Jul. 14, 2021
How Much Money Do I Need To Start Investing
Investing can already be challenging to a person who isn't financially savvy as a seasoned investor. Challenges like learning curves, choosing investing strategies and determining which instruments to invest in all plays a part in your journey and outcome to acquiring a hefty portfolio.
Many novice investors not only struggle with the challenges above, they struggle with deciding how much money to start off with, most of all. Doesn't matter if it's Stocks, Cryptocurrency, Forex or Retirement, that daunting question still lingers. Here is where you'll find out how you can determine your initial investment amount.
First Thing's First
To get started, you'll need to determine what type of trader you would want to be. It's okay to think about these things before you spend any type of money. Now this doesn't mean what type of financial market you will play in. This means how risky or how safe you will be when you invest. You don't need to focus on money first to figure that out. Depending on your situation, you'll more than likely choose a safe or riskier route to achieve your financial goals. A person with a little more to play with will probably take more risks than a person who isn't willing to invest as much. Finding out what type you'll be gives you some type of organization and structure to your investing strategies. After determining how safe or how risky you'll be, you can also evaluate a few other things:
Investment Goals - The Australian Investors Association (AIA) recommends using SMART format to set investment goals. Here are the elements to S.M.A.R.T.
- Specific - make each goal CLEAR and specific
- Measurable - frame each goal so that you know when you have achieved it
- Achievable - you need to take practical action to achieve a goal
- Relevant - determine whether your goals relate to your life and are realistic
- Time Based - assign a time frame to each goal so you can track progress
Current Finances - This is the most important step. Your current finances can help set the reality of your goals. If you got paid $500 a week and wanted to save $1000, you now know that it takes 2 weeks to get your $1000, but you have bills so it may take more than two checks to get $1k, so you take a different approach by saving $250 a check for a month. Be real with yourself. Base your investing goals off your current finances.
Plan Of Action - This plan is to write down what you specifically need to do in order to get the amount of money you need to invest. With any investment sector, for a novice investor, it is best to start with $500-$1K . Then you need to look at your current finances (determine how to save up $500-$1K based off your pay rate, finances, and situation like explained in the step above). This step requires you to really write this stuff down and follow your plan of action. Again, this helps with structure and organizing your strategies.
The Magic Number
So how much do you really need to start investing? This question is still so broad and general, so with all the information we just gave you, additionally, we can add how much it'll take for each investment pool. Now you see why it is imperative to just go ahead and figure out your investment goals and your current financial situation. This information is geared for an average person that makes anywhere between $25k-$60k/year, so If you're rich and just don't know what to do with your money, then obviously you may have fun starting off with more than $500-$1K and it would probably benefit you to get a financial advisor or Robo-advisor. Now let's quickly dive into the numbers.
One common investment goal is retirement, for example. If you have a retirement account with your employer like a 401(k), and it offers matching dollars, your first investing milestone is easy:
Contribute at least enough to that account to earn the full match. That's free money, and you don't want to miss out on it. As a general rule of thumb, you want to aim to invest a total of 10% to 15% of your income each year for retirement - your employer match counts toward that goal. That might sound unrealistic now, but you can work your way up to it over time. (Calculate a more specific retirement goal with a retirement calculator.)
For other investing goals, consider your time horizon and the amount you need, then work backwards to break that amount down into monthly or weekly investments.
STOCKS - $500-$1K
FOREX - $100 - $500
RETIREMENT - 10% to 15% of your income, but if you're
behind on retirement, you may need to get a financial advisor to help you
get back on track. At a certain age, you should have a certain amount of money in your 401K to retire comfortably and if you don't, an advisor will tell you how aggressive you need to be with your investments.
CRYPTO - $100 - $1K
(Hope this helps! Stay tuned, as we are constantly updating our blogs with new tips and information obtain from research.)