If you want to build wealth, one way to do it is through the power of investing. There are various ways to invest your money and no question one of the most popular options is to invest in stocks. If you’re a beginner getting started you might wonder “How much money do I need to invest?” The answer might surprise you. You might think you need a ton of money to invest in stocks but that’s not necessarily true.
Read on to learn more about investing in stocks, what stocks are, and how they work, as well as how much money you need to invest in stocks.
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What Are Stocks?
Before we get started talking about the minimum amount to invest in stocks let’s review what stocks are and how they work. According to Investor.gov, a site about investing from the U.S. Securities and Exchange Commission, “Stocks are a type of security that gives stockholders a share of ownership in a company.” Stocks also are called “equities.”
A ‘security’ refers to a type of investment vehicle such as a stock or bond. Through stocks, you can invest in a public company and purchase shares. In exchange, you become a part-owner of the company as a shareholder. Shares refer to the portions of the company you’re buying. So think of buying little slices of a pie when you buy a share and the stock is the type of pie. You can buy one slice of apple pie — similar to one share of Apple stock. Brokerages, particularly online brokerages have also recently begun to offer “fractional shares” so you can also buy a part of a share.
How To Choose The Right Stocks
Another important question aside from “How much money do I need to invest in stocks” is “How can I choose the right stocks?” There are many stocks out there and it can be overwhelming. You want to choose stocks with companies that you believe in and you understand.
If you are a firm believer in Apple products, you can consider Apple stock. If you’re a die-hard Starbucks lover, consider Starbucks stock. Aside from that, you also want to look at the trends. What does the growth trajectory look like for a company? What is the cost of a share? In order to invest based on your values, do you believe in the company’s mission, vision, and principles? As a ‘part-owner’ of the company investing your hard-earned money, it’s something important to consider.
How Much Money Do I Need To Invest In Stocks?
If you’re on board and ready to invest in stocks, the first thing on your mind is probably “how much money do I need to invest in stocks?”. It may not be as much as you think. You don’t need a ton of money laying around or be rich to invest, despite whatever preconceived notions you have about investing.
Of course, the more money you do invest, the more opportunity you have to build wealth and grow your money. But if you’re a beginner investor, you can typically start investing in stocks with $500 to $1,000. This is a good benchmark to get started.
The main thing to focus on is how expensive shares are for the companies you want to buy stock in. For example, if you want to buy Apple or Amazon stock, you might need more money to purchase shares than other lesser-known companies. If you can’t afford to buy a whole share of a company you can also consider using a brokerage that allows you to buy fractional shares (we’ll delve into that more below).
To do research on stock prices and what shares cost, you can check:
You’ll need to know the ticker symbol for the stock, which refers to a combo of letters that are used when investing in that company’s stock. For example, Apple’s ticker symbol is AAPL. You can use Marketwatch’s Stock Ticker Symbol search tool to help find the ticker codes easily.
What Is The Minimum Amount To Invest In Stocks?
In many cases, there aren’t hard minimums in order to invest in stocks. As noted above, you typically need enough to buy at least a single share of a specific stock. But currently, there are many options to invest with some companies offering consumers fractional shares, to make investing more affordable.
A fractional share allows you to purchase a fraction of a stock, which makes it easier to invest and get started with limited upfront capital. For example, you can get started with a minimum investment of $1 using Robinhood and get started with just $5 using the financial app Stash. But in order to make an impact and grow your money, investing at least $500 to $1,000 is your best bet.
According to Investopedia.com, “While there is no minimum order limit on the purchase of a publicly-traded company’s stock, it’s advisable to buy blocks of stock with a minimum value of $500 to $1,000. This is because no matter what online or offline service an investor uses to purchase stock, there are brokerage fees and commissions on the trade.”
As you can see though, the minimum amount to invest is $1 thanks to new technologies allowing consumers to invest in fractional shares. So if you can invest more, that’s great. If not, you can get started investing in stocks with very little money.
How To Invest In Stocks For Beginners With Little Money
If you’re thinking about “how much money do I need to invest?” and freaking out because you don’t have $500 to $1,000 to get started with investing, don’t fret. If you’re new to investing don’t let this hold you back.
First, you have to look at your numbers and see how much you can afford to invest. Do you have an emergency fund set? Are you paying down high-interest debt? Can you pay your day-to-day bills?
