There seems to be a fairly common misconception that you need “a lot” of money to start investing in financial markets.
Perhaps it’s from people who have watched too many movies, and think that trading is either for really rich people or really shady people. But the reality is, it doesn’t take all that much money to start trading. You can start with as low as $1.
Now, of course, it’s important to make sure that you aren’t taking too much risk, and every seasoned trader will insist that you never invest what you can’t afford to lose.
Which is precisely why knowing you can (and maybe even ought to) start small can be helpful.
Starting with a smaller investment has a couple of distinct advantages: a smaller investment implies less risk, and it allows you to start gaining experience sooner. In the end, most successful traders will say the key is risk management and persistence over time.
No one responsible will ever suggest that planning to “get rich quick” by dumping a lot of money into the market at once is a good idea.
Where do I get started?
There is a dizzying array of options, and it seems that there isn’t all that much genuine help for people starting out their investment journey.
It might feel that there is a reluctance from people who have made it in the trading world to help out others, as if they don’t want the competition. Let’s try to break that barrier here.
Broadly speaking, your profitability in the financial markets is a percentage of how much money you put in, or invest. This is the “return on investment”, or ROI.
The more you invest, the more you could potentially make in return. So, if you are starting with small investments, you are likely to be exposed to less risk and make smaller returns.
It’s about resource allocation
Depending on the returns you make and how much time you invest in doing so, there is a subjective balance to find in terms of what’s the best ROI vs time invested.
But, there are a wide array of different investment options, each with different time requirements.
For example, a full-on-day trader, with (usually a few years of) experience, can make a pretty good ROI. But, they are tracking the markets all day, and it is their primary focus.
It’s not something you can reasonably expect to do with small capital as an initial investment.
Finding the right balance
On the other hand, there are many managed products that have a smaller ROI but require considerably less time.
For example, investing a small amount each month into an indexed ETF takes relatively little time. At most it takes a couple of hours a month and generally staying informed about the general trends in the markets.
It won’t make you a millionaire, but it can help you get experience in how platforms work, motivation to follow financial news, and establish a relationship with your broker. Over time, a small investment could grow and serve as a base for exploring more into financial markets.
Realistically, how much you “need” to start investing is more of a personal matter. How much can you afford to put at risk to lose? How much of a return do you need to stay motivated?
For some, that might be just a few hundred dollars. For others, it might be more. Whatever that amount, there is likely an investment option available.