Expert: Gina Boykin - 8/7/2008

Question
Although I am not actually purchasing stock at this time, I am sure that this is a fairly common question! I am in a Business class and my instructor has given us the assignment to purchase $10,000 in an American-based, publicly owned stock as of 1/3/2005 and to evaluate the value of the stock as of 8/1/2005. I have chosen my stock (ASTE) and now have to factor in broker costs. I have the option to chose full service or discount, however I am not entirely sure which would work best for me and how to determine what fees would be assessed. Can you help me?

Answer
It's actually not that hard at all if you chose a discount broker.  The only fees you should have are the commissions to buy the stock and again when you sell the stock.  Commission rates are displayed on all of the discount brokers' websites and usually range between $10-30 if you don't trade often.  Since your example is only dealing with one stock, you would not qualify for the real discounts.

So let's just say that your stock is $90 when you purchase it and you bought 100 shares.  The stock would cost you $9,000.  However, we need to add in the commissions, which are calculated for each STOCK, not each share of stock.  So if the commission rate is $20, your total cost is $9,020.

You do the same thing when you sell the stock.  If the stock rose to $100, then you made $10 per share, or $1,000.  Subtract your commissions ($20 again) and your profit is $980.

The other fees you may be thinking about are related to mutual funds.  When you have mutual funds, there are expenses that are calculated as a percent of your account balance.  You may also have 12b-1 fees (marketing fees), and short-term trading fees.  These do not exist with basic stock purchases.

Full service brokers do have other fees, because they are charging for providing advise and guidance.  Since this is just a class experiment and you've selected your stock, you would not need a full service broker.