How Much Money to Start Investing
How Much Money to Start Investing
Most people believe you need a lot of money before you can start investing. They think you need $1,000, $10,000, or more before you can begin investing in stocks, bonds, real estate, and other types of investments. How much money to start investing?
The truth is you can invest with any amount, even at $1.00, but you must consistently invest more money to see higher returns. However, you should focus on these as well.
Time
You should begin investing with any amount of money you have available after paying off debts, living expenses, and setting aside an emergency fund.
Your life and well-being come first before setting aside money for investing, but you must be spending your money frugally.
Today, most investments, you can buy a percentage of it based on the amount you’re willing to invest. Although some investments are strict when it comes to investing in the exact amount, there aren’t that many that do that.
You want to start setting money aside as soon as you can because time is critical in investing. The problem is if you wait too long before you start investing, then your investment returns will diminish a lot.
Example Between 10 Year and 20 Year Investing Timeline
Assuming You:
- Start investing with $5,000
- Contribute $100 per month to an investment fund
- Earn an average of 7% per year
Example 1: (10-Year Investment Timeline)
Following with the assumptions for 10 years you can make $26,415.49 with a total contribution of $17,000.
Doing this you make ($26,415.49 – $17,000) = $9,415.49 as your return, a 55% increase in return.
Example 2 (20-Year Investment Timeline)
Following with the assumptions for 20 years you can make $68,543.01 with a total contributions of $29,000.
Doing this you make ($68,543.01 – $29,000.00) = $39,543.01 as your return, a 136% increase in return.
The 20-year investment return of $39,543.01 is 4x times more than the 10-year investment return of $9,415.49 if everything remains consistent. It is why starting early, even by a few years, can dramatically increase your investment returns.
We don’t have an unlimited amount of time to be alive. When we reach the age of 50, health complications begin to occur more frequently, and the older we get, the more likely it will get worse.
By then, most people would be unable to work, and you will need another source of income for retirement. It’s why investing early and for the long-term will pay off when you retire either by choice or other reasons.
Investment Quality
It’s easy to invest online, but choosing what to invest is another thing. You want to look into investing what you feel is comfortable as an individual investor.
Do your research on the type of investments you want, how much you’re willing to invest, and how’s your risk tolerance or how comfortable are you with investment prices changing?
If you’re inexperienced with investing, then you should seek out a financial advisor, but look out for scammers. You don’t need a financial advisor if you take the time and effort to learn how to investing on your own.
However, depending on your financial circumstances, you may need to hire one. Note that hiring a financial advisor will charge you, and it will reduce your returns on top of expense ratios, inflation, and taxes. You can learn more if you should hire a financial advisor.
Don’t start by doing day-trading or penny stocks when you begin investing. These forms of trading are very high risk and very high reward returns.
Stock prices that are under a dollar look very appealing and seem like a deal, but ask yourself, why are they this cheap?
The prices move unpredictable and rapidly or volatile in finance terms, and it could take years before you make any returns from your initial purchase.
Before attempting to do these kinds of trading, you want to do research and study beforehand.
Day-trading and penny stock trading requires discipline, knowledge, and large capital to make large returns.
The practice in of itself is a full-time job where you must keep watch of the stock price movement for the right time to buy and sell.
If you choose to invest in less risky investments such as bonds, high-yield savings accounts, and certificates of deposits (CDs), then you’ll have lower returns.
The reason is the investment returns are predictable, and there’s a low chance of defaulting on payments to you.
Investment Goal
Generally, as an investor, you want to focus on the long-term rather than short-term investing. However, each person has their own goals on how much to invest and earn.
Some choose to invest aggressively with hopes of large returns, or invest in something that provides reoccurring income, or invest your money for 30 years for your retirement.
Understand that seeking high returns within a short period will put you in a very high risk of losing more than your original investment. You want to establish an investment goal as soon as possible.
By having an investment goal, you’ll stay on track with your investment returns on average and adjust what type of investments to keep and sell during market changes.
Without an investment goal, you’ll make mistakes and reduce your overall investment returns.
Few Investment Questions to Ask Yourself:
- Do I have enough for my living expenses and emergency fund
- What age do I want to retire at?
- What’s my risk tolerance?
- How much do I want to make within X years?
- What financial obligations do I have now and in the future?
There are a lot more questions that you need to ask yourself, but this will require more in-depth work and possibly seek a financial advisor to help set up an investment goal for you.