If all of that is covered, see what you can reasonably put toward investing, without hurting your budget. Even though you can grow your money through investing, there is still a level of risk. Stocks are also riskier than other types of securities. Of course, there is risk but also reward, which makes stocks attractive but it’s important to understand the risks and what you’re getting into.
If you have only a little money to start investing, do research on stocks and ETFs (essentially buckets of stocks) and which share prices you can afford. In theory, you just need enough money to buy at least a single share of a stock. However, as discussed above, many companies have cropped up in the past few years offering fractional shares of stocks which makes investing easier and more affordable than ever.
So instead of having enough money to buy one share, you can take what amount of money you do have and buy a portion of a stock. Let’s say a share costs $100 and you have $25 to invest. In this scenario, you’d own one-fourth of the share. Fractional shares can help you get started even if you have little money to put toward your investments. It also allows you to buy stock in the companies you are most interested in rather than be dictated by the share price.
Where You Can Start Investing In Stocks
To get started investing in stocks, you need to open an account at a brokerage firm that manages the funds and trading. There are many options to choose from.
If you have just a little amount of money to invest in stocks, you can open an account with Stash. Using Stash, you can start investing with as little as $5 and purchase fractional shares of stock.
You can also check out Robinhood, which offers commission-free trading in stocks and allows you to invest with as little as $1 in fractional shares. You can sign-up for an account and get your first stock free.
Other brokerages include Etrade, Fidelity, Charles Schwab, and more. Fidelity is a good option for beginners as it has no account minimums and no fees as well.
Before investing your money in stocks using a brokerage, research any fees, account minimums, commissions and other terms and conditions. Look at online user reviews as well. Also, see if they have customer service or support that is easily accessible should you have any questions. You want to use a brokerage that is affordable and easy to use and can help you along your investment journey if you have any questions or issues.
How Much Of My Income Should I Invest In Stocks?
When you invest, you want to manage your risk tolerance — or how much risk you’re willing to take on with potentially losing your money — within your investment portfolio. (You can take this risk tolerance quiz to get some more clarity on this). As such, you may only put a certain portion of your income toward stocks.
The first thing you want to figure out is how much you can put toward investing. As noted above, you want to have a solid emergency fund of at least three to six months’ worth of expenses or more and pay down high-interest debt, such as credit card debt, first before going full speed ahead with investing. Of course, you can still invest a small amount if you want to pay off debt and invest at the same time.
After looking at your income and expenses, as well as your savings goals and debt obligations, you can see how much money is left over to play with. From that pool of money, you can invest.
In general, it’s recommended to invest 15 percent of your income for retirement. But that doesn’t mean putting 15 percent of your income into only stocks. How much you put into stocks is based on your asset allocation.
What You Need To Know About Asset Allocation
Your asset allocation refers to the composite of your investing portfolio and how much is divided between stocks, bonds, real estate, cash, and other investments. This is based on your goals as well as risk tolerance. For example, when you’re younger you may invest more in stocks and can afford to be more aggressive with your investments.
As you get older, you may take more of a conservative approach and invest in fewer stocks and more index and bond funds. Your asset allocation will change over time based on life events such as marriage, divorce, job loss, buying a home, having kids, etc. At that point, you’ll need to ‘rebalance’ your portfolio so that your assets are divided up the way you want.
How Much Should I Invest In Stocks For My Age?
When it comes to how much money you should put in stocks based on your age, there’s actually a formula you can follow as a guideline that can help you out. According to CNN Money:
“The old rule of thumb used to be that you should subtract your age from 100 – and that’s the percentage of your portfolio that you should keep in stocks. For example, if you’re 30, you should keep 70% of your portfolio in stocks. If you’re 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age. That’s because if you need to make your money last longer, you’ll need the extra growth that stocks can provide.”
So let’s say you’re 35 — you take 110 and subtract 35, equaling 75. That means your asset allocation would have 75 percent in stocks. Of course, this is a general rule to follow and you should consider your overall goals and risk tolerance.
Risk tolerance doesn’t just have to do with age — it refers to how much volatility you can handle in the market and how soon you might need to turn your investments into cash.
Answering the question “How much money do I need to invest in stocks?” is personal and will vary based on your income, age, risk tolerance, and your overall financial situation. You don’t need much to invest in stocks to get started but how much you should invest in stocks is a different story. Using these guidelines above, you can get started investing in stocks. If you have questions or concerns, you can reach out to your brokerage or a financial professional who can set you on the right track.