How much money should I be investing in stocks?

How much money should I be investing in stocks?

Certain brokerages will allow you to invest in stocks with as little as $1 by purchasing fractional shares. However, to meet financial goals, like retirement, aim to invest at least 20% of your income. You will have to adjust your investment contributions depending on your financial goals and investment timeline.

Imagine, knowing how much money you need to be investing to retire in 10, 20, or 30 years. You can invest confidently, knowing your finances are in order.

Most people start with small investments and work up to investing larger amounts of cash.

Luckily for you, I’m going to show you how much money you need to invest in stocks. I’ll show you how much money you need to buy a stock and how much you should have invested. With consistent investing and time, you’ll be on the right financial path.

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How much money do you need to invest in stocks?

Some brokerages allow you to purchase fractional shares of stocks with as little as $1. However, investment gains are better with larger portfolio values. Therefore, you should aim for a portfolio value of $100k to start seeing meaningful returns. You should also work on investing at least 20% of your income on a consistent basis to keep building wealth.

Brokerages like Robinhood allow you to purchase fractional shares starting at $1. Companies like Amazon are costly to own, with a current share price of $3,500. Instead you can own a portion of Amazon at $1 and own 1/3500th of a share.

However, you should consider investing more money if possible. Small portfolios lead to small returns, while large portfolios have big returns.

If you have a portfolio with this much money invested: A 10% return on your investment would make you:
$1,000 $100
$10,000 $1,000
$100,000 $10,000
$1,000,000 $100,000

As you can see, a 10% ROI on $10k would only give you $1,000 each year. Your passive income isn’t very much, but things start to turn around at $100k. You are basically saving your first $100k and then your investments start to do the heavy lifting.

You can build wealth faster by increasing your savings rate. Savings rate is how much money you save compared to how much you earn.

For example, you might earn $50k per year and have a portfolio balance of $100k. Saving 5% of your income ($2,500) gives you a $112,500 portfolio after one year (with a 10% return). Instead, save 20% of your income ($10,000) and you have a balance of $120k.

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How much money do you need to buy a stock?

At a minimum, you need $1 to buy a fraction of a share of a company with the right brokerage. Most brokerages will require you to have enough money to purchase one full share. Therefore, check the share price of the company to know how much money you need to invest.

How much money do you need to day trade stocks?

Day traders are required to hold $25,000 in their brokerage accounts per the Pattern Day Trader rule. The PDT rule affects traders who execute four day trades in a five day period. Day traders must add more money to their account if the balance falls below $25k to make additional trades.

How much money should I have in stocks?

How much money you need in investments depends on your estimated expenses in retirement, contributions, initial principal, and rate of return. A retirement calculator can help you estimate the value of your investments at retirement. Your portfolio mix and withdrawal rate will determine how long your investment principal will last.

Articles like this one on CNBC gives an approximation of investment savings by age:

Age 30 1x Salary invested
Age 40 3x Salary invested
Age 50 6x Salary invested
Age 60 8x Salary invested
Age 67 10x Salary invested

However, these numbers don’t take into account your personal estimated expenses in retirement. Are you going to travel the world (expensive) or sit on the couch (cheap)?

Instead, you need to figure out how much your expenses are going to be at retirement age. Keep in mind, inflation is going to make things more expensive years from now.

Let’s assume you’re 25 and want $40k per year in retirement. Most people assume the stock market will appreciate at least 7% per year. A 4% withdrawal rate leaves room for your investments to grow.

So to retire on $40k per year, you would need $1,000,000 invested ($40k / 0.04). Now your investments might increase by $70k, but you’re withdrawing $40k.

But let’s assume you followed CNBC’s guidelines with a salary of $40k. You have $400k invested and want $40k per year in retirement. You would have to withdraw a large portion of your portfolio and it might not last!

Once you have an investment goal, use a retirement calculator to estimate how much you need to contribute. Then develop a plan to keep contributing and stick with it!

How many shares should a beginner buy?

New investors should buy between 10 and 15 different companies for a diversified portfolio. A single company shouldn’t make up more than 7-10% of your overall portfolio diversification. Creating your own portfolio can be risky, so beginners should seek professional help.

Diversification is key for any stock portfolio. You don’t want all of your money invested in one company in the event it goes bankrupt.

Rather than choose your own stocks, consider buying exchange traded funds or ETFs. ETFs have multiple stocks offered for one low price. Therefore, diversification is made simple because you have to buy one fund.

One of the best funds a new investor should buy is a low-cost S&P 500 index fund like VOO. VOO gives you access to the top 500 companies in the United States for a fraction of the cost.

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Summary: How much money do you need to start investing?

As you can see, you only need $1 to start investing money in the stock market. However, your investment gains are minimal with a small portfolio balance. Therefore, you should aim at building a $100k investment portfolio as soon as possible.

Most investors should choose between 10 and 15 different companies to hold in their portfolio. Each company shouldn’t make up more than 7-10% of their overall portfolio. However, choosing individual stocks can be risky and exchange traded funds can reduce risk.

Don’t assume how much money you’ll need in retirement. Instead, estimate your expenses and assume a 3-4% withdrawal rate. Simply save 25-30x your estimated expenses for retirement. Use a retirement calculator to help you understand your monthly contributions.