One of the great myths of the stock market is that to invest in stocks you need to have a lot of money, but it is only a myth. Anyone can buy shares with little money, even I would be more direct and I would say that it is best to start with little money, to understand how the stock market works, and then to increase our operations.
There are many people who want to start investing, buying their first shares, but they think that their initial capital is insufficient, and that slows them down to make the final leap. This article is for those people. Having a huge investment is not a pre-requisite of becoming a trader. All you need is a good grasp of the fundamentals and some fortune and you can succeed as a stock trader.
How much money does it take to start investing in the stock market?
The definition “invest in the stock market” is not the one we like a lot. We prefer to talk about buying shares, since investing in the stock market sounds totally speculative, whereas when you are buying shares of any company, you are taking part in a business, and you can buy a single share.
The price of the shares depends on the company’s value… we are not implying if a security is expensive or cheap, or if it is the optimal time to buy shares, we are just going to touch on the subject of the price and the money necessary to start buying. There are securities with quotes that are available for as low as a dollar, and others that can reach hundreds of them, but we should not confuse the price of their listing, with a cheap value. The listing has nothing to do with whether a security is cheap or expensive.
What we really have to assess to know if a purchase is expensive or cheap, are the associated costs. We have two types of commissions:
* The broker’s commission. Broker commissions are the most important cost to buy stocks. There are brokers that apply minimum commissions, which vary between $5 and $10, others charge a percentage depending on the amount of the purchase. If our purchase is small, we must avoid the fixed commissions.
* Bag fees. Every time we buy shares, the market operator charges a commission, which usually includes accounting records.
Strategies for buying stocks with little money
Just as it is important to have very well controlled the expenses that buying shares will mean, we also have to have very well defined what our investment strategy will be.
There are many valid strategies to buy shares with little money, some are going to look to invest in shares that distribute dividends, others are going to look for shares with a low, others are looking to buy shares at annual lows, and one of the most followed by many investors, make periodic purchases. Any strategy would be valid, here what really counts is establishing a criterion, and complying it without regard.
If we decide to buy shares every first of the month, we must follow the strategy and buy the shares that meet our selection criteria, thus ensuring a high probability of success.
The greatest investor disasters arise when they are not able to establish criteria, both for the selection of shares and for deciding when to buy shares. When there is no action protocol, the result is most likely disastrous.
Let’s go to the money. We think that a minimum purchase of shares could be fine, using a cheap broker, over $500, and a strategy that seeks to diversify the risk, should have at least 5 values, which would give us an investment to start with $2,500.
We have established that having a small capital is not a limit to buy shares. There are low-cost brokers that limit our expenses a lot, and with a small amount of money we can start creating our investment portfolio.
