How to Invest in Stocks With Little Money
By Dale Gillham | Published 19 November 2018
Over the years, one of the most common questions I get asked is: How do I invest in stocks with little money? While this is a really great question, because we all need to start somewhere, the more important question you need to be asking is how do I start investing in the stock market?
Unfortunately, for many, the fear of making costly mistakes and the risk of losing money is what forces many to steer clear of the stock market altogether. But did you know that knowledge helps to overcome the anxieties around risk and fear.
Gaining the right knowledge about how to invest in stocks safely and confidently means you will experience far less stress and fear, and consequently take fewer risks with your money. And the earlier you start gaining the knowledge and, investing in the market, the better off you will be, as your investments will compound over time.
Investing in stocks
Unfortunately, many of us are faced with similar challenges given that the cost of living is rising, while wages remain stagnant, which means it is becoming increasingly difficult to save money. This can make getting into the stock market seem even more difficult, especially for those with very little money.
But you may be surprised to learn that investing in stocks is the perfect strategy for anyone with very little money to grow and compound their capital so they can start achieving their financial goals.
Picture being able to make a 10 percent return on your money each year - what would it mean to you and how would this change your life? Now imagine you achieved a 15 percent return, how would that make you feel?
Did you know that if you saved just $1 a month over 20 years and achieved a 15 percent compounded return each year, your money would grow by well over 3,000 percent? By understanding the power of compounding, it is possible to reach your financial goals much sooner, particularly when you invest in shares with the right knowledge.
Whether your goal is to supplement your income, save a deposit to buy a house, get out of debt, save money for retirement or to travel – investing in the stock market offers endless possibilities.
How can you start investing with little or no money?
A simple, yet commonly overlooked strategy to getting started is to create a budget. Allocating a certain amount of money into a savings account each month will enable you to build up your capital over time. Imagine if you could save $100 a month rather than just $1. By saving a percentage of you income each month, you will be able to generate sufficient funds to start investing in the stock market.
When establishing a budget, it is recommended that you always pay yourself first, which means putting aside as little as 10 percent of your income, each fortnight or month to build up your savings. You may even find you can put aside more than 10 percent. I often find that if someone is serious about achieving their financial goals, that in most cases, they can put aside up to 30 percent of their income.
While you are building up your savings, you can invest time gaining the knowledge to be confident and competent to invest in the stock market once you have sufficient savings. My latest book, Accelerate Your Wealth, It’s Your Money, Your Choice provides you with a proven, low risk approach to investing directly in the stocks market using some simple but powerful investment strategies. I guarantee that if you read my book, you will gain the confidence and know-how to achieve very rewarding returns.
How much money do you need to start investing in stocks?
Would it surprise you to know that you can begin investing with as little as $1,000? This should be the minimum investment you place in each stock because of the brokerage costs incurred each time you buy and sell shares.
For example, if it costs $20 to enter a trade of $1,000, the stock needs to rise by at least 4 percent or $40 to break even on your investment because you will also pay brokerage to exit the trade. So what would be the outcome if you only invested $500? The stock would need to rise by at least 8 percent to break even, which, as you can see, erodes the profits you take from the market. Therefore, I don’t recommend investing less than $1,000 in each trade.
Unfortunately, those who do not have much money to invest believe they need to trade speculative or highly leveraged markets to gain a good return. But believe me when I say, this couldn’t be further from the truth. This is because without the right knowledge and skill to trade these markets, it is highly likely you will lose your money very quickly, as many have experienced who have gone done that path. It is far less risky and more profitable to invest in highly liquid blue-chip shares when you first start out trading the stock market, which you can achieve by investing in individual stocks within the top 20 on the stock exchange.
Let me say that in the early stages of your trading journey, it is not how much you invest or the returns you achieve that is important, what is critical is that you develop the right habits of successful traders, so that you can protect your capital and compound your returns. This includes picking the best stocks to invest in, as well as understanding the rules to investing in shares. You also need to develop a profitable trading plan and develop the skills to stick to your plan.
Growing your portfolio beyond your first investment of $1,000?
Once you make your first investment of $1,000, you then want to repeat the process, which means sticking to your savings plan until you have sufficient funds to invest another $1,000 in a blue-chip stock. For example, if you put aside $250 a month, then every four months you would save $1,000 to purchase another stock and you would continue repeating this process until you have at least five stocks in your portfolio.
Once you hold five positions, you have two choices. You can either start increasing the amount of shares you hold in each of the five positions or you can continue buying new stocks until you hold between 8 and 12. Increasing the position size in your existing stocks and/or holding no more than 12 stocks will enable you to manage both the market risk and specific risk so you have a well diversified portfolio.
Getting started in the stock market
So there you have it, how to start investing in shares with little money.
No matter what your starting capital or investing capabilities, Wealth Within have an abundance of information and trading courses available to help even the most novice investor navigate the stock market. It’s just a matter of gaining the understanding needed to work out a strategy that suits your budget. Remember, a journey starts with a single step, so decide today to get started on your journey
And as the saying goes, your first investment should always be in "yourself", or in other words gaining an education that will support you for a lifetime and remove the fear and risk associated with investing in the stock market. This is because a lack of knowledge about how to trade the share market is often more expensive than getting an education in the first place.
Regardless, you don’t need to spend all your savings in order to get investment ready. The secret to becoming a successful investor is to get started - even Warren Buffett started somewhere.
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