How Much Money Do I Need to Start Investing?

We have all heard those horror stories where some poor soul invested every penny he had in the stock market only to lose his shirt (and everything else he owned!) along the way. Then there are those stories with the fairy tale endings where someone invested a few dollars and ended up a millionaire, riding off into the sunset on a Lear Jet. Whether you are willing to take a great deal of risk or would like to play it safe when investing for the first time, you are probably questioning, “How much money do I need to start investing?” Actually, many market analysts contend that you can actually get your feet wet with $100 or less if you follow a few well-laid ground rules.

Common Mistakes to Avoid
But first, it is important to understand some common mistakes that many investors make that end up being their downfall. One of the key ‘strategies’ which can land you in a heap of trouble is the Market Timing strategy that tries to predict market movement in order to determine whether to buy or hold. The second thing to avoid is panic by avoiding risky ventures. Because they tend to be volatile, they will peak one day and bottom out the next. Many investors panic on the downswing and sell when stocks are low, losing money in the process. Which leads to what is perhaps the biggest mistake of all and that is failure to diversify. With strategic diversification you can allocate your assets in order to maximize returns while minimizing volatility.

Starting with $100
Over the years we have been advised to ‘play it safe’ so to speak if we aren’t prepared to take a gamble. For this reason, mutual funds have always been recommended as relatively safe investment products accept there is always a dilemma on which of them to choose as there are literally thousands of them. Recent years have seen the rise of a new investment product called an ETF which actually trade like stocks and mimic several other types of assets, but can be bought for a fraction of the value of the underlying asset. They are traded on the Dow, S&P 500 and Russell 2000 to name a few exchanges. However, your approach would mean that you keep transaction costs minimal.

Finding the Right ETF Broker
Of course you could do an internet search for an ETF broker who charges small commissions while allowing a ‘no minimum account’ startup or balance. One site that comes highly recommended is ShareBuilder, that charges $4 trade and $9.95 to sell shares. Another company that appears to have a better deal yet is Zecco that takes a $4.50 commission across the board. Zecco also offers some neat incentives such as giving you 10 free trades per month after your account reaches $25,000. Sound too good to be true when starting out with as little as $100? According to Richard Jenkins, writing for MSN Money, it is completely doable “if you stick with it.”

While the concept of ETFs (exchange traded funds) may be new to you, this is an investment product that is absolutely perfect for the beginning investor who wants to start conservatively. The funds include a diversified range of investment products that are traded on the market. With just a little research you can grasp the concept of trading ETFs and will be amazed at just how quickly they move. You are actually wagering on market movement which is calculated throughout the day and once you learn the technique, you will be able to buy and sell at a rapid fire pace to maximize your profits. So, how much do I need to start investing in ETFs? Actually, $100 is enough to get you on the right track.

Comments are closed.