How to Invest in Shares With Little Money
By Dale Gillham |
One of the most common questions I get asked is how to invest in shares with little money? While this is a really great question, because we all need to start somewhere, the more important question you need to be asking is how do I start investing in the share market?
Unfortunately, the fear of making costly mistakes and the risk of losing money is what forces many to steer clear of the stock market altogether. But did you know that gaining the right knowledge will help you to overcome your anxieties around risk and fear.
In fact, gaining the right knowledge about how to invest in shares safely and confidently means you will experience far less stress and fear, and consequently take fewer risks with your money. And the earlier you start gaining the knowledge, and investing in the stock market, the better off you will be, as your investments will compound over time.
Investing in shares with little money
Unfortunately, many of us face similar challenges given that the cost of living is rising, while wages remain stagnant, which means it is becoming increasingly difficult to save money. This can make getting into the stock market seem even more difficult, especially for those with very little money.
But you may be surprised to learn that investing in shares for absolute beginners is the perfect strategy for anyone with very little money to grow and compound their capital, so they can start achieving their financial goals.
Picture being able to make a 10 per cent return on your money each year - what would it mean to you and how would this change your life? Now imagine you achieved a 15 per cent return per annum, how would that make you feel?
Did you know that if you saved just $1 a month over 20 years and achieved a 15 per cent compounded return each year, your money would grow by well over 3,000 per cent? By understanding the power of compounding, it is possible to reach your financial goals much sooner, particularly when you invest in shares with the right knowledge.
Regardless of whether your goal is to supplement your income, save a deposit to buy a house, get out of debt, save money for retirement or to travel – investing in the stock market offers endless possibilities.
How can you start investing in shares with little or no money?
A simple, yet commonly overlooked strategy to getting started is to create a budget. Allocating a certain amount of money into a savings account each month will enable you to build up your capital over time. Imagine if you could save $100 a month rather than just $1. By saving a percentage of your income each month, you will be able to generate sufficient funds to start investing in the stock market.
When establishing a budget, it is recommended that you always pay yourself first, which means putting aside as little as 10 per cent of your income each fortnight or month to build up your savings. You may even find you can put aside more than 10 per cent. I often find that if someone is serious about achieving their financial goals, that in most cases, they can put aside up to 30 per cent of their income.
While you are building up your savings, you can invest time gaining the knowledge to be confident and competent to invest in the market once you have sufficient savings. My latest book, Accelerate Your Wealth, It’s Your Money, Your Choice provides you with a proven, low risk approach to investing directly in the share market using some simple but powerful investment strategies. I guarantee that if you read my book, you will gain the confidence and know-how to achieve very rewarding returns.
How much money do you need to start investing in shares?
Would it surprise you to know that you can begin investing with as little as $1,000? In fact, this should be the minimum investment you place in each stock because of the brokerage costs incurred each time you buy and sell shares.
For example, if it costs $20 to enter a trade of $1,000, the stock needs to rise by at least 4 per cent or $40 to break even on your investment because you will also pay brokerage to exit the trade.
What would be the outcome if you only invested $500? The stock would need to rise by at least 8 per cent to break even, which, as you can see, erodes the profits you take from the market. Therefore, I don’t recommend investing less than $1,000 in each trade.
Unfortunately, many believe because they do not have much money to invest that they need to trade speculative or highly leveraged markets, such as Forex, to gain a good return. But believe me when I say, this couldn’t be further from the truth.
This is because without the right knowledge and skill to trade these markets, it is highly likely you will lose your money very quickly, as many have experienced who have gone done that path. It is far less risky and more profitable to invest in highly liquid blue-chip shares when you first start out trading, which you can achieve by investing in individual stocks within the top 20 on the stock exchange.
Let me say that in the early stages of your trading journey, it is not how much you invest or the returns you achieve that is important. What is critical is that you develop the right habits of a successful trader, so that you can protect your capital and compound your returns. This includes knowing how to pick the best stocks to invest in, as well as understanding my four golden rules to investing in shares. You also need to develop a profitable trading plan and develop the skills to stick to your plan.
Growing your portfolio beyond your first investment of $1,000?
Once you make your first investment of $1,000, you then want to repeat the process, which means sticking to your savings plan until you have sufficient funds to invest another $1,000 in a blue-chip stock. For example, if you put aside $250 a month, then every four months you would save $1,000 to purchase another stock and you would continue repeating this process until you have at least five stocks in your portfolio.
Once you hold five positions, you have two choices. You can either start increasing the amount of shares you hold in each of the five positions or you can continue buying new stocks until you hold between 8 and 12. Increasing the position size in your existing stocks and/or holding no more than 12 stocks will enable you to manage both the market risk and specific risk, so you create a well diversified portfolio.
Getting started in the share market
So there you have it, how to start investing in shares with little money.
No matter what your starting capital or investing capabilities are, Wealth Within have an abundance of trading information, books and trading courses available to help even the most novice investor to navigate the stock market. You may also want to watch our live stock market show that is aired every Tuesday night from 7-8pm. It’s just a matter of gaining the understanding needed to work out a strategy that suits your budget. Remember, a journey starts with a single step, so decide today to get started on your journey
And as the saying goes, your first investment should always be “in yourself"; in other words gaining an education that will support you for a lifetime and remove the fear and risk associated with investing in the stock market. This is because a lack of knowledge about how to trade the share market is always far more expensive than getting an education in the first place.
The good news is that you don’t need to spend all your savings in order to get investment ready. The secret to becoming a successful investor is to just get started - even Warren Buffett started somewhere.
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