While investing, your investment strategy should depend partly on how much time you have and how much money you want to put to work. People often end up investing majority of their savings into stock markets, especially if they a handsome profit on their first trade itself.
There’s one more situation where people end up committing more money in stock markets- to recoup all the losses. Both these situations are dangerous.
To determine how much money you should invest, you must first determine how much you actually can afford to invest, and what your financial goals are.
So, how much should you invest? What minimum amount should I invest? There are certain thumb rules, or rather advices before making an investment into the stock market. First of all- never try the ‘daily money making process’ as many investors try ‘playing in stock markets’ to make a daily income- and lost all their money.
Secondly, there is a limit to which you should expose your money in stock markets.
Before you start investing, you need to decide how much time you’ll have to dedicate to researching your investments. We can dedicate a formula that will help you determine the approximate amount of money to be invested.
It is: 90 – (minus) your age = % of income to be exposed in stock market.
So, if you’re 35 years old, you can expose a minimum of 50% of your income into stocks. Investments in stock market ideally should be stopped at the age of 65-70 years maximum. If you have the money, health and will to invest at 70 or even at 90 it is entirely your personal choice.
This formula is straightforward and makes logical sense. The main risk you have to overcome when you are young is not losing your fortune, but not growing your fortune fast enough.
Another reference that can be driven from the above discussion is that when you grow older, more of your assets should be invested into conservative, income – producing investments such as bonds. That’s because when you’re 50 years old you have a lot less time in the job market to rebuild your retirement fortune than when you’re, say, 25 years old.
Investing in stock market offers a much higher rate of return as compared to other form of investments. Along with higher rate of return, it also has higher associated risks compared to other instruments. You need to be careful while investing, as careless investing can wipe out your entire financial account.
Your goal as a new investor should not be to merely pile up treasure endlessly at the expense of the products, services, and experiences you want for your life. Instead, it should be to find out what it is you want, how much monthly cash you need to afford it, and then you can work on calculating the total investments that would be required to service your lifestyle.
Stock market needs no specific minimum amount to enter, so it’s possible to start your investments, no doubt, with very small amounts of money.
So anyone can start their investments in stock markets by buying at least one share, of course there are different shares in markets ranging from below one rupee to more than 10,000.
But this is not the case with all the stock brokerages; as some brokers may fix their own minimum amount. You may wonder that how much you should invest so as to get profited. According to analysts, arbitrarily it’s better to start your stock market investment career with a start amount of Rs. 5000 minimum.
At the same time, it is important to keep 3-6 months of living expenses in a readily accessible savings account – don’t invest money! Don’t invest any money that you may need to lay your hands on in a hurry in the future.
Hence, begin by determining how much of your savings should remain in your savings account, and how much can be used for investments.
After you have determined the amount of money that can be kept aside as savings and the amount of money you can use to invest in stocks, you should set your next criteria to set your goals for a profitable investment instrument.
- Direct Stock Purchase Plans: If investing in individual companies is your goal, you might want to consider direct purchase plans (DPPs). These stocks are directly purchased from the company. There’s no brokerage account, no middleman, and you work directly with the company that issues the stock. Companies are not allowed to advertise their own DPPs, so it’s up to you to find them.
- Brokers allowing Small Investment: Another way to start investing with a small amount of money is to sign up with something like Sharebuilder through ING Direct. This is one of a kind of automatic investment plan that will help you start building your portfolio for as little an amount as $4.
- Using ETFs: You may consider buying shares of an Exchange Traded Funds (ETFs). Unlike a mutual fund that may impose a minimum initial investment, ETFs trades like stocks. They have a specific share price and can be purchased through virtually any broker. So, with an ETF you can buy just a couple of shares as long as you have enough money to buy the shares.
It is customary in the market, but also in everyday life, to follow the famous maxim “Do not put all your eggs in one basket”. As a new investor you will hardly find an advisor who will recommend you to invest in a single share. It is often advisable to invest in 7-8 shares. This will allow diversifying your investment and minimizing investment risk. Thus, a majority of investment specialists do favour a minimum start – up investment of say Rs. 15000 in stocks. You can of course, start with less or with more. In all cases you should keep in mind that the money you invest in stocks shouldn’t be the money you may need quickly.