy stock and I don't have a lot of disposable income. So the little bit I put aside to invest i want to spread out over multiple stocks. My tax account and people always say I should never buy stock unless I am going to buy 100 shares? Is it really bad to buy 50 or 75 shares of something?

Answer 1

Don't listen to them. Stocks sell in round lots of 100 shares. At one time it was important to limit your purchases to round lots because odd lots required you to pay a higher commission. Today, with many sales taking place on the Internet, commissions have come down. You can now buy one share or 1000 shares of a stock and pay a commission of $5-$10. You could hold round lots of stocks that pay stock dividends, and you wind up with odd lots.

When I started investing in stocks, I could only afford 10-15 shares at a time. This was expensive then. Today I may buy 500 shares of a stock or 100 shares. Last month I made a mistake in placing an order and bought 102 shares of a stock. No one cares. I have bought 12 shares of a stock because I already had 88 shares and wanted to create a round lot so i could sell a call option..

You need round lots of stocks if you are going to trade stock options, puts and calls. But with small amounts of money, you won't be doing that soon. You are better off buying 5-10 different stocks in small amounts than putting all your money into one stock. Diversification reduces your risk. Find the half dozen or so stocks you like, regardless of their price, then divide your money among them, buying the number of shares of each that will have each one costing about the same amount. It it means buying 2 shares of $75 stock and 21 shares on a $7 stock, there is nothing wrong with it. Use a discount broker to keep your commissions as low as possible. Good luck, you are on the right track.

Answer 2

It's not bad. It's just that stocks are normally bought and sold in lots of 100. Buying what is called an "Odd Lot" (a number other than a multiple of 100) might incur a higher commission than a regular sale. You would have to talk to your broker about this.

Also, you might want to consider investing in mutual funds instead of straight stock. Mutual funds are groupings of stocks, usually with something in common. (Industry, size of company, etc.) The fund is then managed by professionals. Buy in is usually by dollar ammount. That is, you would say "I want a $100 worth of fund X. Then, you would get your $100 worth based on the closing price-day of sale. Mutual funds do still carry some risk, but since multiple stocks are involved the risk is usually less than buying individual stocks. Good luck.

Answer 3

It may be more expensive to by and odd lot of stock. Depends on your broker.

By the time you've bought enough stocks to be properly diversified you will have spent a big chunk of your nest egg on commissions. Buy a no-load mutual fund instead. Even better, buy an S&P index mutual fund.

Answer 4

Because it is easier to sell. Some brokers charge an extra fee for broken lot transactions. What you are trying to do would probably be better handled by buying a mutual fund which spreads the purchasing around - look for a no-load fund with low annual fees.

Answer 5

stock brokers might charge extra.

you might want to think about either a mutual fund or an EFT that contains your stock to diversify.

Answer 6

old wives tale -- once true not true today.