How much money do I need to start investing? — less than you think

Start with what you have.

How much money you need to start investing depends on various factors, including how much you know about investing and what your investing goals are. But to avoid being vague and get my point across, I’ll be a little more specific and share my reasoning behind it.

Our philosophy here at PocketToro is that people should start investing as soon as possible, even if they only have $100 to spare. Sure, you likely won’t do much with that amount of money in the stock market. You certainly won’t get rich considering that the stock market returns less than 10% on average annually. In this case, you can expect around $10 in profits in your first year. Deduct taxes and trading fees, and you end up with not a whole lot.

When you’re starting out, it’s not really about money — it’s about learning.

So, what’s the point? When you’re starting out, it’s not really about money. It’s about learning how to buy, sell, and trade. It’s about learning how to spot opportunities, how the market reacts to news and changes in interest rates.

It’s a lot easier to learn this if you’re invested in the market with your own money as opposed to just watching everything from the sideline. It’s also a lot better than trading on demo/paper accounts, as those won’t invoke any emotions in you since you’re not investing with your own money. Emotions are an important part of the investing game and it’s essential you learn how to manage them.

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Investing your own money into the stock market — even if it’s just $100 — will also motivate you to learn more about how the beautiful world of finance works, which will increase your chances of making a profit in the end. While reading books, taking courses, and following the financial markets are all necessary to be successful, getting hands-on experience by putting your own money on the line makes the whole learning process that much faster and more interesting.

It’s also smarter to learn to invest with a small amount of money just because you’ll likely make a few mistakes at the beginning. Trust me, you don’t want to learn how to invest on your own with $100,000 — stress overload. But once you have more money available for investment purposes, you’ll already know a lot about how the stock market works and will be able to invest with more confidence.

So, is $100 enough?

Well, $100 is just an example. If that’s all you can afford right now, then yes, $100 is enough. Just make sure you opt for a cheap broker so you won’t lose most of those hundred bucks to trading fees.

But if you can afford to invest a bit more, then go for it. It’s best if you invest an amount of money that will make you slightly uncomfortable. If you’re investing or trading with $100 and those $100 don’t mean all that much to you, you likely won’t take the time to really think about where to invest them. That’s because if you lose them, you won’t feel anything.

You have to learn how to manage your emotions.

Emotions are a big factor in the world of investing, so to learn how to manage them and see how they may affect your investing decisions, trade with a little bit more money if you can afford it. That doesn’t mean you should play with money you desperately need for day-to-day expenses, but you should put up enough to make you think twice about where to invest it. 

For some, that may be $1,000, for others $10,000. It really depends on your level of income and the amount of savings you have. However, never go as far as to invest money you can’t afford to lose or money you may need in a short period of time. The markets are unpredictable.

How much to invest to make real money?

Let’s go back to the example of the 10% annual return. In this case, you’ll make a profit of $100 on a $1,000 investment, a $1,000 on a $10,000 investment, and $10,000 on a $100,000 per year.

Of course, the market can offer higher returns or it can even go down overall, as we’ve seen this year. The reason why I’m listing these numbers based on average returns is for you to see that the stock market is not a quick-rich scheme. Unless you have A LOT of money, you won’t get rich in the stock market overnight.

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The best and least risky way to make money in stocks is to invest monthly for a long, long time, which is a strategy used by big names like Warren Buffett. As they say, time in the market beats timing the market.

Sure, there are ways to make a lot of money within a few years with a relatively small account of, let’s say $10,000, but the odds are against you. But if you think you have what it takes to beat the market in the short term, try trading for a few months to see how it pans out.

Mitja Rutnik

Mitja has more than a decade of experience working as a journalist and has written for various publications in North America and Europe. In addition to all things finance, he loves sports and is a self-proclaimed pizza expert.

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