Many people are amused by investing and want to become the next Warren Buffett. These people often do not know how much money they need to start investing in the stock market.
The importance of investing
The experienced investment manager, Shaye Hirsch, shares his view on the importance of investing.
The short answer is $5. The better answer is $500, but only after you have built up your emergency savings.
“We really encourage people to have six months of savings first,” says Shaye Hirsch, the founder, and CEO of Brio Capital Management. Once you have saved a few thousand, then you can go into investing.
Understanding your financial goals
When you invest, you can make your money grow faster than it would in a typical savings account (especially since the interest rates of the savings accounts are too low, a little bit more than 0%). However, you need to keep in mind that investing is risky. You can lose your money, especially if you make short time investments.
How to invest: There are a lot of trading mobile apps nowadays. Investing is made easy today. You can invest from your smartphone anytime and anywhere. You just need to have enough money to buy the stock you want or a portion of that stock. To give an example, you can buy Coca-Cola stock for $45.11. If you want to invest only $5, you can buy a portion of that stock. This is similar to sharing an apartment with roommates.
Types of investments
Hirsch says that many begin by investing just a few hundred dollars, in order to start and learn. Over time, they add more to their portfolio. (Read the related article: Developing an investment portfolio at a young age).
“The way people invest has changed dramatically,” says Shaye Hirsch. “When we look back at the history of investing, it was never so easy to made purchase a stock.”
According to Hirsch, there is one thing you need to beware of, and that is to always check the fees. When you buy and sell a stock, you are charged a brokerage fee. You don’t want to get charged a $7.99 in fee when you can buy the stock for less than that, or even for free.
Clients always ask Hirsch to give them a piece of advice on what to buy. Figuring out what to buy is a tough decision. There are about 2,400 stocks traded on the New York Stock Exchange alone.
The easiest option is to buy an ETF (an exchange-traded fund) like SPY (SPY). It trades like a stock, but it means you own stocks from the 500 America’s largest companies. This lowers the risk because if a few companies experience losses, others probably will experience gains and will compensate for those losses. All 500 probably are not going to tank at the same time.
Investment options for small budgets
In Hirsch’s opinion, another common option is to buy the ETF of some economic sectors such as QQQ (QQQ) for tech stocks or EEM (EEM) for emerging markets.
According to Shaye Hirsch, buying individual stocks involves more risk. If the stock falls, you can lose a lot of money. But, also, you can gain a lot of money if the stock goes up. The most popular stocks by far are Apple (AAPL), Facebook (FB), GE (GE), Disney (DIS), and Coca-Cola (KO).
“The most important thing you need to keep in mind is that about half of the Americans have money in the stock market, but only 14% own individual stocks” – says Hirsch.