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If you want to build your wealth, the stock market is the place to do it. We know jumping into the stock market can be intimidating. Don’t let high rollers like Warren Buffet make you believe that investing into stock market is only for the rich, the stock market is for everyone.
Beginners can enter into the stock market with ease. It doesn’t have to take thousands of dollars and years of experience to start building wealth like millionaires do. In fact, you can start investing even if you’re on a budget.
When you first dip your toes into the investing world, it can be difficult to know how much of your cash should go into your portfolio. So, let’s talk numbers. Continue reading if you want to know how much it takes to start investing.
Your Risk Tolerance
When you hear the word “risk” associated with your finances, it might make you want to run for the door. The simple truth is that investing your cash does come with risk, but that risk can be calculated and appropriately factored into your investments. The first step to investing is understanding how your risk tolerance plays into the choices you should make for your portfolio.
According to Investopedia, Your risk tolerance is the degree of risk you are willing to endure given the volatility of your investment. The reward for higher risk a higher reward, and lower risk investments are more stable, but offer lower returns.
If you’re new to investing or on a tight budget, your risk tolerance is likely low. So, you’ll want to stick to low risk investments to grow your wealth. Lucky for you, there are tons of investments that are relatively steady and stable like bonds, fixed annuities, and preferred stocks.
The Minimum Amount to Invest
Once you’ve found your risk tolerance, analyze your budget to allocate funds for investing. Spoiler alert: there is no cut and dry rule for investing minimums. Investing is personal and should therefore be personalized to fit your needs.
While there is no one size fits all in the investing world, $500 to $1,000 is a good place to start for new investors. But note that you can start below or above these amounts depending on your current finances.
If you’re committed to the long road of building your wealth through investments, it could be beneficial to allocate money from your monthly budget to investing. This amount can be as low as $50 to $100 every month, and this amount can change and grow with you. A commonly accepted percentage to allocate into stocks is 15 percent of your gross income.
Choosing Stocks
Once you’ve appropriately budgeted investing into your budget, it’s time to research the stock market. You can research stock prices and trends through Nasdaq.
Fractional Shares
Here’s the deal: stocks are expensive. Buying one share can cost you thousands of dollars, but that doesn’t mean that you can’t invest. To get around the steep prices for one share, just create an account with a brokerage firm that allows fractional shares.
You don’t have to buy a whole share in order to invest, you can buy slices of shares that can cost as little at $5.
Popular brokerage firms that support fractional shares include Charles Schwab, Fidelity Investments, and Vanguard.
Researching your own investments is definitely possible for newcomers, but it’s not exactly beginner friendly. If you’re an investing newbie or don’t have a lot of time to do investing research, automated investing may be a good fit for you.
Automated Investment
Automated investing uses advanced algorithms to curate portfolio guidance and management that fits your specific goals and needs. This option is best for people who don’t have a lot of time to research the market or for those who are new to the investing sphere.
Popular automated investing options include Robinhood, M1 Finance, and Charles Schwab.
The Golden Rule
There are no rules when it comes down to how much you should invest, but there is one investing rule that can’t be ignored.
You can’t invest what you don’t have.
Don’t let the pressure to invest keep you from meeting your needs. Your necessities should always come before your wealth building. It’s always better for you to skip and investment than to skip a meal or a payment on your essential bills.
Things to Remember
Investing is for everyone because there is no absolute minimum. No matter what your budget is, you can build your wealth through the stock market starting today. Here are some things to remember as you carry out your wealth building journey.
- Find your risk tolerance, and stick to it
- Use automated investing to save time
- There is no minimum, but $500 is a great place to start
- Factor your investing into your budget
- Only invest what you can afford