Business

How Much Money Do You Need to Invest in Stocks?

December 8, 2023

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Last Updated on February 15, 2024 by Saira Farman

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Just how much money do you need to invest in stocks?

This is undoubtedly the #1 question among rookie stock market investors in the United States. But before we delve into the economics of investing in the U.S. stock market, it’s essential to note that you’re on the right path.

The stock market is a prime investment destination. According to a recent poll, no less than 56 percent of Americans have a stock market investment. People have made extreme wealth in this market, but they started somewhere.

So, how much money does the typical person need to have to make a stock market investment?

Making Your First Investment in Stocks

It’s understandable that many newbie investors assume that they need big money to buy stocks. After all, if you’re looking at the share price of some of America’s biggest publicly-traded companies, it’s easy to conclude that you need a boatload of money.

For example, Amazon’s share price is $3,000 (22nd Feb 2022). So, you need $3K to buy just one share of Amazon, right?

Well, the truth is you don’t need a lot of money to start investing in stocks. You can get started with as little as $500 (or less), depending on a number of factors.

With that out of the way, let’s discuss these factors that will determine how much capital you’ll need.

Your Investment Goals

You’ve certainly heard the phrase “spend money to make money.”

In the world of investing, there’s a correlation between the amount of money you invest and your return on investment. In layman’s terms, if you invest $100 in the stock market, don’t expect to become a millionaire any time soon. There’s realistically no way $100 worth of stocks is going to morph into a million dollars, even if you gave it a lifetime.

In fact, the average annual stock market return is 10 percent. So, if you bought $100 worth of stocks in January, by December you’ll have earned about 1o bucks!

Now, consider someone who invested $100,000 in the same stock. At the end of the year, they’ll have earned $10,000. This is substantial, right?

As such, consider your investment goals when you’re trying to determine your stock market investment capital. If you’re eyeing big returns within a short time, you need to go in with big money.

Your Risk Tolerance

The greater the risk, the greater the reward.

There’s something that’s often left out, though. Great risks need big money.

How much money are you willing (can you afford) to lose? Here’s the thing. People have lost lots of money in the stock market. If you buy a stock and the company goes under, your investment will be no more.

If you’ve got low-risk tolerance, you will need to start investing with smaller amounts of money. There are stocks that are suitable for investors like you. For instance, check out these small cap stocks to buy.

Large capital amounts give you the flexibility to tolerate market volatility. And if the market moves your way, you’ll earn big returns.