Investing in the Stock Market: How much do you Need to Start?

“I don’t have enough money to invest in the stock market.”

It’s a common complaint, but also a major fallacy. Although some would have you believe it to be true, you don’t have to be rich to play the stock market. It’s possible to start out with a very small stake, and build it over time–giving you far greater rewards than you would realize from simply putting that same amount of money in the bank.

The amount you need to start out depends first on the broker you use. Some brokers require you to put $5,000, $10,000 or more into an account to start. Full-service brokers typically require a larger initial account, but there are some online brokers that will let you start an account with as little as $500. The online discount brokers do offer excellent services, free information and convenient utilities such as on-line stock tickers, and represent an excellent value for those who are able to do their own research and make their own investment decisions.

Full-service brokers will also often charge much higher transaction fees. When calculating the amount you want to start with, take into consideration how much your transaction fees will be. If you are only buying stock once or twice a year, it doesn’t make much difference, but if you are trading on a regular basis, those fees can easily total thousands of dollars very quickly. If you start out with $500, but are paying $25 for each buy and sell transaction, there’s virtually no possibility of getting ahead. Some online brokers charge transaction fees of as little as $7. If you are starting out small, use one of these low-fee brokers if at all possible.

But the real question is, can you start out with $500 and make it worthwhile? Absolutely, but it will take work and experience. Another common misconception is that you must buy stock in “blocks” of 100 shares; this is simply not true. You can buy as many or as few stocks, even in odd numbers, as you wish.

There’s no doubt that it will take longer to build that $500 up to several thousand, but it can certainly be done with wise decisions and good research. With an initial stake of $500, using a low-cost online broker, you can purchase three or four small-cap stocks with good potential.

If your long-term goal is to actively trade stocks (which is not recommended for most) and you are able to strategically purchase stocks at the right time, you can see your initial profits in just a few days or weeks, sell them and take your profit, and purchase others. While most active traders start out with much larger accounts, you can certainly get started with a small amount, gain experience and show some potential small profits almost immediately. However, with this type of active trading, only risk what you can afford to lose.

 

Information is for educational and informational purposes only and is not be interpreted as financial advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.






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